2026 (4) TMI 154 - AT - Service Tax

Reimbursable expenses in clearing and forwarding services were excluded from service tax value before the 14.05.2015 amendment.

For clearing and forwarding services, reimbursable expenses paid by the principal were not includable in the taxable value for the pre-14.05.2015 period. ... Taxability of reimbursable expenses - Clearing and Forwarding Agency Service (CFAS) - Ultra vires valuation rule - Whether reimbursable expenses incurred as pure agent on behalf of the principal are liable to be includable in the taxable value in terms of Rule 5(1) of Service Tax (Determination of Value) Rules 2006 read with Section 67 or otherwise. Reimbursable expenses - HELD THAT: - The Tribunal found that the amounts in dispute were admittedly reimbursements of expenses incurred by the appellant on behalf of its principal and that the entire demand had been raised by invoking Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 read with Section 67. Since the levy was founded on Rule 5 and that rule had already been declared ultra vires and the view stood upheld by the Supreme Court in Union of India Vs M/s Intercontinental Consultants and Technocrats Pvt Ltd.[2018 (3) TMI 357 - SUPREME COURT], the show cause notice based on that rule could not survive. On that basis, service tax was held not leviable on such reimbursable charges prior to the amendment to Section 67 effective from 14.05.2015. [Paras 9, 10, 11] The demands founded on inclusion of reimbursable expenses in the taxable value were held unsustainable and the impugned orders were set aside. Final Conclusion: The Tribunal allowed the appeals and held that service tax could not be demanded on reimbursed expenses received by the clearing and forwarding agent for the period prior to 14.05.2015. The impugned orders sustaining the demand and penalties were set aside. Issues: Whether reimbursable expenses received by a clearing and forwarding agent from the principal were includable in the taxable value of service tax under Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 read with Section 67 of the Finance Act, 1994 for the period prior to 14.05.2015.Analysis: The dispute concerned amounts reimbursed by the principal towards expenses incurred by the service provider in the course of providing clearing and forwarding services. The demand was founded on Rule 5(1), which sought to include expenditure or cost incurred by the service provider in the taxable value. The rule had already been declared ultra vires and the legal position had been settled that reimbursable expenses, in the absence of a valid charging basis, could not be subjected to service tax for the period before the statutory amendment effective from 14.05.2015. On the admitted facts, the amounts were reimbursement of actual expenses and not independent consideration for the service.Conclusion: Reimbursable expenses were not liable to be included in the taxable value for the relevant pre-amendment period, and the demand based on Rule 5(1) could not survive.