2020 (1) TMI 1232 - AT - Service Tax

Levy of Service Tax - Clearing and Forwarding Agency service - reimbursement amount received from the principal - Rule 5 of the Service Tax (Determination of the Value) Rules 2006 - HELD THAT - The consideration of services rendered by the appellant is contained in Clause 26 in the said agreement. The service charges/remuneration was received by the appellant for inward and outward handling in accordance with the rates specified in the said agreement. Except the amount agreed upon towards service charges from time to time the appellant was not entitled to any remuneration reimbursement or any other monetary benefit for any service provided under the said agreement - It is an undisputed fact on record that over and above the amount agreed upon towards service charges the appellant did not obtain any monitory benefit for providing any taxable service and that the amount of reimbursement towards the expenses received by the appellant towards different charges was not in connection with provision of the service under the taxable category of C F Agent service. Thus such reimbursable amount should not be included in the gross value for the payment of service tax. It is also an admitted fact on record that the principal M/s. HUL has arranged for the transportation of goods and also paid the charges thereon to the transporter. As a corporate entity the said principal has paid service tax under reverse charge mechanism in terms of Rule 2 (1) (d) of the Service Tax Rules 1994 - In this context the CBEC has clarified that if service tax due on transportation of a consignment has been paid or is payable by a person liable to pay service tax (recipient of service) then service tax should not be charged for the same amount from any other person to avoid double taxation. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Service tax liability on reimbursement amount received from principal for certain expenditure incurred on freight, rent, handling, halting charges, etc. under Rule 5 of Service Tax (Determination of Value) Rules, 2006.

Analysis:

Issue 1: Service Tax Liability on Reimbursement Amount
The appellant, engaged in providing taxable services as a Clearing and Forwarding Agency, entered into an agreement with a principal for warehousing goods. The department alleged non-payment of service tax on reimbursement amounts received for expenses incurred beyond agreed service charges. The impugned order confirmed a substantial service tax demand, invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994.

Analysis: The appellant argued that reimbursement amounts received for facilitating goods movement should not be included in taxable value for service tax payment. They cited precedents and CBEC letters to support their position. The AR for Revenue supported the findings of the impugned order.

Issue 2: Interpretation of Valuation Provisions
The Adjudicating Authority held that transportation of goods for the principal was integral to the C&F service, thus reimbursement amounts were includible in the taxable service value as per Rule 5(1) of the Service Tax Rules. However, the appellant contended that only the gross amount charged for providing the taxable service should be considered for service tax, excluding reimbursement amounts.

Analysis: The Tribunal analyzed the agreement terms, emphasizing that the appellant received remuneration solely as per the service charges specified, with no additional benefits for services provided. The Tribunal referred to the constitutional validity challenge of Rule 5(1) in a Delhi High Court case, which declared the rule ultra vires Section 67 of the Act, supporting the appellant's argument.

Issue 3: Double Taxation Concerns
The Tribunal noted that the principal had paid service tax under reverse charge mechanism for transportation charges, aligning with CBEC's stance to avoid double taxation. Consequently, the reimbursement amounts from the principal to the appellant, as per contractual norms, should not be part of the gross value for determining service tax liability.

Analysis: Considering the arguments, precedents, and statutory provisions, the Tribunal found no merit in the impugned order confirming the service tax demands. Consequently, the Tribunal allowed the appeal in favor of the appellant, setting aside the impugned order.

This detailed analysis of the judgment highlights the key issues, arguments presented, legal interpretations, and the final decision rendered by the Tribunal, providing a comprehensive understanding of the case.