Transportation charges reimbursed by principal to C&F agent for arranging transport via authorised carriers are pure agent reimbursements, not includible in C&F service value under Section 67; Rule 5(1) ultra vires.

Per Mr. AJAYAN T.V.

Toll India Logistics (P) Ltd., the appellant herein, has challenged the Order in Original No.CHN-SVTAX-001-COM-034-2015- 16), dated 29.05.2015 (impugned order) to the extent the Adjudicating Authority has confirmed the demand of Rs.2,06,44,717 being the service tax short paid under ‘C & F service’ for the period 2008-09 to 2011-12 along with the demand of Rs.2,38, 394/- being the ineligible input service credit availed towards the ‘Outdoor Catering Services’ along with the applicable interest and imposed equivalent penalties under Section 78 of the Finance Act, 1994 (Act) along with a penalty of Rs.5,000/- under Section 77 (2) of the Act.

2. Brief facts are that the appellant is registered service provider of clearing and forwarding agent services. During the course of audit of accounts of the assessee, it was noticed that the appellant was providing C & F Agent Service to various companies. On perusal of the appellant’s C & F agreement with major customers, it was observed that the scope of service under the C & F agreement includes transportation of goods for delivery to the ultimate customers as per the instructions of the principals. It was observed that in addition to collecting C & F service charges from the Principals, the appellant also collected transport charges separately. However, for the purpose of calculation and payment of service tax under C & F service the appellant was not including the value of transportation charges. It was found that the appellant makes payment to the transporter and was not claiming such payment as reimbursement from the principal, and was showing it as expenses. The Department was of the opinion that in this case, for the transportation charges paid by the appellant, the service tax liability cannot be fixed on the principal for the reason that it is not the principal who is making payment to the transporter. The Department was of the opinion that since the transport charges were paid by the appellant in the capacity as C & F Agent to the Principal, the transport charges are part of the service charges of the appellant. The Department also found that the appellant had wrongly availed Cenvat credit of Rs.2,38,394/- on outdoor catering services from September 2011 to March 2012. The department also proposed a demand of Rs.38,07,145/- under the category of Goods Transport Agency Service (GTA). Therefore, a Show Cause Notice dated 30.10.2013 invoking the extended period of limitation was issued to the appellant proposing to demand the service tax short paid of Rs.2,06,44,717/- for the period 2008-09 to 2011-12, as well as the ineligible cenvat credit of Rs.2,38,394/- along with the applicable interest thereon and proposing to impose penalties under various sections. After due process of law, the proceedings culminated in the impugned order, whereby the Adjudicator dropped the demand under the category of GTA and confirmed the demands to the extent as noticed above. The appellant being aggrieved to the extent the demands had been confirmed, preferred this Appeal.

3. Shri S Muthu Venkataraman, Ld. Advocate appearing for the appellant argued that the impugned order was passed on an incorrect appreciation of facts. Factually, the appellant is rendering C & F agent services an