2014 (10) TMI 284 - AT - Service Tax

Valuation of services - Inclusion of various services - electricity charges - running of the office or providing cold storage facilities or for issuing various documents in relation to C&F agency functions - Held that - Service recipient had entered into a separate agreement with the transporter for transporting of goods from Pune to various destinations and in terms of the agreement it was the service recipient s obligation to discharge the freight expenses. The appellant only paid these expenses and got them reimbursed from M/s. Abbot India Ltd. Thus, they were acting as a pure agent as the transportation was undertaken not as part of C&F agency functions but independently of the said function and, therefore, the question of including the expenditure incurred on freight in the consideration received is clearly unsustainable in law. As regards the reimbursement towards statutory levies such as octroi, we have seen the invoices and it is clear from these invoices that the statutory levies are on the service recipient, and the appellant has paid these charges and got it reimbursed from the service recipient. Here also, the appellant has acted as a pure agent and, therefore, these costs are also not includable for the purpose of levy of service tax. As regards DFC unloading charges, the said charges are for transportation of the goods from the premises of the loan-licensee of Abbot India Ltd to the appellant s warehouse and it has no relation with the C&F agency agreement between the appellant and M/s. Abbot India Ltd. Therefore, the question of adding these charges as part of the consideration received will not sustain. Charges have been incurred by the appellant as part of the C&F agency function which they have undertaken and are towards running of the office or providing cold storage facilities or for issuing various documents in relation to C&F agency functions. It is also noticed that the electricity charges are reimbursed only for a quantity of 3000 units per month and in respect of such electricity charges over and above 3000 units the appellant have to bear the cost. Therefore, it cannot be said that the electricity charges are not part of cost for providing the service. Therefore, in respect of these three charges, the consideration received by the appellant have to be added to the taxable value of the service and the service tax levied accordingly. The appellant also would be liable to pay interest on the service tax liability attributable to these charges - However, penalty is set aside - matter remanded back - Decided partly in favour of assessee.

Summary

Issues involved:
Service tax demand on reimbursements for various expenses incurred by the appellant on behalf of the service recipient.

Analysis:
1. The appeal challenged an order confirming a service tax demand against the appellant, M/s. Pharmalinks Agency (I) Pvt. Ltd., for reimbursements made on behalf of M/s. Abbot India Ltd. The appellant acted as a C&F agent and warehousing service provider for M/s. Abbot India Ltd., incurring expenses like freight charges, octroi, sales tax, etc., which were later reimbursed. The issue was whether these reimbursements were liable to service tax under the C&F Agency Services category.

2. The appellant argued that most of the demand pertained to reimbursements for freight charges paid on behalf of M/s. Abbot India Ltd. They contended that these payments were made as a pure agent for transportation charges, not as part of consideration for C&F agency services. Similar arguments were made for other expenses like octroi, sales tax, and licensing fees, stating they were statutory payments made on behalf of the service recipient.

3. The Tribunal analyzed the nature of expenses incurred by the appellant. It was held that expenses like freight charges, statutory levies, and DFC unloading charges were not includable in the taxable value as they were incurred as a pure agent or were unrelated to the C&F agency agreement. However, charges like courier, fax, telephone, electricity, and stationery expenses directly related to the C&F agency function were deemed includable in the taxable value, subject to service tax and interest.

4. The Tribunal referred to previous decisions to support its findings. It emphasized that expenses incurred as a pure agent or unrelated to the service agreement should not be included in the taxable value. The Tribunal differentiated between expenses directly related to the service provided and those incurred as a pure agent, providing a clear framework for determining service tax liability on reimbursements.

5. Ultimately, the appeal was partly allowed, remitting the matter back to the adjudicating authority for quantification of service tax liability on specific charges. The Tribunal clarified that reimbursement for expenses incurred as a pure agent would not be liable to service tax, while expenses directly related to the service provided would be subject to taxation, along with interest.

Conclusion:
The judgment clarified the treatment of reimbursements for various expenses incurred by an appellant acting as a C&F agent and warehousing service provider. It established a distinction between expenses incurred as a pure agent and those directly related to the service agreement, providing a framework for determining service tax liability on such reimbursements.