Amount Collected by Cargo Handling Firm From Clients in India Towards Delivery Order Charges, Customs Duty does not Falls under BAS, No Service Tax Leviable: CESTAT [Read Order]

In a significant case, the Chandigarh Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that service tax is not payable on the amount collected by Cargo Handling firm from clients in India towards delivery order charges, customs duty since it does not fall under Business Auxiliary Service(BAS).

The appellants, M/s ATA Freight Line Private Limited, are duly registered with Service Tax. An Audit of the records of the appellant was conducted, it appeared that the appellants, under an Agreement with their principals i.e. ATA, USA provide services to them and receive services,  they bifurcate the charges for ex-work services, handling charges and sea freight charges payable to each other.

The appellant books space in the air/ sea crafts and sells the same to their prospective customers; the appellants receive a certain commission from the air/ sea liners in respect of this activity, the revenue viewed that the appellants performed the activity falling under “Business Auxiliary Service”.

The appellant recovers certain charges, from the Indian exporters, concerning the expenditure, on Custom duty, delivery order charges, port handling etc., at the destination in foreign ports.

A show-cause notice was issued to the appellant seeking to recover Service Tax of Rs.2,80,26,749/- along with interest while seeking to impose penalties under Sections 76, 77 & 78 of the Finance Act, 1994and was confirmed by the Commissioner (Audit). 

The Department argued that the commission received by the appellants from the ship liners/ airlines for booking of space for transportation of cargo is towards the “Business Auxiliary Service” rendered to the ship liners/ airlines.

It was evident that the definition of “air travel agent” includes all services connected with or about the booking of passage for travel by air. The services in question are booking airline tickets and achieving a pre-determined target, the air travel agent also receives an additional amount in the form of incentives/commission from the airlines or the CRS Companies. The receipt of incentives/commissions would not change the nature of the services rendered by the travel agent.

A two-member bench comprising Mr S S Garg, Member (Judicial), and Mr. P. Anjani Kumar, member (technical) observed that “the legal fiction of treating a service rendered outside India to be a service rendered in India cannot be introduced by way of rules. That too would partake the character of an essential legislative function, which cannot be delegated to the Central Government. Such service cannot be brought to tax without amending Section 64(3) of the Finance Act.”

While allowing the appeal, the CESTAT set aside the demand of service tax on the amount collected by cargo handling firms from clients in India confirmed vide the impugned order.

To Read the full text of the Order CLICK HERE

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