The Ahmedabad Bench of Central Excise and Service Tax Appellate Tribunal ( CESTAT ) held that service tax is not payable on freight margin recovered from customers in cases of outbound shipment. In the case of outbound shipment, both by aircraft and vessel, the destination of goods shall be outside India, therefore there will be no service tax on the freight margin recovered by the applicant from the customer.
Vishal Tansukhbhai Gohel, the appellant firm or assessee, being a proprietary concern, is registered for the service tax under the category of ‘Clearing and Forwarding Agent Service’ and has been complying with the provisions of the service tax law prevalent at the relevant time.
During the inquiry into the financial record of the appellant, the department observed that freight income as expenses incurred towards freight expenses was less than freight charged by the appellant from their customers. There was some positive difference in expenses that have been incurred by the appellant. This income, as per the department, is nothing but an excess amount charged by the appellant to their customers towards ocean freight.
The department, after verification of the accounts, issued a show cause notice to the appellant demanding service tax under Section 73(1) of the Finance Act, 1994. The interest and penal provisions were also invoked as per the provisions of the Finance Act, 1994.
The department has demanded a service tax under the category of business auxiliary services, stating that the differential amount of freight retained by them is nothing but a commission received towards the provision of service. The original adjudicating authority confirmed all the charges. The appellant filed an appeal before the Commissioner (Appeals) but did not succeed.
The appellant contended that since the very beginning, as per Board Circular, no service tax is payable on ocean freight, and they have not collected any service tax from their clients or customers, as there was a common belief in the trade that no service tax is payable on ocean freight. The proprietor of the firm, appearing during the hearing, stated that for the pre-negative period, there was no specific taxable category for ocean transportation of goods by a vessel or ship.
For classifying under a taxable service category, the place of provision of service and destination of the goods shall be matters of importance for the determination of the levy of service tax. Since in the case of export cargo, the place of provision of service is outside the taxable territory of India, ocean freight for the export cargo becomes non-taxable.
The department contended that the main service of transportation of goods is provided by the airline or shipping agency and not by the applicant. Therefore, Rule 10 of the Place of Provision of Services Rules ( POP ) Rules will not apply to the applicant.
The applicant submitted that Rule 10 is wide enough to cover not only actual transportation but also a person who arranges for the transport, and that this is expressly clear from the exclusion to mail or courier from Rule 10 of POP Rules. A proviso to Rule 10 suggests the place of provision of service with respect to the goods transport agency (GTA). But for exclusion, courier or GTA would be covered by Rule 10.
The two-member bench of Somesh Arora (Judicial Member) and C.L. Mahar (Technical Member) observed that the place of provision of service or transportation of goods shall be the place of destination of the goods, as per Rule 10 of the POP Rules. The tribunal held that the appellant would enter into an agreement with the carrier for the transportation of cargo, i.e., the airline /shipping line.
The CESTAT has held that, in the absence of a specific exclusion, services provided by the applicant cannot be excluded from the scope of Rule 10 of the POP Rules.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
