Case Law Details
ABF Freight International Pvt. Ltd Vs Principal Commissioner of GST & Central Excise (CESTAT Chennai)
Conclusion: Profit arising from purchase and sale of cargo space by a freight forwarder on principal-to-principal basis was trading income and not consideration for service, and therefore not liable to service tax under Business Support Service or otherwise.
Held: Assessee-company was registered under Business Auxiliary Services and engaged in freight forwarding activities, including arranging export/import of cargo through shipping lines. During audit, it was noticed that assessee collected “ocean freight” from customers (exporters/importers) at rates higher than those paid to shipping lines, thereby earning a margin/markup. Department alleged that assessee was merely arranging transportation and providing support services in the nature of logistics/coordination and held that the differential amount (markup) formed part of consideration for services rendered and was taxable under “Business Support Service” (pre-01.07.2012) and under Section 65B(44) thereafter. The benefit of “pure agent” was denied. A demand of ₹2.70 crores along with interest and penalties under Sections 78 and 77 was confirmed invoking extended period under Section 73. Assessee contended that it acted as a Multimodal Transport Operator (MTO) and not as an agent or intermediary; transactions with shipping lines and customers were on a principal-to-principal basis, involving purchase and sale of cargo space; the margin earned was trading profit arising from buying and selling space, not consideration for any service; appellant assumed commercial risks (unsold capacity, price fluctuations), which was inconsistent with an agency model; ocean freight was not taxable during the relevant period; hence markup thereon also could not be taxed and the issue was settled by multiple Tribunal decisions and affirmed by the Supreme Court in Commissioner vs EMU Line Pvt Ltd. Department contended that assessee was arranging international freight and providing support services in business or commerce; the entire amount collected, including markup, constituted consideration for service.; assessee did not qualify as a pure agent, as it retained margin, the nature of activity and income was suppressed; hence extended limitation was invokable. Held: Tribunal held that the issue was no longer res integra and stood settled in favour of the assessee by a catena of decisions, including affirmation by the Supreme Court. The activity of assessee was purchase and sale of cargo space and not provision of service. The transactions with shipping lines and customers were independent principal-to-principal contracts, and there was no evidence to establish an agency or intermediary relationship. The margin earned represented trading profit arising from commercial transactions involving risk, and could not be regarded as consideration for any taxable service. For levy of service tax, there must be (i) provision of service, (ii) taxable category, and (iii) consideration for such service. In the present case, these essential ingredients were not satisfied. Department failed to produce evidence to justify reclassification of the activity under Business Support Service. Ocean freight itself was not exigible to service tax during the relevant period; hence, markup thereon also could not be brought to tax. Reliance was placed on the Supreme Court decision in Union of India vs Intercontinental Consultants and Technocrats Pvt Ltd, holding that only consideration for services could be taxed and reimbursable elements could not be included (prior to amendment). Consistent judicial view of coordinate benches mandated adherence in absence of contrary higher judicial precedent. The demand of service tax on ocean freight and markup thereon, along with interest and penalties, was unsustainable.
FULL TEXT OF THE CESTAT CHENNAI ORDER
M/s. ABF Freight International Pvt. Ltd., the appellant herein is aggrieved by the Order-in-Original No. CHN-SVTAX-001-COM-76-2016-2017 dated 27.01.2017 (impugned order), whereby the Adjudicating Authority has confirmed the demand of Service Tax of Rs.2,70,90,296/- payable during the period from April 2011 to March 2015 along with applicable interest, imposed an equivalent penalty under Section 78 and a penalty of Rs.10,000/- under Section 77(2) (of Finance Act, 1994)
2. Brief facts are the appellant is a registered service provider of Business Auxiliary Services. During the course of the audit of the appellants records, it was observed that in addition to providing the above mentioned services, the appellant also arranges for the transportation of export/import cargo in containers by sea through shipping agencies. The freight for the above, known as ‘ocean freight is fixed/agreed between the appellant and the shipping companies. The appellant received booking orders from their export of cargo from their customers and makes arrangements with the shipping company for the shipment of the export cargo to the destination by the ship. Similarly, in the case of imports the appellants books the containers and arrangement is made with the shipping company for the provision of international freight services for the transportation of cargo in the containers to the destination in India. The appellant collects the negotiated and agreed amount from the customers as ocean freight charges in the case of exports and imports. These charges vary from customer to customer depending on the destination and the size of the containers. It was seen that the amounts collected as ocean freight charges by the appellant from their customers is more that the ocean freight charges paid by the appellant to the shipping companies.
3. The department was of the view that the appellant only arranges for the transportation of cargo of their customers and do not provide the freight charges themselves. The department was of the view that the appellant had made arrangements with the shipping companies for the provision of international freight service for the transportation of goods on their own account. For arranging the international freight service, the appellant collects amounts on the name of freight charges which included in addition to the actual freight charges a consideration for arranging transportation to the ports of destination.
4. It appeared to the department that the appellant is providing services in relation the business or commerce to their customers which include distribution, management and logistics and fall within the ambit of “support services of business or commerce” as defined under Section 65 (104c) of the Finance Act, 1994 (Act) and therefore in respect of services provided before 01.07.2012 it appeared to be only a business support service. After 01.07.2012, in view of the definition of service as per Section 65B(44) of the Act, the department was of the view that the service rendered by the appellant, which also was not covered under the negative list, was a service defined under Section 65B(44). It tantamount to services provided to the exporter for arranging the international freight services. Though the appellant collected amount in the name of freight charges, the amount is inclusive of a markup and the actual freight charges paid to the shipping line. The Department formed a view that the service provided by the appellant is in the nature of ‘support services in the business of commerce’ and the ocean freight charges with markup received as ‘consideration’ for the services provided to their customers has to be reckoned for the purpose of levy of Service Tax as per Section 66/66B read with Section 67 of the Act and rule 5(1) of Service Tax (determination of value Rules, 2006). The Department was also of the opinion that the service provided by the appellant to their customers cannot be considered as service provided in the capacity of a pure agent as the freight charges collected by the appellant from their customers is more than the amount paid by the appellant to the shipping companies /liners for the export of cargo.
5. The Department was also of the opinion that since the exact nature of services provided by the appellant and the income earned was not disclosed in any manner to the department and it was known only during the audit, therefore the appellant had willfully and deliberately suppressed the material facts of the services provided by them with intent to evade payment of service tax and hence extended period of time limit under proviso to Section 73(1) of the Act was invokable. Hence, the Show Cause Notice No.50/2016 dated 26.07.2016 demanding service tax of Rs.2,70,90,296/- for the period from April 2011 to March 2015, under proviso to Section 73(1) along with the interest at the appropriate rate and proposing to impose penalties under Section 78 of the Act was issued. After due process of law the Adjudicating Authority confirmed the demand of service tax and imposed penalties as afore mentioned. Aggrieved, the appellant has preferred this appeal.
6. Shri Janakiraman, Ld. Advocate appearing on behalf of the appellant submitted that ocean freight charge by the appellant as the Multi Modal Transport Operator concerns goods exported/imported by the clients of the appellant. It was contended that the appellant transaction with the shipping liners for procuring cargo space in containers were on principal to principal basis. The transaction between the appellant and their clients who were exporter/importers were again on principal to principal basis. Purchase and sale of cargo space does not partake of the nature of taxable service during the relevant period. Ocean freight became liable to service tax and that to only for import cargo, with affect from 01.06.2016 after providing for substantial abatement. The appellants did not act as intermediary or as a commission agent of the shipping lines when it had purchased and sold cargo space. The clients of the appellant that is the exporters/importers are not privy to the contract between the appellant and the shipping liners. Neither the shipping line would be able to enforce their rights concerning ocean freight from the exporter/importers nor would the exporters/importers would be able to enforce their rights from the shipping liners. The purchase and sale of space in the containers for export/import of goods on principal to principal basis is in no way a service, much less a taxable service. In anticipation of receipt of orders, the appellant pre books space in containers from the liners and it may result either to the proof to the appellant or loss in case sufficient bookings cannot be obtained a lost to the appellant. The department has not provided any evidence to show that the appellant is an agent of the either of shipping liners or the exporters/importers.
7. Ld. Counsel further submits that the issue is no more res-integra and the Tribunal has held in a number of decisions that the appellants transactions are only purchase and sale of space in the containers for export/import of goods and the difference between the purchase price and selling price of cargo space is nothing but profit or loss, which cannot be subjected to service tax. Reliance is place on the decisions in Final order dated 07.09.2021 in Seaport Lines vs. CC, GST & CE, Chennai, Marina Trans(P) Ltd. vs. CST, Hyderabad-2020 (33) GSTL 241 (Tri.Hyd), Final Order No.42355 to 42358 and 4203442035/2019 dated 04.03.2020 in TVS Dynamic Global Freight Services vs CCE & GST, Chennai, ST Appeal No.362/2012 Order dated 10.02.2020 in Nilja Shipping (P) Ltd vs. CCE, Chennai, Order dated 12.07.2023 in Appeal No.51621 & 51622 in Tiger Logistics India Ltd. vs. Commissioner, Delhi, Pawan Cargo Forwarders (P) Ltd vs Pr. CCE & ST, Chennai-2020 (34 ) GSTL 559 (Tri.Chennai), Appeal No.ST/00050/2012 CESTAT, Chennai in PVGT Freight Forwarders vs CST, Chennai, LEAAP International (P) Ltd. vs. Commissioner of ST, Chennai –2018-TIOL-2147-CESTAT-MAD Order dated 12.03.2018, Geodis Overseas Pvt. Ltd. vs Commissioner of ST, Chennai-(2023) 6 Centax 22 (Tri. Mad.), Dunmite Groupage Services (P) Ltd vs CCE, GST, Jaipur,(2024) 16 Centax 390 (Tri-.Del) and Haiko Logistics (I) Pvt. Ltd. vs Commissioner of ST, Delhi, 2023 (13) Centax 79 Tribunal, Delhi. He prays that the appeal be allowed.
8. Shri Anoop Singh, Ld. Authorized Representative appearing for the Respondent reiterated the findings of the Ld. Adjudicating Authority. However, with his characteristic candour, that we have noted on earlier occasions too, he would also bring to our notice that the issue is no more res-integra and stands decided against the Revenue and produced the Apex Court decision in Commissioner of CGST and CE Belapur vs M/s.EMU Line Pvt. Ltd, 2023(2)TMI 1155-SC. He also submitted the following decisions wherein, it is seen that in similar instances the matter stood settled in favour of the assessee therein, M/s.A.G.X. Logistics Pvt. Ltd, M/s.C.A. Logistics Pvt. Ltd. and M/s.A.G..X. Logistics (I) Pvt. Ltd. vs Commissioner of GST & CE, Chennai-2023 (12) TMI 527, M/s.Fairmacs Shipping & Transport Services Pvt. Ltd. vs Commissioner of GST & CE, Chennai-2024 (9) TMI 1828, M/s.Vantec Logistics India Pvt. Ltd. vs Commissioner of CGST & CE -2024(6) TMI 683, M/s.New Era Travel & Cargo Agencies vs Commissioner of GST & CE, Chennai-2024 (5) TMI 1520 and M/s.Bluemoon Logistics (P) Ltd. vs Commissioner of Central Excise, Noida-2024(3) TMI 285-CESTAT Allahabad. We commend the fairness shown by the Ld. Authorised representative, as was his duty as an officer of the Tribunal, and express our appreciation of the same.
9. We have heard both sides, and perused the material on record.
10. We find that this bench had an occasion to examine transactions same as that of the appellant herein, in our decision in M/s. Seaport Lines India (P) Limited Vs. Commr. Of GST & CE, Chennai, vide our Final Order No.40367-40368/2026 dated 16-03-2026; wherein when the department had sought to classify the activity of the appellant therein under Business support services we had noticed the earlier decision of a coordinate bench of this Tribunal in the case of M/s.Geodis Overseas Private Limited v. CST, Chennai, 2022 (6) TMI 1085-CESTAT CHENNAI, which had analysed the nature of such transaction of collection of Ocean Freight with markup by the assessee/appellant therein who was a multimodal transporter, and had followed the same. The relevant portions of our discussions therein as would be applicable to the issues at hand in this Appeal, are reproduced hereunder:
“15. Be that as it may, we find that the issue on levy of service tax on expenses that are reimbursed by the customers to the Service Provider, is no more res-integra in view of the decision of the Honourable Supreme Court in the case of UOI v Intercontinental Consultants and Technocrats Pvt Ltd, 2018 (10) GSTL 401 (SC) which has considered the issue of liability to pay service tax on such expenses received by the service provider in the course of rendering services for the client, apart from the consideration received for rendering the services on which the client has discharged the liability to pay service tax. The Honourable Supreme Court affirmed the decision of the Delhi High Court in Intercontinental Consultants & Technocrats Pvt Ltd v UOI, 2013 (29) STR 9 (Del), wherein Rule 5(1) of the Service Tax Valuation Rules, 2006 which provided for inclusion of expenditures or costs incurred by the service provider in the course of providing taxable services, in the value of such taxable services, was stuck down as ultra vires Section 66 and Section 67 of the Act and as travelling beyond the scope of the said sections. The Honourable Supreme Court had also noticed the nature of such expenses that arose for consideration in the facts of the case as well as that in connected appeals before it, which is seen to include Air and Sea Freight, and has gone on to hold as under:
“21. Undoubtedly, Rule 5 of the Rules, 2006 brings within its sweep the expenses which are incurred while rendering the service and are reimbursed, that is, for which the service receiver has made the payments to the assessees. As per these Rules, these reimbursable expenses also form part of ‘gross amount charged’. Therefore, the core issue is as to whether Section 67 of the Act permits the subordinate legislation to be enacted in the said manner, as done by Rule 5. As noted above, prior to April 19, 2006, i.e., in the absence of any such Rule, the valuation was to be done as per the provisions of Section 67 of the Act.
22. Section 66 of the Act is the charging Section which reads as under:
“there shall be levy of tax (hereinafter referred to as the service tax) @ 12% of the value of taxable services referred to in sub-clauses of Section 65 and collected in such manner as may be prescribed.”
23. Obviously, this Section refers to service tax, i.e., in respect of those services which are taxable and specifically referred to in various sub-clauses of Section 65. Further, it also specifically mentions that the service tax will be @ 12% of the ‘value of taxable services’. Thus, service tax is reference to the value of service. As a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon.
24. In this hue, the expression ‘such’ occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing ‘such’ taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such ‘taxable service’. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider ‘for such service’ and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service.
25. This position did not change even in the amended Section 67 which was inserted on May 1, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be However, Section 67(4) is expressly made subject to the provisions of sub-section (1). Mandate of subsection (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider.
26. It is trite that rules cannot go beyond the statute. In Babaji Kondaji Garad, this rule was enunciated in the following manner :
“Now if there is any conflict between a statute and the subordinate legislation, it does not require elaborate reasoning to firmly state that the statute prevails over subordinate legislation and the byelaw, if not in conformity with the statute in order to give effect to the statutory provision the Rule or byelaw has to be ignored. The statutory provision has precedence and must be complied with.”
27. The aforesaid principle is reiterated in Chenniappa Mudaliar holding that a rule which comes in conflict with the main enactment has to give way to the provisions of the Act.
28. It is also well established principle that Rules are framed for achieving the purpose behind the provisions of the Act, as held in Taj Mahal Hotel :
“the Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect.”
29. In the present case, the aforesaid view gets strengthened from the manner in which the Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with ‘consideration’ is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. Though, it was not argued by the Learned Counsel for the Department that Section 67 is a declaratory provision, nor could it be argued so, as we find that this is a substantive change brought about with the amendment to Section 67 and, therefore, has to be prospective in nature. On this aspect of the matter, we may usefully refer to the Constitution Bench judgment in the case of Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited [(2015) 1 SCC 1] wherein it was observed as under :
“27. A legislation, be it a statutory Act or a statutory rule or a statutory notification, may physically consists of words printed on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non-fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of “interpretation of statutes”. Vis-a-vis ordinary prose, a legislation differs in its provenance, layout and features as also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof.
28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow’s backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips v. Eyre [(1870) LR 6 QB 1] , a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.
29. The obvious basis of the principle against retrospectivity is the principle of “fairness”, which must be the basis of every legal rule as was observed in L’Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later.”
30. As a result, we do not find any merit in any of those appeals which are accordingly dismissed.” (emphasis supplied)
15. Thus, the law of the land as laid down by the Apex Court in its decision in Union of India v Intercontinental Consultants and Technocrats Pvt Ltd, 2018 (10) GSTL 401 (SC), puts it beyond the pale of any controversy that Section 67 which deals with valuation of taxable services for charging service tax does not provide for inclusion of the aforesaid expenditure or cost incurred while providing the services as they cannot be treated as element/components of service, till the amendment to Section 67 made effective from May 14, 2015. Concededly, the period involved in the present Appeals are from 01-04-2013 to 31-03-2015, and hence the aforesaid decision would squarely apply, rendering the entire demand confirmed in the impugned order unsustainable and liable to be set aside on this count alone.
16. That apart, it is indisputable that Services by their very nature are intangible, being experiences, performances or activities, which cannot be physically touched or held. Services cannot also be inventoried and stored or transported for future use. Services are produced and consumed simultaneously. Their value is gleaned through the very experience, the tangible cue being their quality, which makes one qualify the service as clean or fast, efficient or tardy etc. Therefore, what exactly is the service rendered and received are best known to the service provider and the service receiver. The SCN does not rely on any statement or any other correspondence that would evidence as to what was the service rendered by the Appellant and what it is that the Appellant’s client’s understood when they were invoiced for the said service. When the Department proposes to change the classification of services from that which was hitherto being adopted, by the Appellant, it is a settled position in law that the onus is on the Department to prove with evidence that such a change in classification is warranted and that the classification is as what is being contended by the Department. The decisions in Jetlite (India) Ltd v. CCE, New Delhi, 2011 (21) STR 119 (Tri-Del) and Dewsoft Overseas v CST, New Delhi, 2008 (12) STR 730 (Tri-Del) refers in this regard. Thus, the allegations in the SCN that a change in classification is warranted are on assumptions without any evidence, all the more when the Appellant is already registered and paying service tax under a particular category.
XXXXXXX
20. It is the contention of the Appellant that it is a multimodal transporter and that the appellant’s transactions with the Shipping Lines for procuring cargo space in containers were on principal to principal basis. The transaction between the appellant and their clients who were all exporters were again on principal to principal basis. In anticipation of receipt of orders, the appellant pre-books space in containers from the liners. It may result in profit to the appellant or loss if sufficient bookings cannot be obtained leading to wastage of space booked. The activity of the appellant was one of trading in Cargo space in containers. In other words, it was only a purchase and sale of space in the Containers for export of goods and that too on principal to principal basis. The Department has not shown that the appellant is an agent either of the Shipping liners or the exporters. As we had observed supra, there is no evidence let in in the Show Cause Notice that would warrant a change in classification as was proposed in the Show Cause Notice.
21. In any event, we also find that a coordinate bench of this Tribunal has already analysed the nature of such transaction of collection of Ocean Freight with markup by the assessee/appellant therein who was a multimodal transporter, as is the case of the Appellant herein, in the case of M/s. Geodis Overseas Private Limited v Commissioner of Service Tax, Chennai, 2022 (6) TMI 1085-CESTAT CHENNAI, relied upon by the Appellant. The relevant portions are as under:
“8.1 The first issue is whether the charges collected by the appellant from its customers in the nature of ocean freight are subject to levy of Service Tax under Business Support Services.
8.2 This issue has been considered in various decisions of the Tribunal wherein the Tribunal has held that ocean freight charges are not subject to levy of Service Tax under Business Support Services or Business Auxiliary Services. The relevant discussion in the case of M/s. Greenwich Meridian Logistics (I) Pvt. Ltd. (supra) is reproduced as under:
“10. The original authority has proceeded on the assumption that there is only one payment and, that too, for freight charged by the shipping line. He has rejected the possibility of trading in space or slots on vessels by holding that trading in space or slots is a figment and freight is all that is transacted. This is a patent misconstruing of the usage of that expression. Freight, though used colloquially to describe all manner of carriage, is the nomenclature assigned to the consideration for space provided on a vessel for a particular voyage. Freight is charged by the entity that is in possession of space on a vessel from an entity that requires the space for carriage of cargo.
11. Slots may be contracted for by the shipper or its agent with the shipping line through the steamer agent. Implicit is a uni-directional flow of consideration because the space belongs to the shipping line. Steamer agent or agent of shipper may earn commission in such a transaction. Leaving that situation aside, the contention of the appellant is that it is a ‘multi-modal transport operator’ which entails a statutorily assigned role in cross-border logistics. According to Section 2 of the Multi-modal Transportation of Goods Act, 1993.
(m) ”multimodal transport operator” means any person who –
(i) concludes a multimodal transport contract on his own behalf or through another person acting on his behalf;
(ii) acts as principal, and not as an agent either of the consignor, or consignee or of the carrier participating in the multimodal transportation, and who assumes responsibility for the performance of the said contract; and
(iii) is registered under sub-section (3) of section 4;
and
(a) ”carrier” means a person who performs or undertakes to perform for a hire, the carriage or part thereof, of goods by road, rail, inland waterways, sea or air;
12. The appellant takes responsibility for safety of goods and issues a document of title which is a multi-modal bill of lading and commits to delivery at the consignee’s end. To ensure such safe delivery, appellant contracts with carriers, by land, sea or air, without diluting its contractual responsibility to the consignor. Such contracting does not involve a transaction between the shipper and the carrier and the shipper is not privy to the minutiae of such contract for carriage. The appellant often, even in the absence of shippers, contract for space or slots in vessels in anticipation of demand and as a distinct business activity. Such a contract forecloses the allotment of such space by the shipping line or steamer agent with the risk of non-usage of the procured space devolving on the appellant. By no stretch is this assumption of risk within the scope of agency function. Ergo, it is nothing but a principal to- principal transaction and the freight charges are consideration for space procured from shipping line. Correspondingly, allotment of procured space to shippers at negotiated rates within the total consideration in a multi-modal transportation contract with a consignor is another distinct principal-to principal transaction. We, therefore, find that freight is paid to the shipping line and freight is collected from client-shippers in two independent transactions.
13. The notional surplus earned thereby arises from purchase and sale of space and not by acting for a client who has space or slot on a vessel. Section 65(19) of Finance Act, 1994 will not address these independent principal-to-principal transactions of the appellant and, with the space so purchased being allocable only by the appellant, the shipping line fails in description as client whose services are promoted or marketed.
14. We, therefore, find no justification for sustaining of the demand and, accordingly, set aside the impugned order. Demands, with interest thereon, and penalties in both orders are set aside. Crossobjections filed by the department are also disposed of.”
22. As regards the decision in the case of Progeon Global Forwarding P Ltd, 2023 (8) TMI 941-CESTAT CHENNAI, cited by the Ld. A.R. we notice that the decision has been rendered in the peculiar facts and circumstances of that case, as seen from the fact that the nature of the Appellant’s activities therein was unclear, and hence in the said decision the matter was remanded for examination afresh. On the contrary, the SCN in the instant case itself concedes that the activity of the Appellant includes coordinating from the time of picking containers till delivery at the destination port and till consignees take delivery of cargo, corroborating their stand that they are as a multimodal transporter. This decision is therefore clearly distinguishable from the facts of the instant case and is thus inapplicable. It is also seen that repeatedly and consistently coordinate benches of this Tribunal has gone on to hold similar transactions as not exigible to service tax as is evidenced by the plethora of decisions cited by the Appellant supra, and we refrain from reproducing from these decisions to avoid prolixity. In such circumstances, judicial discipline mandates us to adhere to the view taken by the coordinate benches and we find no compelling reason to take a different view. In any event, it is also a settled proposition in law that in case of a conflict between equal bench strength judgements, the earlier view alone should be followed as conclusively stated by a constitution bench of the Hon’ble Supreme Court in National Insurance Company Limited v. Pranay Sethi, (2017) 16 SCC 680
11. We find that as rightly conveyed by the Ld. Authorised Representative, the issue of taxability of ocean freight had travelled upto Supreme Court and has been decided against the Revenue, which fact is also noticed in the decision of this Tribunal in M/s. Fairmacs Shipping & Transport Services Pvt Ltd v. Commissioner of GST and Central Excise, Chennai, 2024 (9) TMI 1828 – CESTAT CHENNAI. The relevant portions are as under:
“7. The Department has assumed that the importer / exporter has outsourced the activity of transportation of goods to the destination to the appellant. In fact, the consideration received by the appellant is only as freight charges and not for providing any services for supporting the business of the importer / exporter. The intention of the importer / exporter is only to have their goods transported to the destination. The appellant has not collected any charges by way of providing any service for support of their business but only for providing the transportation of the cargo. Further, there is no evidence to show that the appellant has acted as an intermediary between the importer / exporter and shipping liner. In fact, the appellant as a clearing and forwarding agent has undertaken the activity of transporting the goods. This activity is not done as an intermediary. The Original Authority has assumed that the appellant has acted an intermediary for the exporter / importer. It is pointed out by the Ld. Counsel appearing for the appellant that there was no such allegation in the Show Cause Notice that the appellant has acted as an intermediary. On perusal of the Show Cause Notice, it can be seen that the allegation was the appellant has collected markup on the freight charges and this is subject to levy of service tax under support services. Interestingly, the Department has raised the demand putting forward yet another allegation that the amount is in the nature of reimbursable expenses. The Show Cause Notice for the period 2014 to 2015, raises the allegation is that the amount collected by the appellant is in the nature of reimbursable expenses for providing transportation of goods and therefore is liable to pay service tax. When considering that the amount is reimbursable expenses for transporting the goods, it becomes ocean freight only and not a consideration received as intermediary. The allegations in the Show Cause Notices for the different period appears to be contradicting and inconsistent.
8. The very same issue as to whether the markup on freight charges collected by an assessee is subject to levy of service tax under Business Support Services was considered by the Tribunal in the case of Team Global Logistics Pvt. Ltd. Vs. Commissioner of GST and Central Excise [Final Order Nos. 4111341114/2023 dated 13.12.2023]. The period involved in the said decision was prior to 01.07.2012 and the demand raised was under BSS alleging that the assessee was providing support services. The Tribunal after analyses of the issue held that the amount collected by the appellant is nothing but a markup on freight charges. The ocean freight per se is not subject to levy of service tax and therefore the demand on the markup also cannot be subject to service tax. The relevant paragraphs read as under: –
“2. Brief facts are that the appellants are providing services relating to handling of export and import cargo. They are registered with the Service Tax Commissionerate for Business Auxiliary Service, Business Support Service, Cargo Handling Service and Transportation of Goods by Road Services. During the audit of accounts of the appellant by the Internal Audit Group of Service Tax Commissionerate, it was noticed that the appellant collects charges towards documentation, LCL, destuffing, transportation and delivery order in respect of import cargo and Terminal Handling Charges and documentation charges in respect of export cargo. The appellant has paid the service tax on all the above charges.
3. On verification of financial accounts, it was noticed that “Net Operating Income” had been accounted for by the appellant as income after deducting the operative expenses. Hence the gross receipts as per General Ledger pertaining to the different periods viz. 2006-07 to 2008-09 (upto Jan’09) and Febʼ09- September’09 was verified with the value of taxable services as reckoned by the appellant for payment of service tax. It was seen that the freight expenses from the gross receipts and the resultant net receipts was found to be higher than the taxable value adopted by the appellant for paying service tax. The appellant had not discharged service tax on the mark up (difference) received by them on freight charges. The activity of providing transportation services would come under ‘Business Support Services’.
…………..
…………..
…………..
21. The allegation in the SCN is that that amounts are received for managing, distributing and logistics. The appellant being a freight forwarder has discharged the service tax on the amount received for providing freight forwarding services. The amount accounted under ‘net operating income’ is now brought to levy of service tax under BSS. This amount is only excess of the freight charges. The differential freight earned by the appellant is not consideration for services rendered by them to their client. The issue as to whether the difference in the freight charges is a consideration for services and is liable to service tax was analysed in various decisions. In the case of Greenwich Meridian Logistics (I) Pvt. Ltd. Vs CST Mumbai – 2016 (43) STR 215 (Tri .- Bom), the very same issue came up for consideration and the Tribunal held that the notional amount earned by the assessee from purchase and sale of cargo space cannot be subject to levy of service tax.
22. In the case of CST New Delhi Vs Karam Freight Movers – 2017 (4) GSTL 215 (Tri.) it was held that demand of service tax on the income earned by the assessee is profit earned out of sale of cargo space and cannot be subjected to levy under BAS.
…………..
…………..
…………..
25. In the case of EMU Lines Pvt. Ltd. Vs Commissioner of GST & Central Excise, Belapur – (2023 (4) CENTAX 122 (Tri .- Bom), the Tribunal had occasion to consider the issue as to whether the profit earned by sale and purchase of cargo space is subject to levy of service tax. The Tribunal considered the decision in the case of Greenwich Meridian Logistics (supra) and various other decisions and held that the demand cannot sustain. The said decision was upheld by the Hon’ble Apex court as reported in (2023) 4 Centax 129 (SC).
9. The decision rendered by the Tribunal in the case AGX Logistics Pvt. Ltd. Vs. Commissioner of GST and Central Excise [Final Order Nos. 4110441106/2023 dated 12.12.2023] was relied by the Ld. Counsel for the appellant, the issue considered by the Tribunal in the case is identical on facts. The relevant paragraphs read as under: –
“3.1 The Ld. counsel Shri S. Sankara Vadivelu appeared and argued for the appellant. The appellant is registered as Clearing and Forwarding agent and for providing Cargo Handling Services. It is submitted that ocean freight in respect of both export and import does not attract Service Tax for the disputed period. Under Section 66D(p)(i) of the Finance Act, 1994, (prior to 01.06.2016) services by way of transportation of goods by an aircraft or vessel from a place outside India up to the customs station of clearance in India falls under negative list and hence the same falls outside the ambit of Service Tax. Further, in terms of Rule 10 of the Place of Provision of Services Rules, 2012, the place of provision of service of transportation of goods shall be the destination of the goods. In case of export shipments, as the destination is outside India, the place of provision of service is outside India and hence no Service Tax is payable.
3.2 The said Section 66D(p)(i) of the Finance Act, 1994, was omitted from the negative list with effect from 01.06.2016 and hence made taxable. In the present case, the demand is for the period from April 2015 to March 2017. In appeal Nos. ST/42511/2017 and ST/41626/2019, the demand is on ocean freight for both export and import whereas in the case of appeal No. ST/40296/2018, the demand of Service Tax is on the air freight as well as mark-up received while paying the freight charges to the liners. The Ld. counsel submitted that the activity does not involve rendering of service and it is mere buying and selling of cargo space for the purpose of transport of goods by ocean / air on principal-to principal basis. Ocean freight and air freight is not subject to levy of Service Tax. With effect from 2016, though freight charges for transportation of goods by way of air is subject to levy a Service Tax, the liability to pay Service Tax is on the air liners. The demand raised on the appellant is against the provisions of law.
6.1 On perusal of the Annexure to the Show Cause Notice, it is seen that the demand is raised not only on the mark-up but also on the ocean freight and air freight . These charges are not subject to levy of Service Tax during the disputed period. The mark-up received by the appellant on the freight charges is due to the difference in the freight charges collected from the shipper and paid to the shipping / airliners. The issue is no longer res integra, the Tribunal in the case of Tiger Logistics (supra) held that the activity is trading of cargo space and there is no rendering of service. The demand of Service Tax on mark- up / differential of ocean freight was set aside. The relevant Paragraphs reads as under :-
“7. We have considered the arguments on both sides and perused the records. For a service tax to be leviable :
(a) a service must have been rendered;
(b) the service so rendered must be a taxable service within the meaning of Section 65(105) of Chapter V of the Finance Act, 1994; and
(c) a consideration must have been paid for that service;
8. If a service is not rendered at all, no service tax can be levied regardless of the fact that an amount has been received. Similarly, if the service so rendered does not squarely fall within the definition of ‘taxable service’ under Section 65(105), no service tax can be levied. Even if it is doubtful whether the service is taxable or not, the benefit of doubt in respect of the charging section goes in favour of the assessee and against the revenue. The third important element is the consideration for the service. Any amount received must be for the service and it cannot be for some other purpose. For instance, if any amount is received towards any compensation, such amount cannot be taxed.
9. As far as the differential in ocean freight is concerned, the appellant buys space on ships from the Shipping Line and the Shipping Line issues a Master Bill of Lading in favour of the appellant. In turn, it sells the space to its customers and issues a House Bill of Lading to each of them. The first leg is the contract between the Shipping line and the appellant. The second leg is the contract between the appellant and its customers. Evidently, anyone who trades in any merchandise or service buys low and sells high and the margin is his profit. To earn this profit, he also takes the risk of being unable to sell. In the appellant’s case, if the space on the ships which it bought cannot be sold to its customers fully, or due to market conditions, or is compelled to sell at lower than purchase price, the appellant incurs loss. In a contrary situation, it gains profits. This activity is a business in itself on account of the appellant and cannot be called a service at all. Neither can the profit earned from such business be termed consideration for service. Respectfully following Satkar Logistics, Nilja Shipping Pvt. Ltd., Surya Shipping and ITC Freight Services, we hold that the appellant is not liable to pay service tax.
…………..
…………..
…………..
18. We find that the only allegation of these elements held against the appellant in the impugned order is that of ‘suppression of facts’ and the reason for this is that they have not disclosed the full value of the taxable services in their ST-3 returns. It is also accepted in the impugned order that these services were all duly recorded by the appellant. It is now well established legal principle that ‘suppression of facts’ is not mere omission. It must be a deliberate act with mens rea to suppress and thereby evade. The facts brought out in the impugned order do not demonstrate the mens rea. On the other hand, they show that the appellant had recorded all the transactions in its records and when called for during investigation, provided full facts to the department based on which the SCN was issued. Insofar as the appellant did not dispute the demands of service tax, it paid the same along with interest even before the SCN was issued. In our considered view, this case is covered squarely by Section 73(3) and no SCN should have been issued to that extent.
19. The appellant disputed service tax on mark up which it received from trading space on ships and the reimbursements of the container detention charges and the toll taxes which it paid on behalf of its clients and got reimbursed. We have already found above that no service tax is leviable on these receipts.”
6.3 The Tribunal in the case of EMU Lines Pvt. Ltd. (supra) had considered the very same issue where the demand of Service Tax was raised under Business Auxiliary Services. It was held by the Tribunal that the activity does not amount to rendering of service and it is merely trading of cargo space. The said decision was upheld by the Apex Court as reported at [2023 (72) GSTL 443 (SC)].
7. After appreciating the facts and following the decisions cited supra, we are of the considered opinion that the demand of Service Tax on ocean freight / air freight or the mark-up on the above received by the appellant cannot be subject to levy of Service Tax.
8. The impugned orders are set aside. The appeals are allowed with consequential relief, if any, as per law.”
12. Recently, in the case of M/s. Airlifts Associates v. Commissioner of GST & Central Excise, vide Final Order Nos.40403-40406/20206 dated 20.03.2026, while yet again dealing with the same issue of taxability of ocean freight margin at the hand of the appellant therein, we had noticed our aforesaid decision in M/s. Seaport Lines India (P) Limited Vs. Commr. Of GST & CE, Chennai, vide our Final Order No.40367-40368/2026 dated 16-03-2026 and also noticing the plethora of decisions on the issue of taxability of ocean freight, went on to hold therein as under:
“11. It is also seen that, repeatedly and consistently, Co-ordinate Benches of this Tribunal, irrespective of whether the Department has sought to categorize the activity of the assessees therein, as Business Auxiliary Services or Business Support Services, or Cargo Handling Services or Freight Forwarder Services etc., have gone on to hold that the activity of booking/purchasing and sale of cargo space, and the margin of profit that is earned while booking and selling cargo space for export goods, are not exigible to service tax, as is evidenced by the plethora of decisions cited by the appellant supra. We refrain from reproducing from these decisions to avoid prolixity. Therefore, adhering to judicial discipline, in light of the view taken by the co-ordinate Benches that is binding on us, we follow the same.”
13. Appreciating the facts of the instant case as noted above, in light of the aforesaid binding decisions, we are of the considered view that the demand of service tax for the period prior to 01-07-2012 as well as for the period post 01-07-2012 for the disputed period herein is untenable and therefore we find no justification for sustaining the demand along with interest and the penalties imposed vide the impugned order, and accordingly set aside the impugned order.
The appeal is allowed with consequential relief(s) in law, if any.
(Order pronounced in the open court on 25.03.2026)
Author Bio
