CESTAT Sets Aside ₹30 Lakh Tax Demand On C&F Agent’s Reimbursed Freight: Client Was Consignor And Consignee, Agent Only Paid Transporters

In brief

The question

Whether freight paid by the appellant to transporters or GTAs on Birla Tyres’ behalf, and later reimbursed by Birla Tyres, formed part of the appellant’s taxable C&F service.

The court held

The Tribunal held that the reimbursed freight was not part of the appellant’s C&F agent service and that the impugned order could not be sustained.

It also directed

It set aside the order and allowed the appeal with consequential relief to the appellant.

01Facts

Madhu Agencies, a registered Clearing and Forwarding (C&F) agent for Birla Tyres Ltd., received, warehoused, stored and dispatched tyres.

¶ 4–7

Under their agreement, Madhu Agencies sometimes paid freight to independent transporters or Goods Transport Agencies (GTAs) on Birla Tyres’ behalf and obtained reimbursement.

¶ 4–7

It invoiced its C&F service charges separately and paid service tax on them; the consignment notes named Birla Tyres as both consignor and consignee, and Birla Tyres stated that it paid service tax on the GTA service under reverse charge.

¶ 4–7

An earlier demand concerning reimbursed freight for October 2011 to November 2014 was dropped, and the Revenue’s appeal was rejected.

¶ 8

In the present proceedings, the Department demanded service tax on reimbursed freight for December 2014 to June 2017, treating transportation as part of the C&F service. The adjudicating authority confirmed the demand, interest and penalty, and the Commissioner (Appeals) upheld that order.

¶ 9–10

02Issues

i.Whether freight paid by the appellant to transporters or GTAs on Birla Tyres’ behalf, and later reimbursed by Birla Tyres, formed part of the appellant’s taxable C&F service.

¶ 9, 13–15

ii.Whether the demand of service tax, interest and penalty on those reimbursements could be sustained.

¶ 2, 9, 16

03Law Applied

The Tribunal referred to the proviso to Section 73(1) of the Finance Act, 1994, as the basis for the demand, and Sections 75 and 78 as the bases for interest and penalty respectively.

¶ 2

It applied the principle that whether transportation forms part of a C&F agent’s service depends on the contract and the parties’ respective responsibilities; a C&F agent’s service may or may not include transportation.

¶ 13

It also noted the appellant’s reliance on Astha Solutions v. Principal Commissioner of CGST and Central Excise, Jaipur, Final Order No. 50336/2026 dated 23 February 2026, and other decisions.

¶ 10

Provisions in the judgment · 3

Finance Act, 1994 Section 73Section 75Section 78

04Reasoning

Under the agreement, the appellant’s duties were to receive, warehouse, store and dispatch the tyres; transportation was performed by independent transporters or GTAs, and the dispute over that transportation was between those providers and Birla Tyres.

¶ 13

The appellant’s payment of freight on Birla Tyres’ behalf, followed by reimbursement, did not make the appellant the provider of transportation or convert the freight into consideration for its C&F service.

¶ 14–15

The Tribunal characterised the arrangement as an advance by the appellant to Birla Tyres, later repaid, rather than part of the appellant’s C&F service.

¶ 14–15

The freight reimbursements therefore could not support the demand on the ground adopted by the Department.