Margin Earned on Sale and Purchase of Cargo Space is Trading Activity, Not Liable to Service Tax: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the margin earned on the sale and purchase of cargo space amounts to trading activity and is not liable to service tax.

Marine Container Services (South) Pvt. Ltd., the appellant, is a company engaged in providing steamer agent services and business auxiliary services. During departmental verification, it was found that apart from earning commissions, the appellant also collected port congestion charges, port storage charges, seal amendment charges, detention charges, and earned logistics income by marking up ocean freight rates.

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The department issued a show cause notice alleging that the appellant had not included these reimbursable charges and logistics income in the taxable value, resulting in short payment of service tax, and later confirmed the service tax demand, interest, and penalties.

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On appeal, the Commissioner (Appeals) upheld the demands by relying on Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006. Aggrieved by the Commissioner’s order, the appellant approached the CESTAT.

The appellant’s counsel argued that the port-related charges were mere reimbursements, not consideration for any service, and thus could not be taxed following the Supreme Court ruling in UOI v. Intercontinental Consultants and Technocrats Pvt. Ltd. The revenue counsel countered that the charges collected were part of the consideration for providing taxable services and had to be included in the gross amount for service tax purposes.

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The two-member bench comprising Ajayan T.V. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) observed that following the Supreme Court's ruling in Intercontinental Consultants, reimbursed expenses could not be included in the value of taxable services.

The tribunal observed that margin earned on the sale and purchase of cargo space was a trading activity and not consideration for any service provided to the client. The tribunal held that trading profits are not subject to service tax. The tribunal allowed the appeal, set aside the service tax demands, and quashed the related interest and penalties.

To Read the full text of the Order CLICK HERE

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