By TIOL News Service

MUMBAI, OCT 09, 2014: THE appellant entered into a C&F agency agreement and also a warehousing service agreement with M/s. Abbot India Ltd. The warehousing agreement was for storage of goods and the clearing and forward agency agreement was for the purpose of handling, carrying forwarding and shipping of the products. Service tax liability was discharged on the warehousing rent and also on the C&F agency charges.

In addition to the above, the appellants made certain payments on behalf of the service recipient by way of freight charges, octroi, sales tax and licensing fees, courier charges and telephone charges, electricity charges, DFC unloading charges and statutory charges, packing material, octroi, etc., Genset and cool room expenses and they got reimbursement of the expenses incurred from M/s. Abbot India Ltd.

The department was of the view that these reimbursements are also liable to service tax under the category of C&F Agency Services and accordingly issued a SCN for the period from 01/04/2004 to 31/03/2005 demanding ST of Rs.58,91,811/-.

The CCE, Pune-III upheld the charges along with imposition of interest and penalty and, therefore, the appellant is before the CESTAT.

The appellant inter alia relied on the Larger Bench decision in Sri Bhagavathy Traders - 2011-TIOL-1155-CESTAT-BANG wherein it was held that only when the service recipient has an obligation, legally or contractually to pay certain amount to a third party and the said amount is paid by the service provider on behalf of service recipient, the question of reimbursing the expenses incurred on behalf of the recipient shall arise and accordingly the question of levying service tax by including reimbursements in the assessable value would not arise. It was also submitted that in view of the decision in J. Walter Thompson- 2013-TIOL-1899-CESTAT-MUM the demand beyond the period of normal limitation is not sustainable.

The AR reiterated the findings of the adjudicating authority and also placed reliance on the Tribunal decision in Naresh Kumar & Co. Pvt. Ltd.- 2008-TIOL-1016-CESTAT-KOL wherein it was held that if an expenditure is indispensable and inevitably incurred to provide a service, such cost should essentially form part of cost of service itself and shall contribute to value of taxable service. Inasmuch as in the present case, the expenditure incurred by the appellant is inevitable expenditure in rendering C&F agency service and, therefore, the demands are sustainable, submitted the AR.

The Bench observed:

++ We notice that the service recipient had entered into a separate agreement with the transporter for transporting of goods from Pune to various destinations and in terms of the agreement it was the service recipient's obligation to discharge the freight expenses. The appellant only paid these expenses and got them reimbursed from M/s. Abbot India Ltd. Thus, they were acting as a pure agent as the transportation was undertaken not as part of C&F agency functions but independently of the said function and, therefore, the question of including the expenditure incurred on freight in the consideration received is clearly unsustainable in law.

++ Reimbursement towards statutory levies such as octroi etc. - We have seen the invoices and it is clear from these invoices that the statutory levies are on the service recipient, and the appellant has paid these charges and got it reimbursed from the service recipient. Here also, the appellant has acted as a pure agent and, therefore, these costs are also not includable for the purpose of levy of service tax.

++ DFC unloading chargesare for transportation of the goods from the premises of the loan-licensee of Abbot India Ltd to the appellant's warehouse and it has no relation with the C&F agency agreement between the appellant and M/s. Abbot India Ltd. Therefore, the question of adding these charges as part of the consideration received will not sustain.

++ Courier, fax and telephone charges; electricity charges and stationery and related charges - These charges have been incurred by the appellant as part of the C&F agency function which they have undertaken and are towards running of the office or providing cold storage facilities or for issuing various documents in relation to C&F agency functions. It is also noticed that the electricity charges are reimbursed only for a quantity of 3000 units per month and in respect of such electricity charges over and above 3000 units the appellant have to bear the cost. Therefore, it cannot be said that the electricity charges are not part of cost for providing the service. Therefore, in respect of these three charges the consideration received by the appellant has to be added to the taxable value of the service and the service tax levied accordingly. The appellant also would be liable to pay interest on the service tax liability attributable to these charges.

++ Since the matter involves interpretation of statute, imposition of penalty is not warranted.

Conclusion:

++ On the freight charges, octroi, sales tax, licence fees and DFC unloading charges since the appellant has rendered services as a pure agent, reimbursement made in this regard will not be liable to service tax.

++ Courier, fax and telephone charges, electricity charges and stationery charges, packing material,Genset and cool room expenses -reimbursement received is addable to the taxable value of the service and the service tax is to be levied accordingly along with interest -matter remitted back to the adjudicating authority for this limited extent.

The appeal was partly allowed.

(See 2014-TIOL-1948-CESTAT-MUM )