CESTAT Sets Aside ₹2.7 Crore Service Tax Demand on Ocean Freight Margins in Multimodal Transport Operations [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai Bench, held that trading of cargo space and earning margin on ocean freight by a multimodal transport operation are not liable to service tax and accordingly, set aside the demand along with interest and penalties amounting to ₹2,70,90,296.

The appellant, ABF Freight International Pvt. Ltd, is a registered service provider of Business Auxiliary Services. The appellant was subjected to audit and it was observed that the appellant had collected ocean freight charges from customers in excess of the amount paid to shipping lines and therefore rendered “support services of business or commerce”.

A show cause notice was issued demanding service tax of ₹2,70,90,296 for the period April 2011 to March 2015 along with interest and penalties under sections 77 and 78 of the Finance Act, 1994.

The Adjudicating Authority confirmed the demand along with interest and imposed penalties holding that the differential amount collected as freight charges constituted consideration for taxable services.

Janakiraman, the appellant counsel contended that the transactions with shipping lines and customers were on a principal-to-principal basis and involved purchase and sale of cargo space.

The appellant counsel also submitted that the margin earned represents profit or loss arising from trading activity and not consideration for any service. The appellant counsel further contended that the issue is no longer res integra and stands settled by judicial precedents.

Anoop Singh, counsel for the respondent, relied upon the findings of the Adjudicating Authority but fairly submitted to the Tribunal that the issue stands decided against the respondent by various judicial pronouncements including the decision of Supreme Court of India,

Ajayan T.V, Judicial Member and M. Ajit Kumar, Technical Member observed that the appellant acts as a multimodal transporter and undertakes transactions of booking and selling cargo space on principal-to-principal basis and assuming risk of profit or loss.

The Tribunal noted that no evidence was brought on record to establish that the appellant acted as an intermediary or provided any service to customers.

The Tribunal held that the margin earned on ocean freight arises from trading of cargo space and does not constitute consideration for any taxable service. It was further held that the demand based on classification under “Business Support Services” is not sustainable.

Accordingly, the Tribunal set aside the demand of service tax along with interest and penalties.

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