Reimbursed Ocean Freight excluded from taxable service value where transactions are principal-to-principal, so freight not taxable pre-amendment.

Reimbursed ocean freight charged separately by a service provider did not form part of the taxable value of its services for 01-04-2013 to 31-03-2015 because reimbursable expenditures were excluded from valuation under the pre-amendment statutory scheme; the decision applies the Intercontinental Consultants principle that inclusion became effective only prospectively from the 2015 amendment. The factual finding that the appellant bought and sold container space on a principal-to-principal basis, with invoices and risk resting with the appellant, and the absence of departmental evidence of agency, resulted in exclusion of ocean freight and the setting aside of related demands, interest and penalties.

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Issues: (i) Whether the ocean freight amounts collected by the service provider (appellant) from its customers are includible in the taxable value of the appellant's services for levy of service tax for the period 01-04-2013 to 31-03-2015.

Analysis: The issue requires examination of whether reimbursed expenditures such as ocean freight form part of the gross amount charged for the taxable service during the relevant period. The statutory and rule framework considered includes Section 66 and Section 67 of the Finance Act, 1994 and Rule 5 of the Service Tax (Determination of Value) Rules, 2006, together with the amendment to Section 67 effected by Finance Act, 2015. Judicial precedent of the Supreme Court in Union of India v Intercontinental Consultants and Technocrats Pvt Ltd is applied to the period prior to the May 14, 2015 amendment to Section 67, holding that reimbursable expenses are not includible in valuation under Section 67 until the amendment made such inclusion prospective. The factual matrix establishes that the appellant procured and sold container space on a principal-to-principal basis as a multimodal transport operator, with invoices and accounting treating the transactions as sales/purchases of space and with risk of loss/profit on the appellant. The show cause notices conceded that ocean freight was collected as ocean freight and that customers reimbursed those amounts, and the Department did not produce evidence to justify reclassification of the appellant's transactions or to show agency rather than principal-to-principal dealings. Reliance on provisions that ceased to apply (Section 65) and on Rule 5(2) is inconsistent with the law laid down by the Apex Court for the pre-amendment period. Coordinate bench decisions addressing similar multimodal transporter facts treating purchase and sale of space as principal-to-principal transactions and excluding such freight from taxable value are followed.

Conclusion: The ocean freight amounts collected by the appellant are not includible in the taxable value of the appellant's services for the period 01-04-2013 to 31-03-2015; the departmental demand and consequential interest and penalties are unsustainable and set aside. Appeals allowed with consequential reliefs in law, if any.

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