Prior to introduction of Service Tax (Determination of Value) Rules, 2006, the issue related to amount collected on account of re-imbursement of expenses was not being covered by any specific provision. But in certain circulars / instructions this issue has been clarified as:

Circulars / Instructions

         Para 5 of F.No.B.11/1/2001-TRU, Dated 9th July, 2001 states that:

         5. A point has been raised that the service provider, namely, an actuary, an intermediary or insurance intermediary or an insurance agent is reimbursed certain out of pocket expenses such as travelling expenses, boarding and lodging charges on actual basis. These expenses are reimbursed in addition to the prescribed fee. Whether such reimbursements will be included in the taxable value? In this regard it is clarified that the amount billed to the client on account of out of pocket expenses which are reimbursable on actual basis, such as travelling, boarding and lodging expenses, the same are not subject to service tax. In this respect, the assessee may be required to provide documentary evidence substantiating his claim.

         Para No. 4 of MF (DR) F. No. 341/11/98-TRU dated 23-8-1999 states that:

         4. It may be noted that the value of taxable service rendered by clearing and forwarding agent continue to remain as the gross amount of remuneration or commission (by whatever name called) paid to such agent by the principal or the client engaging such agent as provided under sub-rule (8) to Rule 6 of the Service Tax Rules, 1994.

C&F Agency:

Here, the focus is on clearing and forwarding services. It is inherent nature of C&F Agency service that number of expenditures is being incurred by the service provider and re-imbursement is being claimed in the bills. The nature and list of these expenses may very from case to case basis and dependent on the nature of contract. Since there was no specific provision, honorable tribunal was consistent on holding that re-imbursement of expenses in case of clearing and forwarding agents are not forming part of gross value and not subject to service tax. Some case laws are listed below:

Cases Laws on Re-imbursement of Expenses:

(i) Sangamitra Services Agency v. CCE, Chennai - 2007 -TMI - 2029 - CESTAT, CHENNAI

The SCN itself fairly acknowledged the fact that the appellants had been paying Service tax regularly as required under Rule 6 on the remuneration/service charges they had been receiving from their principals periodically. If this averment h the SCN is read with the above provision of law, the matter ends there. Nevertheless, the SCN proceeded to frame a case of undervaluation against the party by alleging that charges towards freight, labour, electricity, telephone etc. collected by the appellants from their principals to meet the actual expenses incurred in connection with clearing and forwarding of excisable goods were also to be added to the taxable value of the service. This case of the Revenue was clearly beyond the scope of Rule 6(8) ibid as held by the Tribunal in the case of Sri Sastha Agencies Pvt. Ltd. (supra) and a plethora of other cases considered therein. As rightly pointed out by ld. counsel, in the case of Mett Macdonald (supra), what was considered by the Tribunal was Consulting Engineer's service, for which there was no specific rule defining taxable value/gross amount. Apparently, in that case, the Bench went by Section 67 and held that certain expenses incurred by the assessee and reimbursed to them by their principal were also to be added to the taxable value. In the present case, it is not in dispute that various charges which were alleged by the Revenue to be includible in the taxable value of C&F service were reimbursed by the principals on the basis of actuals. The amount received by the appellants from the principals as remuneration/commission for the service of clearing and forwarding the goods has been rightly adopted as tax able value and tax paid accordingly. This satisfies the legal requirement.

(ii) Nandini Warehousing Corporation v. CCE, Belgaum - 2007 -TMI - 2313 - CESTAT, BANGALORE

Heard the learned DR who defended the order. However this Bench is aware that a similar matter has been allowed by the Chennai Bench and it was clearly held in the light of the Trade Notice and the Board's Circular referred to above that these elements are not to be added in the value of the taxable service. The impugned order is not correct in law. The same is set aside by allowing the appeal.

(iii) Sri Sastha Agencies Pvt. Ltd. & Ors. - 2009 -TMI - 32331 - CESTAT, BANGALORE

On a careful consideration, we notice that the issue is covered in assessees' favour by the above cited judgments. The elements required for adding to the service tax is restricted to the amounts received by them for carrying on the services of C & F only. The other elements like loading, unloading charges are not required to be added to the Service Tax as held by the cited judgments. The issue is covered in assessees' favour. Hence, the stay applications and appeals are allowed in terms of the above judgments with consequential relief, if any.

(iv) BHAGYANAGAR SERVICES versus CCE, HYDERABAD - 2006 -TMI - 675 - Appellate Tribunal, Bangalore

t is clearly laid down in the said citation that there is an existence of separate contract entered into service as C & F agents and also to collect separate transportation charges and such charges cannot be added in the service tax paid by C & F agents. Therefore, applying ratio of the said judgment, the service tax demand is set aside.

(v)  E.V. MATHAI & CO. versus COMMISSIONER OF CENTRAL EXCISE, COCHIN - 2005 -TMI - 104 - CESTAT, BANGLORE

The Service Tax will be computed on the gross amount of remuneration or commission paid to the C&F agent by the principal engaging such an agent. Further this commission/remuneration can be on the basis of a minimum on a flat rate or turnover basis depending on the consignments handled. It can also be variable based on performance. The appellant is found to be receiving for the C&F service provided by him to M/s. Tata Tea and Consolidated Coffee. As such Service Tax is to be levied only on this remuneration and not on transportation which is a separate activity governed by a separate agreement.

Provision after introduction of Valuation Rules, 2006

After, introduction of Service Tax (Determination of Value) Rules, 2006, the issue become more complex. As per rule 5 (Inclusion in or exclusion from value of certain expenditure or costs), the benefit of re-imbursement of expenses i.e. exclusion of expenses can be claimed by the pure-agent only.

In case, an expenditure incurred by the C&F Agent in a capacity other than pure agent, no deduction shall be allowed.

Explanation 1 of rule 5, defines the pure agent as:

    For the purposes of sub- rule (2), "pure agent" means a person who-

      (a) enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service;

      (b) neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service;

      (c) does not use such goods or services so procured; and

      (d) receives only the actual amount incurred to procure such goods or services.

Nature of expenses claimed by C&F Agents as re-imbursement expenses:

Out of various expenses claimed by the C&F agent, two expenses are being considered to understand the situation:

        Customs duties paid at the time of import by the agent on behalf of principal is nothing but an expense in the capacity of pure-agent.

        Transportation Charges (GTA Service) paid by the agent may or may not be in the capacity of pure-agent. Where the actual amount paid to the GTA is claimed in the bill, supported by an evidence, would constitute is re-imbursement of expenses. But where the profit element is involved and no evidence is added, it is difficult to say that the amount has been incurred in the capacity of pure agent.

Another issue arises with respect to (re-imbursement of GTA services), at present, barring few exceptions, neither the C&F agent, not the principal is paying service tax on GTA service. Since, C&F Agency is claiming as re-imbursement of expenses he is not discharging any service tax on GTA service. On the other hand, principal is not discharging service tax on GTA service on the premise that he has not incurred such expense. As per an interpretation of provisions of service tax, if the amount paid to GTA is held as an re-imbursement of expenses in the hands of C&F agent, the principle must discharge the burden of service tax on GTA services, on the contrary, it is the liability of the C&F agency to discharge the service tax on GTA services if not held as re-imbursement of expenses.

Latest Decision

Most probably, keeping in mind the above proposition and latest provisions of service tax valuation rules, commissioner (appeal) has not granted any relief on account of re-imbursement of expenses in the matter of PRESTIGE ENTERPRISES (Supra). Honorable CESTAT has also refrained itself to follow the above decisions blindly and therefore, remanded the matter for verification of evidences of the appellant and decide the matter afresh.