CESTAT Quashes Service Tax Demand as Reimbursable Expenses Were Not Taxable Before 2015 Amendment

Broekman Logistics (India) Pvt. Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)

The appeal arose from an Order-in-Appeal dated 10.08.2015 passed by the Commissioner of Service Tax (Appeals-II), Chennai. The appellant, engaged in providing Clearing and Forwarding Agency Service, Cargo Handling Service, Business Auxiliary Service, and Goods Transport Agency (GTA) Service, challenged the confirmation of service tax demands aggregating to Rs. 71,925 along with penalty under Section 76 of the Finance Act, 1994.

The dispute involved three issues: (i) service tax on reimbursable expenses amounting to Rs. 36,181 for the period December 2008 to December 2009; (ii) service tax of Rs. 9,437 under reverse charge mechanism on alleged GTA services for the period April 2009 to December 2009; and (iii) a demand of Rs. 26,307 relating to services provided to SEZ units during April 2009 to December 2009.

Regarding reimbursable expenses, the appellant argued that amounts recovered towards Terminal Handling Charges, CFS charges, Delivery Order charges, demurrage, and similar expenses were incurred on behalf of customers and recovered on an actual basis. Relying on the Supreme Court’s decision in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd., the appellant contended that, prior to 14.05.2015, reimbursable expenses were not includible in the taxable value of services. The Revenue maintained that exclusion of such expenses was permissible only if the conditions applicable to a pure agent were satisfied.

The Tribunal observed that the issue had attained finality through the decisions of the Delhi High Court and the Supreme Court in Intercontinental Consultants and Technocrats. It noted that, prior to the amendment of Section 67 with effect from 14.05.2015, reimbursable expenditure could not be included in the gross value of taxable services merely by applying Rule 5 of the Service Tax Valuation Rules. Since the disputed period was December 2008 to December 2009, the Tribunal held that the demand of Rs. 36,181 on reimbursable expenses was unsustainable and set it aside.

On the issue of GTA service, the appellant submitted that the payments made to the transport provider represented vehicle hire charges rather than freight charges. It was also argued that no consignment notes had been issued, which was an essential requirement for classification as GTA service. The Revenue contended that the appellant, being a limited company, was liable to pay service tax under the reverse charge mechanism.

The Tribunal held that issuance of a consignment note is a necessary condition for treating a service provider as a goods transport agency. It noted that the department had not produced any evidence establishing issuance of consignment notes. Referring to a coordinate bench decision in Bothra Shipping Services v. Commissioner of Central Excise & Service Tax, Visakhapatnam, the Tribunal reiterated that in the absence of consignment notes, no GTA demand could be sustained. Consequently, the demand of Rs. 9,437 was set aside.

With respect to services provided to SEZ units, the appellant contended that the service tax liability had already been discharged. According to the appellant, tax for part of the period had been paid after being pointed out by the department, while tax for the remaining period had been paid in the ordinary course and disclosed in ST-3 returns. The appellant argued that confirmation of the demand would result in double taxation.

The Tribunal observed that the appellant did not dispute the taxability of the services but maintained that the liability had already been discharged. Considering the appellant’s submissions and the relatively small amount involved, the Tribunal accepted the claim without remanding the matter for verification. It held that the same amount could not be demanded again once tax had already been paid.

In view of its findings on all three issues, the Tribunal set aside the impugned order and allowed the appeal with consequential relief, if any, in accordance with law.

FULL TEXT OF THE CESTAT CHENNAI ORDER

This appeal is directed against Order-in-Appeal dated 10.08.2015 passed by the Commissioner of Service Tax (Appeals-II), Chennai, (impugned order).

Factual Matrix

2. The brief facts are that the appellant is engaged in providing taxable services under Clearing and Forwarding Agency Service, Cargo Handling Service, Business Auxiliary Service and Goods Transport Agency Service. On verification of accounts, the department alleged short-payment of service tax under three heads, namely: (i) non- payment of service tax on reimbursable expenses; (ii) non-payment of service tax on GTA service under reverse charge; and (iii) irregular availment of exemption in respect of services provided to SEZ units. A show cause notice was issued and, after adjudication, the original authority confirmed demands aggregating to Rs. 71,925/-, appropriated amounts already paid, and imposed penalty under Section 76 of the Finance Act, 1994. The appeal before the Commissioner (Appeals) was rejected. Hence, the present appeal.

3. Heard Shri Raja Praveen P, Learned Chartered Accountant for the appellant, and Shri N. Satyanarayanan, Learned Authorized Representative for the revenue.

Submissions of the Appellant

3.1 Shri Raja Praveen P, Learned Counsel for the appellant has stated that the dispute in the present appeal is as under:

He further submitted that:

A. The demand on reimbursable expenses is unsustainable as the amounts recovered towards Terminal Handling Charges, CFS charges, Delivery Order charges, demurrage and similar expenses were incurred on behalf of customers and recovered on actual basis. For the period in dispute, i.e. prior to 14.05.2015, such reimbursable expenses were not includible in the taxable value in view of the decision of the Hon’ble Supreme Court in Union of India Vs Intercontinental Consultants and Technocrats Pvt. Ltd. [(2018 (10) G.S.T.L. 401 (S.C.)], which held that Rule 5 of the Service Tax (Determination of Value) Rules, 2006 was ultra vires to the extent it included reimbursable expenditure in the value of taxable services.

B. As regards GTA the amount of Rs. 3,66,448/- paid to M/s. SSK Transport represented vehicle hire charges and not freight for transportation by a goods transport agency. Further Service Tax under GTA can arise only where the service provider issues a consignment note. In the absence of any evidence of issuance of consignment notes, the demand cannot survive. Reliance was placed on Bothra Shipping Services Vs CCE & ST, Visakhapatnam, wherein it was held that absence of consignment note is fatal to a GTA demand.

C. As regards the demand relating to services rendered to SEZ units, the appellant submitted that, for the period up to 13.03.2009, service tax along with interest and penalty had already been paid upon being pointed out by the department. For the subsequent period from 14.03.2009 onwards, the appellant had charged and remitted service tax and disclosed the same in ST-3 returns. It was therefore contended that confirmation of the impugned demand results in double taxation and the demand is liable to be set aside.

Submissions of the Revenue

4. Learned Authorized Representative reiterated the findings in the impugned order. He submitted that,

A. In terms of Circular No. 119/13/2009-ST dated 21.12.2009 and Rule 5(1) of the Valuation Rules, exclusion of reimbursable expenses is available only subject to fulfillment of prescribed conditions. According to the revenue, the appellant had not established that it acted as a pure agent and was therefore not entitled to exclusion of such amounts from taxable value.

B. Being a Ltd. Company the appellant was covered by notification No. 35/2004 – ST dated 03.12.2004 and were liable to pay Service Tax on such freight charges paid.

C. As regards the Freight Forwarding Service the same was not consumed within the SEZ hence they were not eligible for the exemption under notification 04/2004 ST dated 31.03.2004 as superseded by notification No. 09/2009 dated 03.03.2009.

He hence prayed that the appeal may be rejected.

Discussion and Analysis

5. We have considered the rival submissions and perused the records. We examine the individual issues separately below.

Reimbursable Expenses

6. The first issue relates to inclusion of reimbursable expenses in the taxable value. The period involved is December 2008 to December 2009. It is no longer res integra that, for the period prior to amendment of Section 67 with effect from 14.05.2015, reimbursable expenditure could not be included in the gross value of taxable services merely by virtue of Rule 5 of the Valuation Rules. In Intercontinental Consultants and Technocrats Pvt. Ltd. Vs Union of India [2012 (12) TMI 150 – DELHI HIGH COURT], the Delhi High Court held that Rule 5(1) of the Service Tax Valuation Rules was ultra vires Sections 66 and 67 of the Finance Act, 1994, since reimbursed expenses cannot be treated as the “gross amount charged” for the service. The Court therefore held that service tax was not payable on actual reimbursements. On Revenue’s appeal against the judgment, the Hon’ble Supreme Court in Union of India Vs. Intercontinental Consultants & Technocrats (P.) Ltd. [2015 (2) TMI 593 – SUPREME COURT OF INDIA], upheld the Delhi High Court’s ruling. It also clarified that it was only from 14.05.2015, after the amendment to Section 67 by the Finance Act, 2015, that reimbursable expenditure became includible in the taxable value of services. Therefore, the demand of Rs. 36,181/- on reimbursable expenses for the period December 2008 to December 2009, is unsustainable and is set aside.

Goods Transportation Agency

7. The second issue concerns service tax demand of Rs. 9,437/- under reverse charge on alleged GTA service. As per Section 66D of the Finance Act, 1944 services specified under the Negative List are exempted from the levy of Service Tax. As per section 66D(P)(i) services by way of transportation of goods, except the services of a goods transportation agency, are exempted from the levy of Service Tax. The appellant’s specific case is that the payments were towards hire of vehicles and not freight charges. Further, no material has been produced by the department to establish issuance of consignment notes by the service provider. Since issuance of a consignment note is an essential requirement for classification of the service provider as a goods transport agency, the absence of such evidence is fatal to the demand made. A Coordinate Bench of this Tribunal at Hyderabad, in the case of M/s Bothra Shipping Services Vs Commissioner of Central Excise & Service Tax, Visakhapatnam, vide Final Order No. A/30362/2025 dated 11.09.2025, held that the issue is no longer res-integra that when there is no issuance of consignment note, there cannot be a GTA service and therefore, no demand can be made from either consignor or consignee. However, if GTA service has been provided, then they are liable to pay Service Tax. Therefore, it is already settled that when there is no issue of consignment note no demand can be raised. Hence in the absence of the department relying on a consignment note, the demand in this case merits to be set aside Service provided to SEZ

8. The third issue relates to demand of Rs. 26,307/- concerning services provided to SEZ units for the period from Apr. 2009 to Dec. 2009. The appellant has consistently contended that the tax liability for the relevant period had already been discharged, partly on being pointed out by the department and partly through regular payment reflected in returns. Once tax has already been paid, the same amount cannot be demanded again. We find that the exigibility of the service is not disputed by the appellant. The appellant’s claim is that the duty has already been discharged. The amount being very small we do not deem it necessary to remand the matter to the Original Authority for confirmation and accept the submission made by the appellant.

Conclusion

9. In view of the above, the impugned order is set aside. The appeal is allowed in favour of the appellant with consequential relief, if any, as per law.

(Order pronounced in open court on 29.05.2026)