The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has clarified that freight forwarders arranging the transport of goods abroad are not liable for Service Tax when operating as principals in the transaction.
The ruling comes in the case of Santosh Kumar Tiwari, an appellant-assessee who had received a Show Cause Notice (SCN) from the tax authorities. The notice, based on third-party information from the Income Tax Department, highlighted that the assessee declared gross receipts of Rs. 97,32,640/- for FY 2016-17 but had not registered under the Service Tax Act or filed ST-3 returns. The SCN sought recovery of Rs. 14,59,896/- in Service Tax, along with interest and penalties under Sections 77 and 78 for alleged non-registration, non-filing of returns, suppression of facts, and failure to provide documents.
The Adjudicating Authority confirmed the tax demand and imposed penalties, which were subsequently upheld by the Commissioner (Appeals), citing that the appellant had provided cargo handling services.
However, the appellant contended that they merely acted as a freight forwarder transporting goods abroad on exporters’ instructions. According to the assessee’s counsel, the appellant received goods from exporters or manufacturers, coordinated local transport to ports, completed customs formalities, and booked cargo space with ocean liners on a principal-to-principal basis, subsequently selling it to exporters.
The counsel argued that such transactions did not constitute a “service” under the Service Tax Act. They noted that the appellant incurred expenses, including local transport, terminal handling charges (THC), seal charges, bill of lading, shipping bill, EP copy charges, loading/unloading, and ocean freight, which were recovered along with a profit margin from exporters. The appellant also relied on Board Circular No. 197/7/2016-Service Tax dated 12.08.2016 to support the claim.
CESTAT’s ruling emphasizes that freight forwarders acting as principals in arranging the transport of goods are outside the scope of Service Tax liability, providing clarity for businesses engaged in international logistics.
