Valuation — Reimbursement of expenses — Whether includible in taxable value — Held, yes, if the same were required to be spent in order to provide taxable service.

valuation — Reimbursement of expenses — Whether includible in taxable value — Held, yes, if the same were required to be spent in order to provide taxable service.

The appellant was providing clearing and forwarding services to M/s. Whirlpool India Private Limited during the period April 2001 to September 2005 and was receiving payment as commission/service charges. Apart from this, the appellant was also receiving amounts for service charges for employment, freight for distribution/transportation of goods, loading/unloading of goods, phone expenses, etc.

The appellant was required to arrange transportation of goods for which the appellant was paid fixed remuneration. Although as per the agreement, this charge was called ‘freight charges’, the same was not on actual basis. The Department was of the view that the remuneration received as freight charges was also remuneration for clearing and forwarding services and they further stated that various expenses reimbursed to the appellant were nothing but consideration for providing clearing and forwarding services. The Department further was of the view that these amounts should be added to the value of commission received by the appellant and service tax should be paid on such gross receipts and demand for service tax was made by the Department along with interest and penalty.

Held:

 It was held that without engaging clerks and utilising telephones and having godowns for storing the goods and without paying the loading and unloading charges, the appellant could not have rendered the clearing and forwarding services and even if these expenses were separately billed to the client, the expenses will form a part of value of taxable services. In case of transportation services, they were provided by the person operating the vehicles and there was no proof of the fact that the appellant had the responsibility to deliver the goods at the door-steps of the client. For freight revenue, it was conceded that it could be considered as reimbursable expense so long as the actual freight amounts were claimed. For expenses of pre-dispatch inspection, octroi and detention charges, it was held that these expenses were not towards any activity that would constitute service rendered by the appellant and therefore, excludible. Abatement from gross receipts received could be allowed for the expenses subject to production of vouchers for such expenses.