2025 (4) TMI 450 - AT - Service Tax

CESTAT rules reimbursable expenses for Custom House Agency Service excluded from service tax assessable value calculation

CESTAT Chennai held that reimbursable expenses collected by appellant for Custom House Agency Service should not be included in assessable value for ... Calculation of service tax - inclusion of charges collected by the appellant, apart from the service charges for Custom House Agency Service, in the assessale value - pure agent services or not - Section 67 of the Finance Act, 1994, read with Rule 5(1) of the Service Tax Valuation Rules, 2006 - HELD THAT:- The issue is no more res-integra in view of the decision of the Honourable Supreme Court in the case of UOI v Intercontinental Consultants and Technocrats Pvt Ltd, [2018 (3) TMI 357 - SUPREME COURT] which has considered the issue of liability to pay service tax on reimbursable expenses received by the service provider in the course of rendering services for the client, apart from the consideration received for rendering the services on which the client has discharged the liability to pay service tax. The Honourable Supreme Court affirmed the decision of the Delhi High Court in Intercontinental Consultants & Technocrats Pvt Ltd v UOI, [2012 (12) TMI 150 - DELHI HIGH COURT], wherein Rule 5(1) of the Service Tax Valuation Rules, 2006 which provided for inclusion of expenditures or costs incurred by the service provider in the course of providing taxable services, in the value of such taxable services, was stuck down as ultra vires Section 66 and Section 67 of the Act and as travelling beyond the scope of the said sections. Conclusion - The charges collected by the appellant, which are reimbursable expenses, should not be included in the taxable value for service tax purposes. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:1. Whether the charges collected by the appellant, apart from the service charges for Custom House Agency Service, should be included in the gross taxable value for the purpose of service tax under Section 67 of the Finance Act, 1994, read with Rule 5(1) of the Service Tax Valuation Rules, 2006.2. Whether the appellant qualifies as a 'pure agent' under Rule 5(2) of the Service Tax Valuation Rules, thus excluding the charges from the taxable value.3. The applicability of the Supreme Court's decision in UOI v Intercontinental Consultants and Technocrats Pvt Ltd on the inclusion of reimbursable expenses in the taxable value of services.ISSUE-WISE DETAILED ANALYSIS1. Inclusion of Charges in Gross Taxable ValueRelevant legal framework and precedents: The relevant legal provisions include Section 67 of the Finance Act, 1994, which deals with the valuation of taxable services, and Rule 5(1) of the Service Tax Valuation Rules, 2006. The Supreme Court's decision in UOI v Intercontinental Consultants and Technocrats Pvt Ltd is pivotal, where Rule 5(1) was struck down as ultra vires Sections 66 and 67 of the Act.Court's interpretation and reasoning: The Tribunal noted that the appellate authority relied on Rule 5(1) to include the charges collected by the appellant in the taxable value. However, the Tribunal highlighted that the Supreme Court had already invalidated Rule 5(1) for exceeding the statutory mandate of Section 67, which specifies that only the consideration for services provided should be taxed.Key evidence and findings: The appellant argued that the charges were reimbursable expenses, not consideration for services rendered. The Tribunal found that these charges were indeed reimbursable and should not be included in the taxable value.Application of law to facts: The Tribunal applied the Supreme Court's interpretation that Section 67 does not permit the inclusion of reimbursable expenses in the taxable value. The charges collected by the appellant were determined to be reimbursable and not part of the service consideration.Treatment of competing arguments: The Tribunal considered the Department's argument that the charges should be included in the taxable value but found it unsupported in light of the Supreme Court's ruling.Conclusions: The Tribunal concluded that the charges collected by the appellant should not be included in the gross taxable value for service tax purposes.2. Qualification as a 'Pure Agent'Relevant legal framework and precedents: Rule 5(2) of the Service Tax Valuation Rules outlines the conditions under which a service provider can be considered a 'pure agent' and exclude certain expenses from the taxable value.Court's interpretation and reasoning: The appellate authority had concluded that the appellant did not meet the criteria to be considered a 'pure agent.' The Tribunal, however, did not need to delve deeply into this issue due to the overarching conclusion regarding Rule 5(1).Key evidence and findings: The Tribunal did not specifically address the 'pure agent' status, as the primary issue was resolved through the Supreme Court's decision on Rule 5(1).Application of law to facts: The Tribunal focused on the invalidation of Rule 5(1) and did not further analyze the 'pure agent' status.Treatment of competing arguments: The Tribunal did not find it necessary to address arguments regarding the 'pure agent' status due to the resolution of the primary issue.Conclusions: The Tribunal's decision rendered the 'pure agent' analysis moot in this context.SIGNIFICANT HOLDINGSThe Tribunal held that the charges collected by the appellant, which were reimbursable expenses, should not be included in the taxable value for service tax purposes. This determination is based on the Supreme Court's ruling in UOI v Intercontinental Consultants and Technocrats Pvt Ltd, which invalidated Rule 5(1) of the Service Tax Valuation Rules, 2006, as it was beyond the scope of Section 67 of the Finance Act, 1994.Preserve verbatim quotes of crucial legal reasoning:The Tribunal emphasized the Supreme Court's interpretation: 'the service tax is to be paid only on the services actually provided by the service provider' and that 'the valuation of tax service cannot be anything more or less than the consideration paid as quid pro quo for rendering such a service.'Core principles established: The principle that reimbursable expenses do not form part of the taxable value unless explicitly included by statutory provisions was reinforced. The Tribunal underscored the limitation of subordinate legislation in extending the scope of taxable value beyond statutory provisions.Final determinations on each issue: The Tribunal set aside the appellate authority's order, allowing the appeal with consequential relief in law.