Compliance with the conditions outlined in Rule 5(2) of the Service Tax Rules, 2006 required for claiming reimbursement of expenses as CHA agent: CESTAT [Read Order]

The Chennai bench of (CESTAT) Customs, Excise and Service Tax Appellate Tribunal has held that in order to receive reimbursement on expenses incurred as Customs House Agent,  the nomenclature used by the Agent has to be decisive. The expenses would have to satisfy the conditions mentioned in the Rule 5(2) of the Service Tax Rules, 2006

During the course of audit of the accounts of the assessee, G. Masilamani the Department’s audit team appears to have noticed that the assessee had not included various costs from the gross receipt for the purposes of taxable value. This made the Revenue to believe that the assessee had not paid appropriate Service Tax on various service charges collected and consequently, the issue was taken up by the Survey, Intelligence and Research (SIR) Branch of the Service Tax Commissionerate.A scrutiny of the invoices raised by the assessee revealed that the assessee had raised bills by splitting the amounts under various heads like service charges, loading and unloading charges, application charges, customs, examination charges, conveyance expenses, warehouse rent, CFS charge, PHO charges, shipping company charges, etc., but however, they had paid Service Tax only on the service charges. The exclusion of various operational expenses from the gross receipt appeared to be against the provisions of section 67 of the Finance Act 1994 read with Rule 5(1) & (2) of the Service Tax (Determination of Value) Rules, 2006.. It appears, upon being pointed out, that the assessee remitted Service Tax of Rs.78,86,127/-, but however, did not provide supporting documents in respect of other charges, in order to satisfy the conditions of pure agent. The Revenue also appears to have noticed that the assessee had not filed its S.T.-3 Return for more than three years despite the fact of having collected Service Tax from their customers without even remitting the entire Service Tax collected.

Assessee contended that the entire demands proposed and confirmed in the Order-in-Original were based on the audit objections and hence, extended period of limitation could not be invoked. The assessee also contended that the she  is a CHA, had rendered services of clearance of import and export cargo, in addition to which the appellant would also incur customs expenses, unloading charges, loading, coolly, harbour sundry and delivery expenses, import permit, PHO and PQFS conveyance, application charges etc., and the services were availed for the clearance of import/export cargo for the importers/exporters, as pure agents; in no case would the service provider issue any bill/receipt and the appellant had always discharged the Service Tax.

Revenue contended that the appellant did not file its S.T.-3 Returns for various periods, it also did not respond to many letters issued by Revenue in terms of Rule 5(1), if any expenditure or cost is incurred by the service provider in the course of providing taxable service, all such cost/expenditure shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging Service Tax and hence, the Commissioner was very much correct in determining the taxable value.

The bench comprising of P. Dinesha (Member, Judicial) and M. Ajit Kumar(Member, Technical)held that “In the light of the above discussions, we deem it appropriate to set aside the impugned order and remit the case back to the file of the adjudicating authority for de novo adjudication “

It would hence be important for the appellant to clearly identify what the reimbursement being claimed are, since the nomenclature used by the Appellant is not decisive of its nature; to claim exclusion of expenses incurred as pure agent, they would have to satisfy the conditions mentioned in the Rule 5(2) of the Service Tax Rules, 2006. Merely stating that the charges were paid by them to service providers who do not issue any bills/ receipts and accordingly they had correctly discharged their service tax burden, will not come to their help.

The assessee was represented by J. Ragini. Respondent was represented by Anandalakshmi Ganesham.

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