reimbursement on transportation charges, Service Tax

[Sudhir Kumar]

A C&F agent having service tax registration has not paid the service tax on reimbursement charges received from the principal in lieu of providing them transportation facility. The contention of the agent was that the service tax was already paid by the principal however, they have not provided any proof of service tax payment made by the principal. Sir, whether the agent is liable to pay service tax on the value paid by the principal against providing them transportation facility.

Posts / Replies

[YAGAY andSUN]

Yes, the C&F (Clearing and Forwarding) agent is liable to pay service tax on the reimbursement received for providing transportation facilities unless they can conclusively prove that service tax on the same component has already been paid by the principal.

Let’s break this down a bit:

📌 Legal Position (based on pre-GST era laws – Service Tax regime):

1. C&F Agent’s Scope of Service:
   • C&F agents are taxable under “Business Auxiliary Services” or a specific category depending on the contract.
   • If they arrange or provide transportation as part of their service and get reimbursed, that reimbursement can be considered part of the gross amount charged for services under Section 67 of the Finance Act, 1994.
2. Reimbursement Charges:
   • As per the Supreme Court judgment in Union of India v. Intercontinental Consultants & Technocrats Pvt. Ltd. (2018), only the consideration for the service rendered should be taxed. But before this judgment, Rule 5 of the Valuation Rules allowed the inclusion of reimbursements.
   • For periods before this judgment, the department usually considered reimbursements taxable.
3. Agent's Contention:
   • If the agent says the principal has paid the service tax, then onus of proof lies on the agent to furnish evidence (like invoice, tax payment challans, etc.).
   • In the absence of such proof, tax authorities can rightly demand tax from the agent on that amount.
4. Double Taxation Concern:
   • If both the agent and principal were made to pay tax on the same component, it would amount to double taxation, which is not permissible.
   • However, in this case, since the agent is receiving the reimbursement and hasn't proved tax payment by the principal, they can be held liable.

✅ Conclusion:

• Yes, the agent is liable to pay service tax on the value received from the principal for transportation, unless they can produce documentary evidence that the principal already paid service tax on that same amount.
• In the absence of such evidence, tax authorities can recover the tax from the agent, possibly with interest and penalty.