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.
