CESTAT Chennai Rules Transportation Charges Not Taxable In C&F Services Before May 2015

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 1 April, held that reimbursable transportation charges paid to a clearing and forwarding (C&F) agent do not form part of the taxable value of services for the period prior to the 2015 amendment to the Finance Act.

A Bench comprising Technical Member M. Ajit Kumar and Judicial Member Mr. Ajayan T.V. partly allowed the appeal filed by Toll India Logistics Pvt. Ltd., clarifying that only the consideration received for the actual service rendered is taxable.

The Tribunal observed:

“Under Section 67, the value of taxable service shall only be the gross amount charged by the service provider 'for such service' and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro quo for rendering such a service.”

Toll India Logistics provided clearing and forwarding services. The Department alleged that the company collected transportation charges separately but failed to include them in the taxable value of services, thereby short-paying service tax. Based on this allegation, the Department confirmed a demand of more than Rs. 2 crore along with interest and penalties.

After examining the agreements and records, the Tribunal found that the appellant had merely arranged transportation on behalf of the principal. The principal retained ownership of the goods, and the appellant separately billed and later received reimbursement of the transportation charges.

The Tribunal held that the appellant acted as a “pure agent” for these expenses and therefore could not treat the transportation charges as consideration for C&F services.

While deciding the issue, the Tribunal relied on the Supreme Court's ruling in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd., and reiterated that authorities could not include reimbursable expenses in the taxable value prior to the 2015 amendment.

Applying this principle, the Tribunal set aside the service tax demand on transportation charges for the period 2008–2012.

On CENVAT credit, the Tribunal upheld the denial of credit on outdoor catering services in view of the specific exclusion under the CENVAT Credit Rules. However, it limited the demand to the normal period of limitation.

The Tribunal also held that the Department could not invoke the extended limitation period, as the appellant had regularly filed returns and the dispute involved an interpretational issue.

Accordingly, the Tribunal partly allowed the appeal. It set aside the service tax demand on transportation charges along with interest and penalties, and upheld the denial of CENVAT credit for the normal period.

Appearance for the Appellant: Mr. S. Muthu Venkataraman, Advocate

Appearance for the Respondent: Ms. G. Krupa, Authorised Representative