Tribunal rules on taxability of reimbursable expenses under CFA service, setting new guidelines

The Tribunal ruled in favor of the appellant regarding the taxability of reimbursable expenses under "Clearing and Forwarding Agent Service" (CFA), holding that such expenses reimbursed on an actual basis are not part of the service charge for CFA services and thus not liable for service tax. The Tribunal set aside the impugned order and remanded the matter for fresh consideration, instructing the adjudicating authority to re-quantify any demand based on the Tribunal's observations. The issues related to Business Auxiliary Service (BAS) and franchisee service were also directed for re-evaluation due to inconsistencies in submissions and findings.

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Issues Involved:
1. Taxability of reimbursable expenses under "Clearing and Forwarding Agent Service" (CFA).
2. Demand of service tax on Business Auxiliary Service (BAS) and franchisee service.

Issue-wise Detailed Analysis:

1. Taxability of Reimbursable Expenses under CFA:

The appellant is engaged in providing "clearing and forwarding agent service" (CFA) and pays service tax on the remuneration received for such services. However, they did not discharge service tax on various reimbursed expenses such as bank charges, freight, salary, travelling, godown rent, loading/unloading charges, and other operational expenses. The department contended that these reimbursed expenses should form part of the gross value of CFA services and be liable for service tax.

The appellant argued that these expenses were incurred on behalf of the principal client and reimbursed on an actual basis, thus not forming part of the CFA service charge. They relied on several judicial precedents, including the Supreme Court's decisions in Malabar Management Service Pvt. Ltd. and Bhayana Builders (P) Limited, which held that reimbursement of expenses should not be included in the valuation of taxable services.

The Tribunal examined the sample agreement between the appellant and the service recipient, noting a clear distinction between the remuneration for CFA services and reimbursable expenses. The Tribunal concluded that reimbursable expenses incurred on behalf of the client, and reimbursed on an actual basis, are not part of the service charge for CFA services and thus not liable for service tax. This interpretation aligns with the Supreme Court's rulings in cases like Intercontinental Consultants and Technocrats Private Limited, where it was established that only the actual charges towards the service provider are taxable, not the reimbursable expenses.

2. Demand of Service Tax on Business Auxiliary Service and Franchisee Service:

The appellant also faced a demand for service tax on Business Auxiliary Service (BAS) and franchisee service under Section 65(105)(zze) of the Finance Act, 1994. The appellant contended that the service tax liability for franchisee service lies with the franchisor, not the franchisee (the appellant). However, the Tribunal found no specific mention of franchisee service in the impugned order.

The impugned order primarily addressed reimbursable expenses and BAS, specifically incentives received from Tata Chemicals and courier service. Given the contradiction between the appellant's submissions and the findings in the impugned order, the Tribunal deemed it necessary to reconsider these issues.

Conclusion:

The Tribunal set aside the impugned order and remanded the matter to the adjudicating authority for fresh consideration. The adjudicating authority is instructed to verify the details of reimbursable charges and re-quantify the demand, if any, based on the Tribunal's observations. The issues related to BAS and franchisee service also require re-evaluation due to inconsistencies in the submissions and findings.

Order Pronouncement:

The order was pronounced in the open court on 02.08.2019, and the appeals were allowed by way of remand to the adjudicating authority.

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