Logistics Income from Ocean Freight Mark-Up Considered Trading Profit, Not Taxable Service: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that logistics income earned from the mark-up on ocean freight amounts to trading profit and is not liable to service tax.

Marine Container Services (South) Pvt. Ltd., the appellant, is a company engaged in providing steamer agent and business auxiliary services. During departmental verification, it was noticed that the appellant, in addition to collecting service commissions, had also earned income by marking up ocean freight rates. The department alleged that this logistics income was part of the taxable value for service tax purposes.

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A show cause notice was issued for the period April 2005 to September 2010, proposing to recover service tax, interest, and impose penalties. The adjudicating authority confirmed the demand and imposed penalties under Sections 77 and 78 of the Finance Act, 1994. On appeal, the Commissioner (Appeals) upheld the demand.

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Aggrieved by the order, the appellant approached the CESTAT, arguing that the logistics income was not a commission or service fee but a trading margin earned through the sale and purchase of cargo space. They submitted that such profit was in the nature of a commercial transaction, carried out on a principal-to-principal basis, and not a taxable service. The appellant relied on their own earlier case held that similar mark-up income was not subject to service tax.

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The revenue counsel countered that the logistics income was connected to the service provided and formed part of the gross amount charged, which had to be included in the taxable value. They further argued that the appellant had not qualified as a pure agent under the Valuation Rules, and thus the mark-up could not be excluded.

The two-member bench comprising Ajayan T.V. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) observed that the mark-up on ocean freight was a trading margin and not a consideration for a service. It emphasized that the income arose from the sale of cargo space and was not taxable under service tax laws.

The tribunal referenced its earlier ruling in the appellant’s own case and reiterated the view taken in other similar decisions. The tribunal held that there was no basis to treat the mark-up as a commission or service fee, and that taxing such trading profit would go beyond the statutory framework. The demand for service tax, as well as the related interest and penalties, was set aside. The appeal was allowed with consequential relief.

To Read the full text of the Order CLICK HERE

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