Service Tax On Reimbursed Customs Duty: HC

The Delhi High Court has held that no service tax payable on customs duty, Bunker Adjustment Factor (BAF) and Currency Adjustment Factor (CAF) charges, ocean freight, air freight reimbursed by client.

The bench of Justice Yashwant Varma and Justice Ravinder Dudeja while upholding the CESTAT’s ruling held that the non-taxable amount includes amounts like customs duty, BAF & CAF charges, ocean freight and air freight. All these amounts are paid by the appellant on behalf of the client and later on are reimbursed . Thus, it cannot be taxed as they are in the nature of reimbursements.

Background

The respondent/assessee is a Multi-Modal Transport Operator and who is stated to have made payments toward customs duty, air freight, ocean freight and surcharges for and on behalf of various clients.

The department gathered the material during the course of the enquiry and the verification details provided, found that the payments made by the assessee were being reimbursed by the individual clients and the issue was thus clearly confined to that of a reimbursement of expenses incurred for and on their behalf. The assessee also did not place reliance on any material which may have indicated that the reimbursements were subject to a markup that may have been charged by the assessee.

The CESTAT dropped the demand. The assessee was asked to provide details of the value shown as non- taxable under the financial data summary sheet earned for activities covered under BSS. In the third show cause notice which was issued for period 2014-15 the demand was proposed on the amount under the category or BSS only. There is no retention of section 65B(44) of the Finance Act. The Tribunal held that the non Taxable amounts paid by the transport operator on the behalf of the client which was reimbursed later on by the client.

The Principal Commissioner CGST challenged the order of Customs Excise and Service Tax Appellate Tribunal (CESTAT).