Service tax on freight income by clearing & forwording agent

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SANDEEP MISTRY (Querist)
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23 October 2013 A FIRM PROVIDING CF SERVICE AND PAID THE SERVICE TA ON THE SAME. BUT THEY ALSO COLLECT THE VARIOUS CHARGES LIKE FREIGHT, TAXES AND OTHER CHARGES AND THEY REIMBURSE FROM THE PARTY AS WELL. THEY ALSO SHOW THAT AMOUNT IN THE BILL AND NOT CHARGE ANY SERVICE TAX ON IT.

BUT THEY SOMETIME MAKES PROFIT ON THAT FREIGHT CHARGES. SO, WHETHER THEY ARE LIABLE TO PAY SERVICE TAX ON EXTRA EARNED FREIGHT CHARGES?

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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23 October 2013 Dear Sandeep

Service Tax is a funny tax, a times it may seem illogical, but there is some reason for the same. Service tax is usually levied on the service provider for the remuneration received for services rendered.

The question to be considered is what is remuneration. Does remuneration mean all the items in the invoice or excludes the reimbursement of expenses. For example I was associated with ITC's CSR programme and had to audit various projects. The audit fee was Rs.20,000/- per project. The audit party was paid the ticket charges and a daily allowance while on tour apart from car/taxi expenses for site visits. The invoice of each report would be between Rs.55,000/- to Rs.65,000/-. On what amount should the CA charge service tax, the full sum or Rs.20,000/-.

CBEC was seized of this problem and has clarified that service tax is leviable on the remuneration for services rendered and not on all the items in the invoice which are in the nature of reimbursement of expenses. Therefore, when the service provider collects charges like freight, taxes, etc. he is only seeking reimbursement of expenses incurred. On such items there is no service tax.

THEREFORE, IF A SERVICE PROVIDER IS MAKING ANY PROFIT ON REIMBURSEMENT OF EXPENSES, UNLESS IT CAN BE PROVED THAT HE HAS MADE A PROFIT, IT IS A REIMBURSEMENT OF EXPENSES WHICH ARE NOT SUBJECT TO SERVICE TAX.

I hope I have been able to clarify your query.

Regards

Suresh Ramaswamy.