2024 (11) TMI 8 - AT - Service Tax

Service tax demand on customs house agent's reimbursed charges set aside under pure agent principle

CESTAT Ahmedabad held that service tax demand on reimbursed charges collected by customs house agent from clients was unsustainable. The appellant ... Demanding service tax on the reimbursed charges collected from their clients - department has noticed that the appellant have discharged the service tax liability on the CHA agency charges collected by the appellant from their clients however, on the value of the second type of the invoices where they have collected reimbursement from their clients, no service tax has been paid - HELD THAT:- We find that the demand of the service tax has been made on charges which have been recovered by the appellant from their clients on reimbursement basis which was slightly more than what has actually been paid by the appellant for availing these services from various service providers for their importer / exporter clients. The demand has been made under Business Auxiliary Service. We find that the appellant has recovered the payment which have been made by him to the service provider on behalf of the recipient of the service and same has been indicated in the invoices issued by the service provider to the recipient of the service the addition of small amount of the commission on and above the actual expenditure incurred for availing various kind of the services. The small variation in the billed amount cannot change the nature of the service which have been rendered in the entire transaction. The fact of the matter remains that the service provider has provided various kind of the services to the appellant’s importer / exporter clients and for this effect, necessary invoices have been issued on which service tax has been charged by the service provider. These facts clearly indicate that appellant is not service provider of these services and the small amount of the Commissioner which have been added to the taxable value does not change the nature of the service which have been rendered by the service provider to the service recipient and the appellant have recovered the charges as on pure agent basis from their importer / exporter clients. See Tiger Logistics India Ltd [2023 (7) TMI 546 - CESTAT NEW DELHI] We follow the same and hold that the impugned order-in-appeal is legally not sustainable and we set aside the same. Issues:1. Whether service tax liability on reimbursed charges collected by the appellant from their clients is valid.2. Whether the appellant is liable to pay service tax on the mark-up amount for services provided to clients.3. Whether the appellant's transactions of buying and selling space on ships are liable for service tax.Analysis:1. The appellant, engaged in Business Auxiliary Service, was found to have raised two sets of invoices - one for agency charges and the other for reimbursement of expenses. The department demanded service tax on the reimbursed charges. The Tribunal found that the appellant was not the service provider for these reimbursed charges, as the service providers had already paid service tax on the services provided. The small commission added by the appellant did not change the nature of the service, and the appellant acted as a pure agent. The Tribunal relied on previous decisions and set aside the demand for service tax on the reimbursed charges.2. The Tribunal considered the mark-up amount charged by the appellant for services provided to clients. It was argued that this mark-up did not pertain to taxable value, and various judgments were cited in support. The Tribunal found that the appellant was not providing a service but acting as a trader dealing on a principal-to-principal basis. The Tribunal referred to Circulars and past decisions, concluding that the mark-up amount was not liable for service tax. The demand for service tax, interest, and penalties was set aside.3. The Tribunal examined the appellant's transactions of buying and selling space on ships. It was contended that the mark-up amount was for services provided by the appellant and was liable for service tax. However, the Tribunal held that the appellant was only trading in space and not providing a service. Citing past decisions and Circulars, the Tribunal concluded that the mark-up amount was not taxable. The impugned order-in-appeal was deemed legally unsustainable, and the appeals were allowed.In conclusion, the Tribunal ruled in favor of the appellant on all issues, setting aside the demand for service tax on reimbursed charges and mark-up amounts. The Tribunal emphasized that the appellant acted as a pure agent and was not providing taxable services in these transactions.