Whether reimbursement of expenses made on behalf of service recipients can form part of the assessable value and liable to service tax?

PJ/Case Law/2020-2021/3630

Awasthi Brothers Vs Principal Commissioner, Customs, Central Excise & Service Tax (CESTAT Delhi)

Issue:Whether reimbursement of expenses made on behalf of service recipients can form part of the assessable value and liable to service tax?

Brief Facts:The appellant as Clearing and Forwarding agent has been undertaking the work of Clearing and forwarding for various companies such as M/s. Hindustan Unilever Limited, M/s. Berger Paints India Ltd., M/s. L G Electronics India Pvt Ltd and M/s. Moser Baer India Ltd. etc. The appellant has been discharging service tax liability on the commission/remuneration received by it towards “Clearing and Forwarding service‟ received by it from the above mentioned companies.

Appellant contention:The learned advocate appearing for the appellant has contended that amount of Rs.5,33,35,626/- on which it has been alleged that no service tax had been paid are primarily receipts on account of following two items:
(i) The appellant received an amount of Rs.93, 96,803/- from principal companies, who are the service recipients, towards the reimbursable expenses made by the appellant in the nature of depot expenses, weighing of machine charges, empty cartons charges, diesel expenses, housekeeping expenses etc. in the course of providing clearing and forwarding service are not subject to levy of Service Tax as has been held by various Courts. He relied on various judgments like Union of India Vs M/s Intercontinental and Technocrats Pvt Ltd (2018(10) GSTL 40 401(SC), M/s Sharma Cement Clearing Agency vs/ CCE & ST, Ghaziabad(2018-TIOL-718-CESTAT-AII.).
(ii) Regarding the balance amount of receipt of Rs.4,39,38,823/- on which service tax of Rs.48,50,757/- has been confirmed in the Order-in-Original, the learned advocate contended that this amount of service tax has been calculated on the transportation charges received by the appellant from his principal companies for using its own trucks for transportation of goods in the local areas therefore service tax is not payable on the charges received by the appellant for using its own truck.
It has been contended that the principal companies namely, M/s. Hindustan Unilever Limited, M/s. Berger Paints India Ltd., M/s. L G Electronics India Pvt. Ltd. and M/s. Moser Baer India Ltd. have discharged their service tax liability upon this amount also under „Goods Transport Agency service‟. Moreover, as per CBEC instructions dated 24 April, 2002 if the service tax due on transportation of consignment has been paid or is payable by a person liable to pay service tax, the service tax should be not charged for the same amount from any other person to avoid double taxation. Since the entire service tax has been paid by the service recipient on the Goods and Transport Service provided by the appellant to the principal companies, no service tax liability arises on the appellant.

Authority Contention:The Department was of the view that appellant adopted a novel modus operandi by which it bifurcated the amount received by it from various service recipients under two different category of services i.e. “Clearing and Forwarding services” and “Goods and Transport Agency service”. The Department after detailed scrutiny of the financial ledgers and profit and loss account of the appellant for the period 2007-2008 to 2011-2012 reached a conclusion that the appellant had not declared the taxable value correctly as gross receipts as per section 67 of the Finance Act, 1994 for the purpose of payment of Service Tax.

Judgement:CESTAT are of the opinion that expenses which have been received as reimbursement of expenses made on behalf of service recipient by the appellant cannot form part of the assessable value as held by the Supreme Court in Union of India vs. M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. Accordingly, the appeal is allowed. In respect of second issue, the matter is remanded to the original Adjudicating Authority for undertaking the verification of the facts

Comment:In GST, Pure agent is one who while making supply to the recipient also incurs and receives expenditure on the supply made on behalf of principal. According to Rule 33 of CGST Rules, notwithstanding anything contained in the provisions in this chapter the expenditure or the cost incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if conditions mentioned are satisfied. Many times, the taxpayers are confused between the concept of intermediary and pure agent in GST.

Prepared By CA Kunal Karnawat

Comments

PJ/Case Law/2020-2021/3630

Post a Comment

Query