The Customs, Excise & Service Tax Appellate Tribunal, Chennai, has delivered a significant ruling clarifying the scope of taxable value under service tax law, particularly regarding reimbursable expenses and the evidentiary threshold for Goods Transport Agency (GTA) services. The decision reinforces established precedents that protect taxpayers from arbitrary inclusion of third-party costs and mandates strict compliance with statutory documentation requirements.
Background & Facts
The Dispute
The appellant, M/s. Broekman Logistics (India) Pvt. Ltd., a logistics service provider, was assessed for service tax arrears by the Commissioner of Service Tax (Appeals-II), Chennai, for the period December 2008 to December 2009. The assessment raised three distinct demands totaling Rs. 71,925/- under three heads: (i) non-payment of service tax on reimbursable expenses; (ii) non-payment of service tax on GTA services under reverse charge; and (iii) irregular availment of exemption for services rendered to Special Economic Zone (SEZ) units. The appellant challenged the order before the Appellate Tribunal.
Key Facts
- The appellant provided services under Clearing and Forwarding Agency Service, Cargo Handling Service, Business Auxiliary Service, and Goods Transport Agency Service.
- The department alleged short-payment of service tax for the period December 2008 to December 2009.
- The total tax demand was Rs. 71,925/- broken down as:
- Rs. 36,181/- for reimbursable expenses (Terminal Handling Charges, CFS charges, Delivery Order charges, demurrage)
- Rs. 9,437/- for GTA services under reverse charge
- Rs. 26,307/- for services to SEZ units
- The appellant had paid service tax on SEZ-related services for the period from April 2009 onwards and disclosed such payments in ST-3 returns.
- For the period prior to 14.05.2015, the appellant did not include reimbursable expenses in its taxable value.
- No consignment notes were produced by the department to substantiate the GTA service claim.
- The appellant had paid Rs. 3,66,448/- to M/s. SSK Transport, which it contended was for vehicle hire, not freight.
Procedural History
- December 2008 to December 2009: Period under scrutiny for service tax compliance.
- Prior to 14.05.2015: Reimbursable expenses were not includible in taxable value under prevailing law.
- 10.08.2015: Commissioner of Service Tax (Appeals-II) passed the impugned order confirming the demand.
- 42272 of 2015: Service Tax Appeal filed before CESTAT Chennai on challenge to the impugned order.
- 02.02.2026: Hearing conducted before the Tribunal.
- 29.05.2026: Final order pronounced.
The Parties' Positions
For the Appellant
- Reimbursable expenses were recovered on actual basis and were not part of the gross amount charged for services.
- For the period prior to 14.05.2015, Rule 5 of the Service Tax (Determination of Value) Rules, 2006 was held ultra vires by the Delhi High Court and upheld by the Supreme Court in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd.
- No consignment note was issued by M/s. SSK Transport; hence, no GTA service could be established.
- Reliance on Bothra Shipping Services v. CCE & ST, Visakhapatnam to establish that absence of consignment note defeats GTA demand.
- Service tax on SEZ-related services had already been paid and disclosed in returns; demand constitutes double taxation.
For the Respondent
- Reimbursable expenses were includible under Circular No. 119/13/2009-ST and Rule 5(1) of the Valuation Rules, subject to conditions not fulfilled by the appellant.
- The appellant, as a limited company, was liable under Notification No. 35/2004-ST for service tax on freight charges.
- Services to SEZ units were not consumed within the SEZ and hence ineligible for exemption under Notification No. 04/2004-ST, as superseded by Notification No. 09/2009.
Relief Sought
The appellant sought setting aside of the impugned order dated 10.08.2015, deletion of the entire demand of Rs. 71,925/-, and cancellation of any penalty imposed under Section 76 of the Finance Act, 1994.
The Legal Issue
The central questions were: (1) Whether reimbursable expenses incurred on behalf of customers during December 2008 to December 2009 form part of the taxable value under service tax law prior to the 2015 amendment; (2) Whether service tax can be levied on GTA services in the absence of a consignment note; and (3) Whether a service tax demand can be sustained where the taxpayer has already discharged the liability and disclosed it in statutory returns.
Arguments Presented
For the Appellant
The appellant relied on the Supreme Court’s decision in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd. [2015 (2) TMI 593], which held that Rule 5 of the Valuation Rules was ultra vires the Finance Act, 1994, to the extent it mandated inclusion of reimbursable expenses in taxable value. The appellant argued that the gross amount charged must reflect only the consideration for the service rendered, not third-party costs. For the GTA demand, it cited Bothra Shipping Services v. CCE & ST, Visakhapatnam, emphasizing that a consignment note is a mandatory statutory document for classifying a service provider as a GTA. Without it, no liability arises under reverse charge. Regarding SEZ services, the appellant submitted that tax had been paid and disclosed in ST-3 returns, making the demand violative of the principle against double taxation.
For the Respondent
The Revenue contended that Rule 5(1) and Circular No. 119/13/2009-ST permitted exclusion of reimbursable expenses only if the taxpayer acted as a pure agent, which the appellant failed to prove. It argued that the appellant was liable under Notification No. 35/2004-ST as a corporate entity paying freight charges. Regarding SEZ services, the Revenue asserted that the exemption under Notification No. 04/2004-ST was superseded by Notification No. 09/2009, and since services were not consumed within the SEZ, the exemption did not apply.
The Court's Analysis
The Tribunal conducted a detailed analysis of each head of demand, applying statutory provisions and binding precedents.
Regarding reimbursable expenses, the Tribunal noted that the period in question - December 2008 to December 2009 - predated the amendment to Section 67 of the Finance Act, 1994, effective 14.05.2015. The Supreme Court in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd. had unequivocally held that Rule 5 of the Valuation Rules was ultra vires to the extent it included reimbursed amounts in the taxable value. The Tribunal observed:
"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."
The Tribunal concluded that the demand of Rs. 36,181/- was legally unsustainable.
On the GTA service demand, the Tribunal emphasized that Section 66D(P)(i) of the Finance Act exempts transportation of goods unless rendered by a GTA. A GTA is defined by the issuance of a consignment note. The Revenue produced no evidence of such a document. The Tribunal relied on its own coordinate bench’s decision in Bothra Shipping Services, which held that absence of a consignment note is fatal to any GTA demand. The Tribunal stated:
"It is already settled that when there is no issue of consignment note, no demand can be raised."
Thus, the Rs. 9,437/- demand was set aside.
For the SEZ-related demand of Rs. 26,307/-, the Tribunal accepted the appellant’s submission that service tax had been paid and disclosed in ST-3 returns for the period from March 2009 onwards. The Tribunal noted that the exigibility of the service was not disputed, and the only issue was whether the tax had been discharged. Given the small quantum and the appellant’s compliance record, the Tribunal declined to remand the matter and accepted the appellant’s contention, holding that double taxation cannot be permitted.
The Verdict
The appeal was allowed in favor of the appellant. The impugned order dated 10.08.2015 was set aside. The entire demand of Rs. 71,925/-, comprising Rs. 36,181/- for reimbursable expenses, Rs. 9,437/- for GTA services, and Rs. 26,307/- for SEZ services, was deleted. Any penalty imposed under Section 76 of the Finance Act, 1994, was also cancelled. The Tribunal directed consequential relief as per law, with no further demand to be raised on the same grounds.
What This Means For Similar Cases
Reimbursable Expenses Are Not Taxable Unless Statutorily Mandated
- Practitioners must challenge inclusion of reimbursable expenses in taxable value for periods prior to 14.05.2015, citing Intercontinental Consultants as binding precedent.
- Taxpayers need not prove "pure agent" status under Rule 5 for pre-2015 periods; the burden shifts to the department to show statutory inclusion.
- Audit teams should review past assessments for reimbursable expense inclusions and file appeals where applicable.
Consignment Note Is Non-Negotiable for GTA Liability
- No service tax can be levied under reverse charge for GTA services without production of a consignment note.
- Revenue authorities must specifically allege and prove issuance of consignment notes; mere payment of freight is insufficient.
- Practitioners should advise clients to retain consignment notes as primary evidence for GTA services and challenge any demand lacking this document.
Double Taxation Is Prohibited Even for Minor Amounts
- Once service tax has been paid and disclosed in statutory returns, subsequent demand on the same transaction is legally impermissible.
- Tribunals will not remand cases for technical confirmation if the taxpayer has demonstrated compliance, especially for small amounts.
- Taxpayers should maintain clear records of ST-3 filings and payment receipts to rebut allegations of non-payment.
