TMI Blog2023 (9) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... is clearly established that the Respondent has acted as 'Pure Agent' while incurring such expenditure. It is observed that all the 'reimbursement expenses' have been included in the consideration with effect from 14/05/2015. Hence while calculating service tax, the service provider has to include all the expenses whatever he incurred for rendering service, w.e.f.14.04.2015 only and not before that period. The dispute in the present appeal pertains to the period from 2000-01 (October) to 2004-05 (September) and hence, the substitution brought in the definition of 'Consideration' vide Finance Act, 2015 would not be applicable for the period in the present appeal. The ratio of the decision in the case INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. VERSUS UOI. ANR. [ 2012 (12) TMI 150 - DELHI HIGH COURT] , squarely applicable in this case, where it was held that By including the expenditure and costs, Rule 5(1) goes far beyond the charging provisions and cannot be upheld - Thus, Section 94(4) does not add any greater force to the Rules than what they ordinarily have as species of subordinate legislation. It is observed that the adjudicating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of appeal, the Appellant submitted that C F Agent is not a piecemeal service, rather it is a composite activity undertaken on behalf of Principal and therefore it cannot be further divided to segregate each of the steps of service from the other steps. The Appellant cited the decision of the Tribunal in the case of Naresh Kumar Co Pvt. Ltd. Vs Commissioner of Service Tax, Kolkata, wherein it has been held that if expenditure is indispensable and inevitable 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 . 4. In this case the CESTAT remanded the matter back to the Adjudicating Authority with a specific direction to decide the case by taking into the guidelines prescribed by the Tribunal in the case of Sri Bhagavathy Traders Vs CCE, Cochin. But, the Adjudicating Authority failed to appreciate the spirit of the guidelines prescribed by the Tribunal in the aforesaid decision and dropped the demand on the ground that the remuneration for C F work and reimb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon between the agent and the principal. This is usually given as a percentage of the turnover. The above two constitute the remuneration or commission paid to the C F agent by the principal and is thus liable to service tax levy. It is innate nature of C F Agency service that number of expenditures is being incurred by the service provider and re-imbursement is being asserted in the bills. The nature and list of these expenses may vary from case-to-case basis and dependent on the nature of contract. Reimbursement of expenses in case of clearing and forwarding agents are not forming part of gross value and not exposed to service tax. 7. The Respondent submits that they have been paying Service tax regularly as required under Rule 6 on the remuneration/service charges they had been receiving from their principals. The SCN alleged that charges towards rent, postage, courier, stationery, telephone and so on collected by the respondent from their principals to meet the actual expenses incurred in connection with clearing and forwarding of goods were to be added to the taxable value of the service. In this regard, they placed their reliance on the judgment of the Hon'ble Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Service Tax on freight charges, 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. 10. with the introduction of Service tax (Determination of Value) Rules, 2006, concept of Pure Agent was brought in to address the taxability issues of reimbursements. Expenditure incurred as a Pure Agent were excluded from the taxability and conditions were laid down under Explanation (1) to rule 5(2) to determine as to who will be considered as Pure Agent . In the present matter under dispute, a perusal of the agreements entered with the different principals clearly revels that there were specific amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... costs which are incurred by the service provider in the course of providing taxable service . What is brought to charge under the relevant Sections is only the consideration for the taxable service. 12. In view of the decisions cited above , they argued that the reimbursement of expenses received by them were not meant for services rendered but for the expenditure incurred on behalf of client by the service provider. Accordingly, they prayed for upholding the impugned order and reject the appeal filed by the Department 13. Heard both sides and perused the appeal records. 14. The issue to be decide in the present appeal is whether the reimbursement of expenses received by the Respondent are includable in the assessable value for the purpose of payment of service tax. The Respondent stated that they have paid Service tax on the amount of remuneration/ commission received, which include handling charges, transportation charges, salvaging charges, documentation charges, etc. They did not pay service tax on the amount of reimbursement of expenses such as salaries of client s staff, other expenses like rent, telephone expenses, printing, postage, etc. They were under the bona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or charging service tax has to be in consonance with Section 66 which levies a tax only on the taxable service and nothing else. There is thus inbuilt mechanism to ensure that only the taxable service shall be evaluated under the provisions of 67. Clause (i) of sub-section (1) of Section 67 provides that the value of the taxable service shall be the gross amount charged by the service provider for such service . Reading Section 66 and Section 67(1)(i) together and harmoniously, it seems clear to us that in the valuation of the taxable service, nothing more and nothing less than the consideration paid as quid pro quo for the service can be brought to charge. Sub-section (4) of Section 67 which enables the determination of the value of the taxable service in such manner as may be prescribed is expressly made subject to the provisions of sub-section (1). The thread which runs through Sections 66, 67 and Section 94, which empowers the Central Government to make rules for carrying out the provisions of Chapter V of the Act is manifest, in the sense that only the service actually provided by the service provider can be valued and assessed to service tax. We are, therefore, undoubtedly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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