Freight and Insurance Income Not Taxable Under Service Tax: CESTAT Quashes ₹26.94 Crore Demand Against BHEL

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has granted an exemption from service tax to Bharat Heavy Electricals Limited (BHEL) on the freight and insurance charges that the company recovers from its customers as part of its works contracts. The tribunal reasoned that these charges are integral and inseparable components of the overall works contract, rather than being independent taxable services in themselves. This decision provides much-needed clarity on the tax treatment of such ancillary charges that are common in engineering and construction projects where the supplier is responsible for the delivery and insurance of goods. The CESTAT's ruling offers relief to companies like BHEL, potentially reducing their tax burden and simplifying the tax compliance aspects of their large-scale projects by distinguishing between the primary service and the costs incurred to facilitate its delivery.