2018 (11) TMI 34 - AT - Service Tax

Classification of services - whether the services of packing, palletisation, storage, transportation, handling of import and export cargo etc. undertaken by the appellant are classifiable as cargo handling services / Port Services (from 01.07.2003) or as a part of Custom Handling Agency services being rendered by the appellant? If these are considered as part of Custom House Agency services, whether the amounts which they have collected on account of the aforesaid services should be treated as reimbursable expenses and hence not included in the assessable value? Held that - It is true that the services which they rendered with respect to handling of cargo and processing etc. are classifiable as cargo handling services if they had rendered them in isolation. However, Custom House Agent himself also renders these services in addition to the services under CHA Regulations 1984. It has been recognised by the CBEC that all these activities are part of the CHA activities. If these activities are considered as part of CHA services, then the amount charged by them should form part of the assessable value for the CHA services. The services rendered by the appellant during the course of Custom House Agency services in the form of handling of cargo etc. do not form a separate taxable service falling under Custom House Agency services or Port Services. It is a composite service rendered by the Custom House Agent. The amounts charged by them from their clients do not get included in the value of taxable services rendered to the extent that they are reimbursable expenses. This is a fact to be verified from the invoices and accounts. Appeal allowed by way of remand.

Summary

Issues Involved:
1. Classification of services rendered by the appellant.
2. Inclusion of reimbursable expenses in the assessable value for service tax.
3. Validity of the demands and penalties imposed under sections 77 & 78 of the Finance Act, 1994.

Issue-Wise Detailed Analysis:

1. Classification of Services Rendered by the Appellant:
The appellant, registered as a Custom House Agent (CHA), provided services including handling of chemicals, packing, palletisation, storage, transportation, and obtaining permissions from port and customs authorities. The show cause notice alleged that these services should be classified as 'Cargo Handling Service' for the period 16.08.2002 to 30.06.2003 and as 'Port Service' from 01.07.2003. The lower authorities confirmed this classification, leading to the service tax demand. However, the appellant argued that these services were part of their CHA activities, supported by CBEC Circular F.No. B43/1/97-TRU, dated 06.06.1997, which acknowledges that CHAs render additional services beyond clearing import and export consignments.

2. Inclusion of Reimbursable Expenses in the Assessable Value:
The appellant contended that the amounts charged from clients for additional services were reimbursable expenses paid to other operators, and not part of their service charges. They cited Rule 5 of the Service Tax (Determination of Value) Rules, 2006, which includes costs incurred by the service provider in the assessable value. However, the Supreme Court in Intercontinental Consultants & Technocrats Pvt. Ltd. [2018(10) GSTL 401 (S.C)] ruled that reimbursable expenses cannot be included in the value of taxable services. Therefore, the appellant's claim that these expenses should be excluded from the assessable value was upheld, provided the amounts charged were equal to the expenses incurred.

3. Validity of the Demands and Penalties:
The tribunal found that if the services rendered by the appellant were part of CHA activities, then the amounts charged should form part of the assessable value for CHA services. However, since the appellant claimed these were reimbursable expenses, it was necessary to verify if the amounts collected matched the expenses incurred. The tribunal remanded the matter to the original authority to compute the duty liability after excluding reimbursable expenses. Consequently, the penalties imposed under sections 77 & 78 of the Finance Act, 1994, were set aside.

Conclusion:
The tribunal concluded that the services rendered by the appellant were part of a composite CHA service and not separate taxable services. The inclusion of reimbursable expenses in the assessable value was invalidated by the Supreme Court's ruling. The case was remanded to the original authority to verify the reimbursable expenses and recompute the service tax liability accordingly. Penalties imposed were also set aside. The appeals were disposed of with these directions.