Reimbursable freight charges by clearing agents excluded from service tax value before May 2015 amendments

The CESTAT Chennai held that reimbursable freight charges received by a clearing and forwarding agent from a client cannot be included in taxable value for service tax purposes prior to May 14, 2015. The tribunal relied on SC precedent in Intercontinental Consultants case, which established that only post-2015 amendments to Section 67 of Finance Act, 1994 brought reimbursable expenses within taxable value. The extended limitation period was deemed inapplicable as the issue was interpretational in nature without evidence of suppression by the appellant. The demand was set aside and appeal allowed.

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Issues involved: Whether reimbursed expenses received by the appellant from M/s.ACCL are liable to be included in the taxable value for payment of service tax.

Summary:

Issue 1: Reimbursed expenses in taxable value

The appellant, engaged in Clearing and Forwarding Agency Service and Transportation of Goods by Road Services, was noted to have entered into agreements with M/s.ACCL for reimbursement of freight charges incurred in transportation of goods. The Department alleged that the Goods Transportation Agreement was a camouflage for evading service tax on freight charges. The appellant argued that the reimbursable expenses were not to be included in the taxable value, citing legal precedents. The Tribunal found that the demand on reimbursable expenses could not be sustained, as per the Delhi High Court decision upheld by the Supreme Court.

Issue 2: Interpretation of agreements

The appellant contended that the agreements with M/s.ACCL were for C&F Agency Service and transportation of goods, with reimbursement of expenses like freight charges. The Department argued that the freight charges reimbursed by M/s.ACCL should be included in the taxable value. The Tribunal noted that the demand was only for reimbursable expenses related to C&F activity, not for freight charges under the Goods Transport Agency Agreement. Citing legal precedents, the Tribunal held that the demand on reimbursable expenses was not justified.

Issue 3: Limitation on demand

The appellant raised the issue of limitation, stating that the demand was based on accounted figures and there was no suppression of facts. The Tribunal agreed that the issue of including reimbursable expenses in the taxable value was interpretational and that the invocation of the extended period for demand could not sustain. Therefore, the Tribunal set aside the impugned order and allowed the appeal with consequential relief.

(Order dictated and pronounced in the open court)

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