Reimbursable third-party expenses were not includible in CHA service value before 14 May 2015.

M/s. Galaxy Commercial, a registered Customs House Agent (CHA), provided CHA services during April 2008–March 2009.

The Department alleged that the appellant had collected LCL charges, deconsolidation charges, delivery order charges, terminal handling charges, demurrage charges and similar amounts from its clients but had excluded them from the taxable value by treating them as reimbursable expenses.

A show-cause notice dated 20 October 2009 proposed inclusion of these amounts under Section 67 of the Finance Act, 1994 read with Rule 5 of the Service Tax (Determination of Value) Rules, 2006.

The Principal Commissioner nevertheless confirmed service tax of ₹2,09,83,215, along with interest and an equivalent penalty under Section 76 of the Finance Act, 1994, by Order-in-Original No. 8/2025-CH-N(GST) dated 28 March 2025.

The appellant also challenged the adjudication on the ground of the extraordinary delay caused by the notice remaining in the Call Book for nearly fifteen years.

Whether reimbursable expenses recovered by the appellant from its clients were includible in the taxable value of CHA services under Section 67 of the Finance Act, 1994 read with Rule 5 of the Service Tax (Determination of Value) Rules, 2006?

Whether the demands of service tax, interest and penalties were legally sustainable in light of the statutory provisions and applicable judicial precedents?

The Tribunal applied Section 67 of the Finance Act, 1994, as it stood during 2008–2009, under which the taxable value was the gross amount charged by the service provider for the taxable service.

It relied principally on Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India, affirmed by the Supreme Court in Union of India v. Intercontinental Consultants & Technocrats Pvt. Ltd., 2018 (10) G.S.T.L. 401 (S.C.), holding that, before the amendment to Section 67 effective from 14 May 2015, Rule 5(1) could not enlarge the statutory valuation provision by including reimbursable expenditure or costs not constituting consideration for the taxable service.

The Tribunal further relied on BAX Global India Ltd. v. Commissioner of Service Tax, International Shippers & Traders Pvt. Ltd. v. CCE, Broekman Logistics India Pvt. Ltd. v. Commissioner of CGST and Central Excise, and the coordinate Bench decisions in Sindhu Cargo Services Pvt. Ltd., Balram Shipping Services, and North Star Shipping Service Pvt. Ltd., which applied the same principle to third-party reimbursements recovered by CHAs and freight forwarders.

The governing rule was that amounts paid to third parties on behalf of clients and not received as consideration for the CHA’s own service could not be included in the taxable value merely because they were recovered by the CHA; the statutory amendment including reimbursable expenditure was prospective from 14 May 2015.

The Tribunal distinguished between consideration for the appellant’s CHA services and amounts recovered towards payments made to third parties.

Applying the Supreme Court’s interpretation of Section 67, it held that Rule 5 could not expand the charging provision for the period April 2008–March 2009.

The disputed LCL, deconsolidation, delivery order, terminal handling, demurrage and similar charges were found to represent recoveries towards payments made to port authorities, steamer agents, CFS operators and other agencies, rather than consideration for the appellant’s own services.

Since the amounts were outside the taxable value under Section 67, the Department’s reliance on the “pure agent” conditions under Rule 5(2) was immaterial; those conditions could not make non-taxable consideration taxable.

Consequently, the principal service-tax demand failed, and the associated interest and penalties also became unsustainable.

Although the appellant raised a separate challenge based on the prolonged Call Book delay, the Tribunal disposed of the appeal on the substantive valuation issue.

It held that genuine reimbursable expenses recovered by the CHA for the pre-14 May 2015 period were not includible in the taxable value under Section 67 of the Finance Act, 1994.

The Order-in-Original confirming service tax of ₹2,09,83,215, interest and penalties was set aside.

The appeal was allowed with consequential relief, if any, in accordance with law.