Transit Insurance & Service Tax: CESTAT Clarifies Tax Overlap
In a major relief for manufacturers and transporters, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that no separate service tax is payable on transit insurance if its cost is already factored into the assessable value for excise duty.
This judgment simplifies a long-standing ambiguity in taxation of composite contracts involving goods and insurance services during transportation.
What Was the Dispute?
The case involved a manufacturer who sold goods under FOR (Free on Road) terms, with the insurance cost for goods in transit embedded in the sale price.
Revenue authorities demanded service tax, alleging that the transit insurance portion was a separate taxable service under the Finance Act, 1994, even though excise duty had already been paid on the total value including insurance.
Key Ruling by CESTAT
CESTAT decisively held that:
- Transit insurance is not separately taxable if included in the assessable value under Rule 5 of the Central Excise Valuation Rules, 2000
- Charging service tax again would amount to double taxation, which is legally unsustainable
- The definition of ‘service’ under Section 65B of the Finance Act must be read in harmony with excise valuation principles
Citation: 2025 TAXSCAN (CESTAT) 620
Legal Basis Referred
| Legal Provision | Interpretation |
|---|---|
| Rule 5, Excise Valuation Rules, 2000 | Cost of transportation and insurance forms part of assessable value if sold FOR basis |
| Section 65B(44), Finance Act, 1994 | ‘Service’ excludes activities where full value is already taxed under another law |
| SC in Hindustan Polymers (1976 AIR 1944) | Taxes cannot overlap unless expressly stated by law |
Expert Tip
“If you’re a manufacturer or seller operating under FOR contracts, ensure your invoices clearly mention that insurance is included in the total price. This can prevent future tax disputes,”
— Senior Tax Consultant, Efiletax
What This Means for You
✅ No need to pay extra service tax on transit insurance if already part of the sale value
✅ Protects businesses from dual tax burden
✅ Encourages proper invoice structuring and disclosures
✅ Reinforces importance of understanding bundled services
When Is Transit Insurance Taxable?
| Scenario | Service Tax Applicable? |
|---|---|
| Insurance shown separately | ✅ Yes |
| Insurance cost embedded in excise value | ❌ No |
| Buyer arranges own insurance | ❌ No |
| Seller invoices insurance post-sale | ✅ Yes |
FAQs
Q1. Is GST applicable on transit insurance today?
Yes, under GST, if separately charged, insurance is taxable at 18%.
Q2. Does this CESTAT ruling apply under GST regime?
No, this case pertains to the pre-GST service tax era, but the principle of avoiding double taxation remains relevant.
Q3. How can businesses avoid such disputes?
Clearly structure contracts and mention all cost inclusions in invoices.
Summary
CESTAT rules service tax not payable on transit insurance if it’s already included in the excise assessable value. Avoids double taxation and clarifies compliance for manufacturers using FOR contracts.
Final Thoughts
The CESTAT’s 2025 decision reinforces a key tax principle: what’s taxed once should not be taxed again under another law. For Indian businesses, it’s a reminder to structure sale contracts carefully, especially in sectors where logistics, insurance, and manufacturing overlap.