Cargo Space Sales and Reimbursable Expenses Not Liable to Service Tax: CESTAT Upholds Exemption for UN Peacekeeping Services [Read Order]

The Revenue had challenged the Commissioner (Appeals)'s order, which dropped the demand against PSB Logistics Pvt Ltd, the respondent assessee on three grounds. PSB Logistics, a Custom House Agent, was accused of evading service tax on income from cargo handling, including commissions from cargo space sales, reimbursable expenses, and transportation services for Indian Army stores to UN Peacekeeping missions.

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The Additional Commissioner confirmed the demand, but the Commissioner (Appeals) allowed PSB Logistics' appeal, leading to the Revenue's appeal before CESTAT. The Revenue argued that PSB Logistics acted as a "business auxiliary service" provider by reselling cargo space at a premium, that markups on reimbursable expenses disqualified it from "pure agent" status under Rule 5(2), and that services to UN missions were not fully exempt as they included non-ocean freight components.

PSB Logistics countered that cargo space sales were principal-to-principal transactions (not taxable services), reimbursable expenses were statutory charges excluded from taxable value, and services to UN Peacekeeping missions were exempt under Notification No. 16/2002-ST. It relied on Supreme Court precedents Intercontinental Consultants and Tribunal rulings in Greenwich Meridian Logistics, Tiger Logistics to support its stance.

The bench of Ms. Binu Tamta (Judicial Member) and Ms. Hemambika R. Priya (Technical Member) ruled that purchasing and reselling shipping space on a principal-to-principal basis is trading, not a taxable service. The "markup" was profit from goods, not service consideration.

Further held that PSB Logistics qualified as a "pure agent" under Rule 5(2) by separately invoicing statutory charges (customs duty, toll tax, etc.). Markups did not negate this status, as expenses were passed through without profit. It was held that the services for UN Peacekeeping missions were exempt under Notification No. 16/2002-ST, as the UN Security Council is an integral UN organ. The Tribunal relied on Corporate Housekeeping Services to confirm that services to UN entities qualify for blanket exemption.

The Tribunal ruled that Commission earned from cargo space sales is not liable to service tax, as purchasing and reselling shipping space on a principal-to-principal basis constitutes trading, not a taxable service. Reimbursable expenses (e.g., customs duty, toll tax) are exempt under Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006, as PSB Logistics acted as a "pure agent" by separately invoicing statutory charges.

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Services provided to the Indian Army for UN Peacekeeping missions are exempt under Notification No. 16/2002-ST, as the UN Security Council (overseeing peacekeeping) is an integral part of the United Nations.

As the revenue failed to prove the respondent assessee was an intermediary for cargo space sales, that markups on reimbursable expenses did not negate "pure agent" status, and that UN Peacekeeping missions qualify for blanket exemption under service tax laws, the Tribunal dismissed the Revenue's appeal.

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