No Service Tax Demandable on Activity of Buying and Selling of Cargo Space: CESTAT [Read Order]

The Delhi Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that no service tax is demandable on the activity of buying and selling cargo space and the amount received for such activity is a profit earned from the sale, which cannot be attributed to be a consideration for service.

M/s Haiko Logistics India Pvt. Ltd, the appellant is a multi-modal transport operator under MultiModal Goods Transport Act, 1993 and is having a license/registration dated 08.03.2007 issued by the Directorate General of Shipping. The appellant is inter-alia engaged in providing (i) customs clearance services (ii) freight forwarding services and (iii) transportation services. 

The clients (importers/exporters) approached the appellant for transportation of their goods from overseas or to overseas and the appellant in turn approached various shipping lines/airlines and booked cargo space on such ships/planes as per the requirements of the clients on agreed price and transports the goods thereafter.

The amount paid towards freight by the appellant to the shipping lines/airlines can be less than what the appellant receives from the selling of space to clients or more than that or it can be the same. Thus, there can be profit or loss or no profit no loss to the appellant while buying and selling cargo space.  There are certain payments towards customs duty, air freight, ocean freight and surcharges which are made by the appellant on behalf of the clients and thereafter recovered from the clients without any markup.

The appellant claimed that since the payment made by the client towards the said charges are like reimbursements, the same are recorded by the appellant as non-taxable in the books of accounts.  

The two show cause notices issued demanding service tax and a penalty was adjudicated by a common order, whereby the demand of Rs. 21,37,803 concerning certain issues was confirmed and the rest of the proposed demand was dropped.

For the period before 1.7.2012, the activity of procurement of space from shipping lines which are used/intended to be used by the exporters/importers for transportation of their goods is classifiable under BAS under clause (iv) to Section 65 (19) of the Finance Act. Thus, the markup, which is the consideration for the provision of service of booking of cargo space, would be taxable under section 65 (105) (zzb) of the Finance Act. For the period post 1.7.2012, since BAS is not covered under section 66D of the Finance Act, markup value is susceptible to service tax.

It was contended that in many cases,  the Tribunal has held that the activity of buying and selling of cargo space is trading of cargo space and the amount received for such activity is a profit earned from sale, which cannot be attributed to be a consideration for service. Thus, as the activity is not a service, it cannot be subjected to a levy of service tax.

In M/s. Tiger Logistics (India) Ltd. vs. Commissioner of Service Tax-II, Delhi, the appellant books the space with shipping lines in its name and the shipping line raised an invoice on the appellant. A separate invoice is raised on the clients wherein a different amount is charged, and this only results in markup.

A two-member bench comprising Justice Dilip Gupta, President and Ms Hemambika R Priya, Member (Technical) observed that “The assessee is acting on behalf of the shipping lines and is selling cargo space of such shipping lines instead of which amount is also collected by the assessee from the client. Thus, the assessee is a commission agent as defined under Explanation to section 65 (19) of the Finance Act and BAS is rendered in terms clause (vii) to section 65 (19) of the Finance Act to the shipping lines for a commission, which is susceptible to service tax under section 65 (105) (zzb) of the Finance Act.”

Further held that Ocean freight and air freight are per se not taxable, though markup is taxable. Further, the markup on air freight is not taxable as the same does not form part of demand in the show cause notice dated 10.10.2014.”

Shri B.L. Narasimhan, counsel for the appellant and Shri Rohit Issar authorised representative of the department

To Read the full text of the Order CLICK HERE

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