Commissioner of Central Excise & Service Tax LTU Vs Shipping Corporation of India Ltd (CESTAT Mumbai)
CESTAT Mumbai Rules Demurrage Not Taxable as Declared Service; Revenue’s Appeal Dismissed
CESTAT Mumbai has dismissed an appeal by the Commissioner of Central Excise & Service Tax, upholding an earlier decision to not levy a service tax on demurrage income earned by the Shipping Corporation of India (SCI). The Revenue had argued that the demurrage—a fee for delays in loading or unloading a vessel—should be taxed as a “declared service” under Section 66E of the Finance Act, 1994, specifically as “tolerating an act or situation.” The Commissioner, however, had previously dropped the demand, ruling that demurrage was not a standalone service but an integral part of the transportation of goods, which was a service exempted from taxation.
The tribunal’s ruling supports the original decision. It found that the concept of “demurrage” is a contractual arrangement directly tied to the service of transporting goods by sea and is not a separate, independent service. The court emphasized that taxing statutes must be interpreted literally and that “legal fiction” should not be stretched beyond its intended purpose. The tribunal referenced a CBIC circular which clarified that the “declared service” provision only applies to “standalone agreements” and not to contingent liabilities that are part of another service. Since demurrage is directly linked to the exempt service of goods transportation, the tribunal concluded that it could not be taxed, dismissing the Revenue’s appeal.
