SKP Tax Alert
10 November 2014 | Volume 7 Issue 11
This Update is with regards to the recent judgment delivered by the Mumbai Tribunal in the case of Pharmalinks Agency (I) Pvt Ltd vs. Commissioner of Central Excise, Pune-III 2014-VIL-235-CESTAT-MUM-ST on levy of service tax on reimbursements received on actual basis. The period of dispute is prior to December 2008.

The appellant is in the business of providing Clearing & Forwarding (C&F) agent services. The appellant made certain payments on behalf of the service recipient by way of freight charges, octroi, sales tax, licensing fees, courier and telephone charges, electricity charges, Dedicated Freight Corridor (DFC) unloading charges and statutory charges, packing material, Genset and cool room expenses, etc. and later got it reimbursed on actual basis.

The tax department contented that these reimbursements should be included in the value of taxable service and service tax should be levied.

The Tribunal held that no service tax would be attracted on the reimbursements received due to the following reasons:
  • Freight charges: The service recipient had entered into a separate agreement for transportation of goods and was liable to discharge freight; the appellant only paid the expenses on behalf of the recipient, thereby acting as a pure agent.
  • Octroi, sales tax and other statutory dues: These were statutory dues that the service recipient was obligated to pay and the appellant only paid the expenses on behalf of the recipient, thereby acting as a pure agent.
  • Expenses other than the above: These were considered as a part of providing C&F services; therefore would be included in the value of the service and subject to service tax. 
SKP's Comments
Based on the aforesaid judgment, the existing valuation Rules under service tax and the landmark judgment of Intercontinental Consultants & Technocrats Pvt Ltd (wherein it was held that expenditure such as transportation, hotel stay, etc. that is reimbursed by the service recipient are ultra vires under Rule 5 (1) of the valuation Rules and accordingly, service tax should not be levied), a business needs to ascertain the treatment for different reimbursements along with the basis for the same.  

Please click here to see a copy of the entire judgment. Please feel free to get in touch with us if you need any assistance.

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