22 September, 2011

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M/s SRI BHAGAVATHY TRADERS Versus COMMISSIONER OF CENTRAL EXCISE, COCHIN (CESTAT Bangalore)

Demand - Clearing & Forwarding Agent Services - Appellant in the course of hearing simply submitted that reimbursement of expenditure, bending and bundling charges and stock verification charges are not relatable to the taxable service for which those receipts shall not be value of taxable service and there shall be no taxation under the provisions of the Act - In absence of any intimate connection or relation of expenditure to the principal activity of clearing and forwarding operations, those receipts may not assume the character of value of taxable service or contribute to 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 - Since there are two views taken by the coordinate benches, we deem it fit to refer the matter to the Hon'ble President to constitute a larger bench and settle the issue of "includibility or otherwise of the reimbursement charges.



No. - 111/2008
Order No. - 203/2011
Dated - January 18, 2011
 
M V Ravindra, P Karthikeyan, JJ.
For Appellant: Shri G Natarajan, Adv.
For Respondent: Shri M M Ravi Rajendran, JDR
Per: M V Ravindran:
This appeal is filed by the appellant against the OIO No. 13/2007/ST dated 28.12.2007.

2. The relevant fact in this appeal is that the appellant is providing taxable service under the category of "Clearing & Forwarding Agent Services". During the period 2003-04 to 2005-06, it was noticed by the Revenue officers that the appellant is not correctly discharging the Service Tax liability by not considering into account for the purpose of taxable service, the receipts of reimbursements on transportation charges, loading and unloading charges, rent, salary to the staff, electricity, telephone charges, stationery charges, courier charges, etc. According to the adjudicating authority, by not including the amounts received as reimbursements in respect of the charges as indicated herein above, the appellant has short paid the Service Tax liable to be paid by him.

3. The learned counsel appearing on behalf of the appellant would submit that there are series of judgments of this tribunal wherein it has been held that reimbursement charges should not form part of the gross value for the discharge of Service Tax liability.
    (i) Sri Sastha Agencies Pvt. Ltd. Vs. Asst. Commr. of C.Ex & Cus., Palakkad [2007 (6) STR 185 (Tri.-Bangalore)]
    (ii) Bhagyanagar Services Vs. CCE, Hyderabad [2006 (4) STR 22(Tri.-Bang.)]
    (iii) CCE, C & ST, BBSR-I Vs. M/s. Nilalohita Enterprises
    (iv) Sangamitra Services Agency Vs. CCE, Chennai
    (v) K.D. Sales Corporation Vs. CCE, Belgaum [2007 (6) STR 418(Tri.-Bang.)]
    (vi) M/s. B.S.R. Refrigeration Ltd. Vs. CST, Bangalore
    (vii) Jayalaxmi Enterprises Vs. CCE, Mangalore
    (viii) M/s. U.M. Thariath & Company, M/s. S.J.C. Pharma Vs. CCE, Cochin
    (ix) M/s. Marakadham Agencies Vs. CCE, Salem

4. On the other hand, the learned Departmental Representative would rely upon the decision of the coordinate bench in the case of M/s. Naresh Kumar & Co. Pvt. Ltd. Vs. Commissioner of Service Tax, Kolkata and submit that the cost incurred on reimbursement of expenses, if any, needs to be included in the gross value of the taxable services rendered.

5. We have carefully considered the submissions made at length by both sides and perused the records. It is seen that various benches of the Tribunal in the cases, as indicated by the learned counsel, have held as follows:-
Sl. No.
Citation
Decision
1.
Sri Sastha Agencies (P) Ltd. Vs. CCE – 2007 (6) STR 185 (Tri.-Bang.)]
Elements required for adding to Service tax is restricted to amounts received by assessee for carrying on services of C&F only – Other elements like loading, unloading charges not to be added to Service tax.
2.
Bhagyanagar Services Vs. CCE – 2006 (4) STR 22 (Tri.-Bang.)]
Separate contract exist for providing transport of goods at different places – Transportation charges collected thereof not includible in Service tax paid by C&F agent.
3.
Sangamithra Services Agency Vs. CCE – 2007 (8) STR 233 (Tri.-Chennai).
Service tax is not payable on reimbursement of actual expenses like freight, labour, electricity, telephone, etc.
4.
CCE & C, BBSR-I Vs M/s Nilalohita Enterprises (Tri.-Kolkata)
Reimbursements – Includibility in taxable value – No clear cut case brought out by Revenue for considering inclusion of reimbursements in taxable value – Prima facie no case in favour of Revenue – Stay of impugned order as sought by Revenue not granted.
[ This case was finally decided in.] - editor

6. As against the above said ratio, we find that the coordinate bench of Kolkata in the case of M/s. Naresh Kumar & Co Pvt. Ltd. (supra) has held in paragraph 6.9 and 6.10 as under:-
    " 6.9 So far as the second issue of claim of deductions from the gross value of taxable service is concerned, modality of valuation of taxable service is provided by Section 67 of the Act. Value of taxable service is basis or measure of levy and rate of tax is applied thereto in terms of Section 66 of the Act to arrive at tax payable. Determination of value of taxable service is guided by Service Tax (Determination of Value) Rules, 2006, which of course have come into force w.e.f. 19-4-2006. Rule 5 thereof provides inclusion or exclusion of certain expenditure or cost incurred by service provider to determine value of taxable services. The Appellant had received consideration from two service recipients i.e. TISCO and TRL and its claim is that consignment agent services provided by it fetched an amount of Rs. 49,27,918/- and Rs. 48,396/- and that shall not be taxable is baseless for the reasons stated above as well as on the touch stone of statutory provisions bringing the Appellant to the fold of law as "clearing and forwarding agent". Those two receipts undoubtedly shall constitute value of taxable service for the services provided to TISCO and TRL. Of course that may be related to different period of time and taxability thereof is subject to limitation, if any.
    6.10 Apart from the aforesaid two receipts, there were receipts claimed towards reimbursement of expenditure of Rs. 36,56,555/-, bending and bundling charges of Rs. 3,71,610/- and stock verification charges of Rs. 80,402/-. The Appellant in the course of hearing simply submitted that reimbursement of expenditure, bending and bundling charges and stock verification charges are not relatable to the taxable service for which those receipts shall not be value of taxable service and there shall be no taxation under the provisions of the Act. Except such a bald argument, there was neither any evidence adduced nor the Appellant proved its stand demonstrating before us how all these receipts were not relatable to the service of clearing and forwarding operations provided to TISCO and TRL. Therefore each and every aspect of such claim calls for detailed examination on the basis of evidence. Their nature, live link and nexus to the principal service of clearing and forwarding operations shall be decisive. The learned Adjudicating Authority has merely held that above receipts were in relation to clearing and forwarding operations without bringing out relatability thereof by any cogent reason. In absence of any intimate connection or relation of expenditure to the principal activity of clearing and forwarding operations, those receipts may not assume the character of value of taxable service or contribute to 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. Thus expenditure incurred being incidental or ancillary to perform an act, shall essentially make value addition to the service. Therefore claim of Appellant in respect of above three items need to be remanded for reexamination and finding with reason, granting fair opportunity of hearing to the Appellant. In view of remand, the citations made by the Appellant calls for consideration by the learned Adjudicating Authority.”

7. We find that different benches are taking different views on includibility or otherwise of the reimbursement charges received by a provider of taxable service in the calculation of gross amount for discharge of service tax.

8. Since there are two views taken by the coordinate benches, we deem it fit to refer the matter to the Hon'ble President to constitute a larger bench and settle the issue of "includibility or otherwise of the reimbursement charges".

9. Registry is directed to place this file before the Hon'ble President for constituting a larger bench.
(Operative portion of the Order pronounced in open Court on conclusion of hearing on 18.1.2011)

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