Cargo Forwarder’s Pre-2012 Services Classifiable as ‘Transportation of Goods by Air’, Not BAS: CESTAT [Read Order]

The Principal New Delhi Bench of the Customs, Excise, and Service Tax AppellateTribunal (CESTAT) ruled that the services provided by a cargo forwarder before 1 July 2012 were classifiable as “Transportation of Goods by Air” and not as “Business Auxiliary Service.”

Delmos Aviation Pvt. Ltd., the appellant was engaged in providing end-to-end cargo transportation services for exporters. Aeroflot (a foreign airline) had appointed the appellant as its General Sales and Service Agent (GSSA) for certain territories. Under the agreement, the appellant was described as an agent of Aeroflot for the sale of cargo space.

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During the relevant period, the appellant did not merely sell cargo space on behalf of Aeroflot. Instead, it offered exporters a complete transportation package covering domestic movement, international air transport, and incidental services such as loading and unloading. The appellant issued Airway Bills in its own name, collected a consolidated amount from exporters, and paid Aeroflot and other service providers separately for their respective services.

The department issued show cause notices alleging that before 1 July 2012, the appellant had provided Business Auxiliary Service to exporters by procuring transportation services and was liable to pay service tax under that category. The Commissioner confirmed the demand of service tax along with interest and penalties holding that the appellant was acting as an agent and not as a provider of transportation service.

Aggrieved by the order, the appellant approached the CESTAT. The appellant’s counsel argued that the appellant was not procuring services for exporters but was itself providing transportation of goods by air on a principal-to-principal basis. They argued that the service fell under “Transportation of Goods by Air”, which was exempt from service tax during the relevant period. The counsel also argued that ownership or operation of aircraft was not required under the statutory definition of “aircraft operator.”

The revenue counsel argued that the appellant could not be treated as an aircraft operator since it neither owned nor operated any aircraft. They argued that the GSSA agreement clearly established an agency relationship and that the appellant’s activities were correctly classifiable as Business Auxiliary Service.

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The two-member bench comprising P.V. Subba Rao (Technical Member) and Binu Tamta (Judicial Member) observed that service tax liability must be determined based on the actual nature of the service rendered and not merely on the description used in contractual agreements. The tribunal observed that, in practice, the appellant provided a complete transportation service to exporters, issued Airway Bills, bore commercial risk, and charged a consolidated consideration.

The bench explained that if the appellant had been providing Business Auxiliary Service, Aeroflot would have issued invoices directly to exporters and the appellant would have received only a commission. Since this was not the case, the service could not be classified as Business Auxiliary Service.

The tribunal further observed that the definition of “aircraft operator” under the Finance Act did not require ownership or operation of aircraft. Any person who provides transportation of goods by air using the services of airlines is covered by the definition.

The tribunal held that, before 1 July 2012, the services provided by the appellant were classifiable as Transportation of Goods by Air, which was exempt from service tax during the relevant period. On this basis, the service tax demand for the period before 1 July 2012 was set aside and the appeal was allowed.

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