Transport Charges Not Includible in C&F Service Value Prior to 2015 Amendment: CESTAT

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that transportation charges incurred by a clearing and forwarding (C&F) agent on behalf of its principal cannot be included in the taxable value of C&F services for the period prior to 14 May 2015. The bench of Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) has observed that service tax is chargeable only on the consideration for “such service”. Reimbursed expenses do not form part of the taxable value. Rule 5(1) of the Service Tax Valuation Rules, which sought to include such expenses, was ultra vires. The dispute arose from an Order-in-Original dated 29 May 2015, wherein the Department confirmed a demand of ₹2.06 crore towards alleged short payment of service tax under C&F services for the period 2008–09 to 2011–12. Additionally, CENVAT credit of ₹2.38 lakh on outdoor catering services was disallowed, along with interest and penalties. The Department contended that the appellant, while providing C&F services, had also undertaken transportation of goods and collected transportation charges separately. It was alleged that such charges formed part of the gross value of taxable services and were liable to service tax. The principal issue before the Tribunal was whether transportation charges incurred by the appellant—while arranging transport on behalf of the principal—could be included in the value of taxable C&F services under Section 67 of the Finance Act, 1994. The Tribunal undertook a detailed examination of the agreements between the appellant and its clients and found that the appellant acted merely as an agent in arranging transportation. Ownership of goods remained with the principal at all times. Transporters were engaged as per the principal’s directions. Transportation charges were separately billed and reimbursed. Based on these facts, the Tribunal held that the appellant functioned as a “pure agent” with respect to transportation expenses. The Tribunal placed strong reliance on the landmark ruling of the Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd., wherein the Supreme Court held that reimbursable expenses cannot be included in the value of taxable services prior to the 2015 amendment to Section 67. Since the period involved in the present case was prior to 2015, the inclusion of transportation charges was held to be legally unsustainable. The Tribunal further noted a critical procedural lapse:he Show Cause Notice failed to invoke Rule 5 of the Valuation Rules, which was necessary to justify inclusion of such expenses. This omission was held to be a fundamental legal infirmity, rendering the demand unsustainable on this ground as well. The Tribunal upheld the denial of credit on outdoor catering services, citing the exclusion introduced in Rule 2(l) of the CENVAT Credit Rules, 2004 w.e.f. 1 April 2011. However, the demand was restricted to the normal limitation period. The Tribunal ruled in favour of the assessee on limitation, observing that there was no allegation or evidence of suppression of facts or intent to evade tax. The appellant had been regularly filing returns. The issue was interpretational and had been litigated earlier in the appellant’s own case. The invocation of the extended period of limitation was held to be invalid. The Tribunal set aside the service tax demand of ₹2.06 crore on C&F services; set aside corresponding interest and penalties. The tribunal upheld denial of CENVAT credit on outdoor catering services (limited to normal period) and allowed the appeal partly with consequential relief. Case Details Case Title: M/s. Toll India Logistics Private Limited Versus Citation: JURISHOUR-597-CES-2026(CHEN) Case No.: Service Tax Appeal No. 41891 of 2015 Date: 01.04.2026 Counsel For Appellant: S. Muthu Venkataraman , Advocate Counsel For Respondent: G. Krupa, Authorised Representative Click Here To Read Order Read More: Forex Loss Allowed on Foreign Loan as Business Expenditure: ITAT

Transport Charges Not Includible in C&F Service Value Prior to 2015 Amendment: CESTAT

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