Freight Reimbursement By C&F Agent Not Part Of Taxable Services Merely Because Agent Paid Transporter: CESTAT Delhi

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has ruled that freight charges reimbursed to a Clearing and Forwarding (C&F) Agent cannot be treated as part of its taxable services merely because it initially paid the transportation costs on behalf of its client.

A Bench of Judicial Member Ajay Sharma and Technical Member P.V. Subba Rao observed that paying transportation charges on behalf of a client and subsequently receiving reimbursement does not mean that the agent itself provided transportation services.

"The mere fact that the appellant paid the transporter or GTA on behalf of Birla Tyres and was then reimbursed does not mean that the appellant had transported goods of Birla Tyres."

The case concerned Madhu Agencies, which was engaged by Birla Tyres Ltd. as its C&F Agent. Under their agreement, Madhu Agencies was responsible for receiving, storing and dispatching tyres. It initially paid freight charges to independent transporters, which were later reimbursed by Birla Tyres.

Madhu Agencies raised separate bills for its C&F services and the freight expenses. It also paid service tax on its C&F service charges.

The service tax department demanded tax on the reimbursed freight, arguing that transportation formed part of the C&F services. The Deputy Commissioner confirmed a demand of ₹30.01 lakh, along with interest and an equal amount as penalty. The Commissioner (Appeals) upheld the demand.

The tribunal noted that Madhu Agencies' contractual responsibility was limited to receiving, storing and dispatching tyres. Transportation was carried out by independent transporters or Goods Transport Agencies (GTA). The consignment notes identified Birla Tyres as both the consignor and consignee.

It also noted that Birla Tyres had paid service tax on the GTA services under the reverse charge mechanism.

The Bench observed that although C&F Agents and transporters may work together, this does not automatically make transportation part of the agent's services.

It further explained that paying freight on behalf of a client was similar to lending money, while reimbursement amounted to repayment.

"This cannot be treated as part of C & F agent service rendered by the appellant."

The tribunal set aside the demand and granted consequential relief to Madhu Agencies.

For Appellant: Advocates S.C. Vaidyanathan and Srijit Chakrabarti

For Revenue: S.R. Meena