2013 (7) TMI 862 - HC - Service Tax

Valuation - Gross value - Reimbursable expenses received by the assessee need not be added to the taxable value related to clearing and forwarding agents service - Rule 6(8) of Service Tax Rules, 1994 stipulates that Gross amount of remuneration or commission should be the taxable value in relation to the services provided by a Clearing and Forwarding Agent Held that - Various expenditure includible in the taxable value of Carrying and Forwarding service were reimbursed by the principals on the basis of actuals Relying upon the judgment in the case of Sri Sastha Agencies Pvt Ltd., Vs. Asst. Commissioner reported in 2006(11)TMI 193- CESTAT, BANGALORE, wherein it is held that no element other than remuneration received by a Clearing & Forwarding agent from their principal was to be included in the taxable value of the service. In the instant case, it is difficult to hold that the gross amount of remuneration/commission would nevertheless include expenditure incurred by the assessee providing the services; that all incidental charges for running of the business would also form part of the remuneration or Commission (by whatever name called). The phrase by whatever name called must necessarily have some link or reference or nature to the receipt of remuneration or commission. Thus, if a receipt is for reimbursing the expenditure incurred for the purpose, the mere act of reimbursement, per se, would not justify the contention of the Revenue that the same, having the character of the remuneration or commission, deserves to be included in the sum amount of remuneration / Commission - Rejecting the Revenue s contention Decided in favor of Assessee.

Summary

Issues:
1. Whether reimbursable expenses received by the assessee need to be added to the taxable value related to clearing and forwarding agent service.

Detailed Analysis:
The High Court of Madras was presented with an appeal by the Revenue against an order of the Customs, Excise and Service Tax Appellate Tribunal. The main issue raised was whether the reimbursable expenses received by the assessee should be included in the taxable value concerning the services provided by a Clearing and Forwarding Agent. The Revenue contended that as per Rule 6(8) of the Service Tax Rules, 1994, the gross amount of remuneration or commission should be considered the taxable value. The Tribunal had ruled in favor of the assessee, stating that only remuneration received by the Clearing and Forwarding agent from their principal should be included in the taxable value, referencing a previous case decision (Sri Sastha Agencies Pvt Ltd. Vs. Asst. Commissioner).

Upon examination of the case, the High Court found that the charges alleged by the Revenue to be included in the taxable value were actually reimbursed by the principals on an actual basis. The Court noted that the reimbursed amounts received by the assessee for clearing and forwarding services had been rightfully assessed as taxable value and tax paid. The Court also reviewed the show cause notice, which highlighted that various charges received by the assessee from the Principal were to be added to the taxable service value. However, the assessee argued that as per Rule 6(8) of the Service Tax Rules 1994, only the gross amount of remuneration or commission should be considered for taxation, and the reimbursed expenses should not be included.

In its judgment, the High Court disagreed with the Revenue's contention. The Court emphasized that for the reimbursed expenditure to be considered as part of the remuneration or commission, there must be a clear link or reference to the nature of the receipt. Merely reimbursing expenses incurred for business purposes does not automatically qualify as remuneration or commission. The Court interpreted that the phrase "by whatever name called" in the rule must have a connection to the receipt of remuneration or commission. Since the Revenue did not establish that the reimbursed expenditure fell under the category of remuneration or commission, the Court rejected the Revenue's argument and dismissed the appeal, stating that no costs were awarded.