In a service tax appeal assailing the order passed by the Commissioner of Central Goods & Service Tax, Audit-II, New Delhi, confirming the department’s show cause notice to the appellant for recovery of alleged non-payment of service tax on extra charges collected i.e., mark up for the freight income (ocean freight/air freight), the two-member Bench of Binu Tamta, (Judicial Member) and Rajeev Tandon, (Technical Member), allowed the appeal and set aside the Commissioner’s order, viewing that when the appellant is acting on a principal-to-principal basis for purchase and selling of space from shipping line/airline and
selling to importers/exporters, the said act would not amount to an activity liable to Service Tax.
Factual Matrix
The appellant- Company were issued show cause notice seeking recovery for alleged non-payment of Service Tax on extra charges collected i.e. mark up for the freight income (ocean freight/air freight). The period of dispute was 2010-11 to 2014-15 and 1-04-2015 to 30-06-2017. The department vide the impugned show cause notice confirmed the demand of Service Tax of Rs. 3,67,38,471/- along with interest besides imposing penalty of equal amount.
It was alleged that the major source of revenue for the appellant-Company were income from sea freight, air freight, commission for haulage, consultation income and income from customs clearance. Upon verification of invoices, the department alleged that no Service Tax was paid by them on the mark up collected by way of ocean freight (mark up – i.e. difference between the amount charged from the customers towards sea/air freight and the amount paid to the shipping line/airline). The department submitted that the said mark up was a consideration liable to Service Tax as the nature of service rendered by the appellant
could not be considered as transportation of goods.
Decision
The Tribunal noted that in Marinetrans India (P) Ltd. v. CST the Tribunal held that buying and selling of cargo space in a ship, does not amount to rendering a service and any profit and income earned through such transactions would not be leviable to Service Tax. Further placing reliance upon Bhatia Shipping (P) Ltd. v. CST , wherein relying upon Satkar Logistics v. CST the appellant’s contention that the appellant was only trading in space and was not providing any service was accepted. In the matter at hand, the Tribunal said that when the appellant is acting on a principal-to-principal basis, as regards purchase and selling of space from shipping line/airline and selling to importers/exporters, the said act would not amount to an activity liable to Service Tax. The Tribunal explained that when they are not acting as an agent/intermediary for promoting the business of the shipping lines/ and airlines and the transactions of the appellant are independent of both backward and forward integration of the activities performed.