2017 (1) TMI 1365 - AT - Service Tax

Valuation - Clearing and Forwarding services - reimbursement on account of actual expenses incurred on behalf of the principle, whether liable to tax or not? - Held that - remuneration or commission received by the agent for providing C&F Service should alone be considered as gross amount for computation of the service tax liability and that since the service tax statute does not provide for inclusion of reimbursable exposes therein, the same should be outside the scope and purview of Levy of Service tax - demand set aside - appeal dismissed - decided against Revenue.

Summary

Issues:
Interpretation of service tax liability on reimbursable expenses incurred by a Clearing and Forwarding agent.

Analysis:
The case involved an appeal by the Revenue against an order passed by the Commissioner (A) regarding the service tax liability on reimbursable expenses received by a Clearing and Forwarding (C&F) agent. The respondent provided C&F services to M/s. L&T Ltd. and Ultratech Cement Ltd., receiving commission and reimbursement for expenses like rent, loading/unloading, postage, and sundry expenses. The Department included the reimbursement in the gross amount for service tax calculation, leading to a demand of ?5,30,206 along with penalties. The Commissioner (A) set aside the adjudication order, ruling in favor of the respondent, stating that only remuneration or commission should be considered for service tax computation, excluding reimbursable expenses. The Commissioner relied on Rule 6(8) of the Service Tax Rules 1994, emphasizing that tax should be computed only on commission or remuneration received by the C&F agent. The Commissioner also highlighted Rule 5(1) which specifies that only expenses used and incurred by the service provider for taxable output services should be included in the taxable value, not expenses incurred on behalf of the customer as an agent. The Commissioner concluded that the respondent fulfilled the conditions of a pure agent, and therefore, reimbursement of expenses should not be part of the assessable value of services provided, as per Rule 5(2) of the Service Tax (Determination of Value) Rules 2006. The Tribunal upheld the Commissioner's order, finding no fault in it and dismissed the Revenue's appeal.

This judgment clarifies the scope of service tax liability concerning reimbursable expenses incurred by C&F agents. It emphasizes that only remuneration or commission should be considered for service tax computation, excluding expenses reimbursed to the agent for services provided on behalf of the principal. The ruling highlights the importance of specific provisions in the Service Tax Rules, such as Rule 6(8) and Rule 5(1), to determine the taxable value of services provided by C&F agents. Additionally, the judgment underscores the significance of fulfilling the criteria of a pure agent to exclude reimbursement of expenses from the assessable value of services, as outlined in Rule 5(2) of the Service Tax (Determination of Value) Rules 2006. Overall, the decision provides clarity on the treatment of reimbursable expenses in service tax calculations for C&F agents, ensuring adherence to relevant rules and regulations.