The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that reimbursable expenses collected by a Customs House Agent (CHA) cannot be subjected to service tax under Rule 5(1) of the Service Tax Valuation Rules, 2006, especially for the period prior to the statutory amendment made in 2015. 

The bench of Ajayan T.V. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) ruled that the extended period of limitation could not have been invoked as the dispute involved interpretational issues. 

The ruling came in the case involving M/s. Thulsidas Khimji Pvt. Ltd., a licensed Customs House Agent registered for providing CHA services. The appeal challenged an Order-in-Appeal dated 22.11.2016 by which the Commissioner (Appeals) had remanded the matter back to the adjudicating authority for verification of facts relating to reimbursable expenses. 

As per the facts of the case, during departmental audit, it was noticed that apart from CHA charges, the assessee had also recovered several other expenses from clients including IAAI charges, delivery order charges, air freight charges, EDI charges, survey charges, warehousing charges, steamer agent charges, container freight station charges and terminal handling charges. The department alleged that service tax was payable on these amounts as they formed part of the taxable value under Rule 5(1) of the Service Tax Valuation Rules, 2006. 

A show cause notice dated 28.09.2009 was issued for the period from 19.04.2006 to 31.03.2009 invoking the extended period of limitation and proposing service tax demand along with interest and penalties under Sections 76 and 78 of the Finance Act, 1994. 

The original adjudicating authority had dropped the demand relating to reimbursable expenses after accepting that the assessee qualified as a “pure agent” based on a Chartered Accountant certificate. However, the department challenged the order before the Commissioner (Appeals), who remanded the matter for verification of the CA certificate. 

Before the Tribunal, the assessee argued that the entire demand was based on Rule 5(1) of the Valuation Rules, which had already been struck down by the Delhi High Court in the landmark Intercontinental Consultants and Technocrats case, later affirmed by the Supreme Court. It was contended that reimbursable expenses are not consideration for services and therefore cannot be included in taxable value. 

The Bench examined the Supreme Court judgment in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd. The Tribunal observed that the apex court had categorically held that Rule 5(1) travelled beyond Sections 66 and 67 of the Finance Act, 1994 and was therefore ultra vires. 

The Tribunal reproduced the Supreme Court’s observations that service tax can only be levied on the value of taxable services actually rendered and that any amount not charged “for such service” cannot form part of taxable value. The Supreme Court had also clarified that the 2015 amendment to Section 67, which specifically included reimbursable expenditure within taxable value, was substantive and prospective in nature. 

The Tribunal held that the remand order passed by the Commissioner (Appeals) was unsustainable because the very foundation of the demand under Rule 5(1) no longer survived in law. 

The CESTAT further accepted the assessee’s contention that the dispute involved interpretation of statutory provisions and therefore allegations of suppression or mala fide intent were not sustainable. Consequently, invocation of the extended period of limitation was also held to be invalid. 

The Tribunal set aside the impugned order and allowed the appeal with consequential reliefs in favour of the assessee. 

Case Details

Case Title: M/s. Thulsidas Khimji Pvt. Ltd. Versus Commissioner of GST & Central Excise 

Citation: JURISHOUR-1169-CES-2026(CHEN) 

Case No.:  Service Tax Appeal No. 40677 of 2017

Date: 07.05.2026

Counsel For  Appellant: Vaishnavi Mahesh, Advocate

Counsel For Respondent: N. Satyanarayana, Authorised Representative

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