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2019 (8) TMI 212 - AT - Service TaxValuation - Clearing and Forwarding Agent Service - inclusion of charges received as reimbursement on the expenses, in the assessable value - demand of service tax on Franchisee Service? - HELD THAT - From the sample agreement shown by the Ld. Counsel between the appellant and the service recipient it is observed that there is a separate amount of only service charges for CFA service and some actual amount payable by the service recipient to the appellant on account of various expenses. There is a fixed amount on the quantum of sale towards remuneration for CFA service. From the agreement it is seen that there is a separate charges for the service of CFA and there are additional charges towards the various expenses which appellant has to undertake on behalf of their client, therefore, the remuneration for the CFA service is clearly identified all other charges are paid as reimbursable charges by the service recipient. Since, the other expenses are incurred as per the instruction of the service recipient the same is reimbursed on actual basis by the service recipient to the appellant - Therefore, these charges are over and above the remuneration in respect of CFA service and it is not towards the service of CFA as a reimbursement of expenses. Therefore, it cannot be said that the reimbursable expenses is part of the service charge of CFA . This issue has been considered by the Hon ble Supreme Court in the judgment cited by the appellant in the case of COMMISSIONER OF SERVICE TAX, CHENNAI, TAMIL NADU VERSUS M/S MALABAR MANAGEMENT SERVICES PVT. LTD. 2019 (7) TMI 1161 - SC ORDER , where it was held that reimbursement of salary and infrastructure expenses not be termed as amount charged towards the service provided by the service provider. Therefore, since the details of all reimbursable charges on the agreement needs verification and the matter needs to be remitted back to the adjudicating authority to ascertain the facts regarding the remuneration towards the service and reimbursable expenses and accordingly re-quantify the demand, if any arise. Demand of service tax on Business Auxiliary Service - HELD THAT - As per the appellant s submission he has raised that one of the service is franchisee for which service tax liability is on the franchisor and not on the franchisee i.e. the appellant, however, we do not find anything, as regard, the franchisee in the impugned order - The impugned order is only on the issue of reimbursable expenses and Business Auxiliary Service i.e. incentive received from Tata Chemicals and courier service, since, there is a contradiction between the submission made by Ld. Counsel and the finding given in the impugned order, these issues are also needs to be re-considered. Appeal allowed by way of remand.
Issues Involved:
1. Taxability of reimbursable expenses under "Clearing and Forwarding Agent Service" (CFA). 2. Demand of service tax on Business Auxiliary Service (BAS) and franchisee service. Issue-wise Detailed Analysis: 1. Taxability of Reimbursable Expenses under CFA: The appellant is engaged in providing "clearing and forwarding agent service" (CFA) and pays service tax on the remuneration received for such services. However, they did not discharge service tax on various reimbursed expenses such as bank charges, freight, salary, travelling, godown rent, loading/unloading charges, and other operational expenses. The department contended that these reimbursed expenses should form part of the gross value of CFA services and be liable for service tax. The appellant argued that these expenses were incurred on behalf of the principal client and reimbursed on an actual basis, thus not forming part of the CFA service charge. They relied on several judicial precedents, including the Supreme Court's decisions in Malabar Management Service Pvt. Ltd. and Bhayana Builders (P) Limited, which held that reimbursement of expenses should not be included in the valuation of taxable services. The Tribunal examined the sample agreement between the appellant and the service recipient, noting a clear distinction between the remuneration for CFA services and reimbursable expenses. The Tribunal concluded that reimbursable expenses incurred on behalf of the client, and reimbursed on an actual basis, are not part of the service charge for CFA services and thus not liable for service tax. This interpretation aligns with the Supreme Court's rulings in cases like Intercontinental Consultants and Technocrats Private Limited, where it was established that only the actual charges towards the service provider are taxable, not the reimbursable expenses. 2. Demand of Service Tax on Business Auxiliary Service and Franchisee Service: The appellant also faced a demand for service tax on Business Auxiliary Service (BAS) and franchisee service under Section 65(105)(zze) of the Finance Act, 1994. The appellant contended that the service tax liability for franchisee service lies with the franchisor, not the franchisee (the appellant). However, the Tribunal found no specific mention of franchisee service in the impugned order. The impugned order primarily addressed reimbursable expenses and BAS, specifically incentives received from Tata Chemicals and courier service. Given the contradiction between the appellant's submissions and the findings in the impugned order, the Tribunal deemed it necessary to reconsider these issues. Conclusion: The Tribunal set aside the impugned order and remanded the matter to the adjudicating authority for fresh consideration. The adjudicating authority is instructed to verify the details of reimbursable charges and re-quantify the demand, if any, based on the Tribunal's observations. The issues related to BAS and franchisee service also require re-evaluation due to inconsistencies in the submissions and findings. Order Pronouncement: The order was pronounced in the open court on 02.08.2019, and the appeals were allowed by way of remand to the adjudicating authority.
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