2018 (6) TMI 588 - AT - Service Tax

Clearing and forwarding activity - Inclusion of reimbursable expenses received over and above the commission, by their principal - Held that - Such amounts have been received by the appellant towards activities which are unconnected with the clearing and forwarding services rendered. Hence, such inclusion of such reimbursable expenses as part of the consideration is without justification. The issue regarding inclusion of reimbursable expenses have been settled in favour of the appellant by the Hon ble Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. Vs. Union of India 2012 (12) TMI 150 - DELHI HIGH COURT - appeal allowed - decided in favor of appellant.

Summary

Issues:
Interpretation of reimbursable expenses in the context of service tax liability for clearing and forwarding service.

Analysis:
The appellant, engaged in clearing and forwarding services for pharmaceutical companies, faced a dispute regarding the inclusion of certain reimbursable expenses in the commission received from their principals for the period 01.04.2002 to 31.03.2007. The Revenue contended that these additional amounts received by the appellant, apart from the commission, were related to the C&F Agency Service and should be subject to service tax. Both lower authorities demanded a differential service tax amount of ?27,89,269 along with interest and penalties. The appellant challenged this decision through the present appeal.

During the hearing, the appellant's advocate argued that the reimbursable expenses were for services beyond clearing and forwarding, such as collecting payments, informing the principal about local tax changes, and representing the company before tax authorities. Thus, he contended that including these expenses in the consideration for service tax was unjustified. On the other hand, the Revenue justified the inclusion of these amounts, stating they were received due to the appellant's status as a C&F agent.

Upon reviewing the arguments and the record, it was established that the activities undertaken by the appellant fell under the definition of C&F service, and service tax on the commission received had already been paid. However, the dispute centered on the amounts reimbursed by the principal, which were unrelated to the clearing and forwarding services provided. Consequently, the tribunal found that including these reimbursable expenses in the consideration was unjustified.

Moreover, the tribunal referenced a judgment by the Hon'ble Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. Vs. Union of India and a subsequent decision by the Apex Court, both upholding that reimbursable expenses unrelated to the core service should not be considered for service tax liability. Consequently, the tribunal set aside the impugned order, ruling in favor of the appellant.

In conclusion, the tribunal's decision clarified that reimbursable expenses not directly linked to the service provided should not be included in the service tax liability for clearing and forwarding services, aligning with the legal precedents established by higher courts.