Difference in Ocean Freight Charges Not a Service, No Service Tax: CESTAT [Read Order]

In a recent case, the Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) while dismissing the departmental appeal and allowing the appeal filed by Balmer Lawrie & Co. Ltd. (appellant) has held that differential in ocean freight charged by the appellant cannot be considered as a service and therefore, the appellant was not liable to pay service tax on it.

M/s Balmer Lawrie, the appellant challenged the amount of service tax demand confirmed by the adjudicating authority whereas the department has filed an appeal against the dropping of some part of the demand. 

The appellant was registered with the Service Tax Commissionerate, Kolkata for providing a comprehensive range of logistics services to their clients. They had service tax registrations for the other branch offices from where they provided various taxable services.

The appellant entered a contract with Indian customers for transporting and delivering the cargo to the desired destination within India. The activities undertaken by the appellants are about loading, unloading, packing, and unpacking of cargo, services provided to the Custom House agents for handling containers or import cargo, transhipment of import cargo from international carriers, etc.

The responsibility of the appellants about import includes a collection of consignments from the foreign line and ensuring delivery of the same to the importer located in India. The officers of the Directorate General of Central Excise Intelligence, Kolkata developed intelligence that the appellants were evading service tax duty on cargo handling service. They were not discharging duty liability on a reverse charge basis as provided under section 66A of the Finance Act, 1994.

It was found that the appellant provided cargo-handling services both within and outside India.They offered services including import consolidation by air, air and sea freight forwarding, Custom House Agency, project, cargo handling, multimodal, transportation, Chartering of aircraft and vessels and door-to-door services. They entered into agency agreements with non-resident logistics service providers who handle the cargo of the client of the appellant on behalf of the appellant.

As per the terms of the agreement, the parties, viz., the appellant and their foreign associates, who provide auxiliary service to the appellant and vice versa, enjoy profit share on a 50:50 basis in each deal. However, no service tax was paid on freight and other charges originating. A show cause notice dated 11.04.2014 was issued demanding service tax amounting to Rs.1,46,11,51,568/- for the period 01.10.2008 to 31.03.2013.

 The adjudicating authority vide order dated 31.12.2015 dropped the major portion of the demand and confirmed the demand of Rs.5,25,21,302/- along with interest and penalty on profit on ocean freight charges, treating it as an integral part of cargo handling services in terms of section 65(105)(zero) of the Finance Act, 1994.  

It was submitted that the remittances made to the non-resident service providers were reimbursement of freight charges incurred in non-taxable jurisdiction, and therefore, were not liable for service tax.

The two-member bench comprising Dilip Gupta (President) and Hemambika R Priya (Technical) relied on M/s Tiger Logistics (India) Ltd. vs Commissioner of Service Tax-II, wherein it was held that the differential in ocean freight charged by the appellant is a business on account of the appellant and cannot be called a service at all. Neither can the profit earned from such business can be termed consideration for service and therefore, the appellant was not liable to pay service tax.The tribunal set aside the demand and penalties.

To Read the full text of the Order CLICK HERE

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