Service Tax Not Applicable on Custom House Agent Reimbursements: CESTAT Relies on CA Certificate [Read Order]

In a recent decision, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Chennai ruled that service tax cannot be levied on reimbursable expenses collected by Custom House Agents (CHAs), reaffirming that such recoveries do not constitute consideration for taxable services, and relied on a Chartered Accountant’s certificate.

The appellant, Thulsidas Khimji Pvt. Ltd, a licensed CHA registered under the Service Tax Commissionerate, was subjected to audit scrutiny for the period April 2006 to March 2009. The audit revealed that, apart from CHA service charges, the firm had collected various heads such as IAAI charges, delivery order fees, EDI charges, warehousing, steamer agent, container freight station, and terminal handling charges.

The Department alleged that these were taxable under Rule 5(1) of the Service Tax Valuation Rules, 2006, and issued a show‑cause notice dated 28 September 2009, invoking the extended period of limitation.

The adjudicating authority accepted the appellant’s claim that these were reimbursable expenses incurred as a “pure agent” and dropped the demand based on a Chartered Accountant’s certificate. The Department appealed, arguing that the certificate’s contents were not verified, leading the Commissioner (Appeals) to remand the matter for re‑examination.

Appearing before the Tribunal, Vaishnavi Mahesh contended that the remand was unwarranted since Rule 5(1) had already been struck down by the Delhi High Court in Intercontinental Consultants and Technocrats Pvt. Ltd. and affirmed by the Supreme Court in (2018) . She argued that reimbursements are not “consideration” for services rendered and therefore fall outside the taxable value under Sections 66 and 67 of the Finance Act, 1994.

The Bench comprising Ajayan T.V. (Judicial Member ) and Vasa Seshagiri Rao  (Technical Member) agreed, observing that the issue was no longer res integra.

Citing the Supreme Court’s detailed reasoning that rules cannot override the statute, the Tribunal held that Rule 5 had gone beyond the scope of Section 67 and was ultra vires. It also noted that the Finance Act, 2015, amendment introducing reimbursable expenses into the valuation provision was prospective, confirming that such costs were not taxable before 14 May 2015.

The Tribunal also accepted the appellant’s plea that the dispute was interpretational, making the invocation of the extended limitation period unsustainable.

Accordingly, the tribunal set aside the impugned order and allowed the appeal with consequential reliefs

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