Service Tax not levied on reimbursable expenses incurred by the Assessee

The CESTAT has ruled that service tax is not applicable on expenses incurred by a company on behalf of its clients, provided these expenses are purely reimbursable. The tribunal found that the company acted as a pure agent when it paid for services like deconsolidation and transportation on behalf of clients and was later reimbursed. Therefore, these reimbursable expenses are not subject to service tax.

The CESTAT, Ahmedabad in United India Shipping Services v. Commissioner of GST and Central Excise [Service Tax Appeal no. 42191 of 2015dated June 12, 2023]set aside the order confirming demand on expenses like deconsolidation charges, transportation charges, DO charges which are first collected by the assessee from their clients and thereafter paid to the service provider. On the ground that the assessee has provided such services as pure agent and thus, not liable to service tax.

Facts

M/s United India Shipping Services ("the Appellant") is a Custom House Agent. 

During the course of audit, the Revenue Department noticed that the Appellant apart from collecting charges for providing Custom House Agent ("CHA") services also collects LCL charges, deconsolidation charges, transportation charges, DO charges, terminal handling charges, demurrage charges, documentation charges and other charges from the clients. 

The Appellant had excluded such charges while computing     the total taxable value and had not discharged service tax on such charges on the claim that these are only reimbursable expenditure.

The Revenue Department was of the view that the Appellant ought to have included such expenses in the taxable value to discharge service tax liability. 

Thereafter, a show cause notice dated October 14, 2009 ("the SCN") was issued demanding service tax and penalty on such expenses incurred by the Appellant for providing CHA services. Later, the Adjudicating Authority confirmed the demand along with interest and imposed penalty on the Appellant.

Aggrieved thereby, the Appellant filed an appeal before Commissioner of Service Tax (Appeals-I) who upheld the order of the Adjudicating Authority vide Order-in-Appeal No.132/2015 (STA-I) dated July 27, 2015 ("the Impugned Order").

Aggrieved by the Impugned Order the Appellant filed an appeal before the CESTAT.

The Appellant submitted that the tax has not been charged upon the reimbursed charges since, the debit notes were issued to clients for claiming reimbursement of such expenses.

Issue

Whether the Appellant is required to pay service tax on transportation charges, terminal handling charges, documentation chargeswhich is paid by the Appellant on behalf of client to the service provider?

Held

The CESTAT, Chennai in Service Tax Appeal No.42191 of 2015 ruled as under:

• Observed that, the SCN demanded service tax on deconsolidation charges, transportation charges, DO charges etc. incurred by the Appellant for providing CHA services.
• Noted that, such charges first paid by the Appellant on behalf of their clients to the concerned service provider and later reimbursed by the client. 
• Relied on the judgement of Union of India v. Intercontinental Consultants and Technocrats (2018 (10) GSTL 401 (SC)wherein the Hon’ble Supreme Court held that reimbursable expenses are not subject to levy of service tax.
• Held that, the judgment of Hon’ble court is squarely applicable to the facts in the present case.
• Set aside the Impugned Order.