The Delhi Bench of Customs,Excise and Service Tax Appellate Tribunal ( CESTAT ) held that extra charges collected on resold cargo space by a freight forwarder were part of principal-to-principal trading and not taxable as Business Auxiliary Service ( BAS ).

Shikhar Logistics Pvt. Ltd.,appellant-assessee,was engaged in the business of freight forwarding and allied activities, including booking space on shipping lines and airlines and reselling it to customers (exporters/importers).

The Department contended that while charging customers for cargo booking, the assessee collected amounts over and above what was actually paid to the shipping lines or airlines. This extra amount was treated as a taxable service under “Business Auxiliary Service” and was held liable for service tax.

A show cause notice was issued for 20.11.2012 to 2014-15, demanding Rs. 2,12,38,744 with interest and penalty. The demand was confirmed by the order-in-original dated 16.03.2021, leading the assessee to file the present appeal.

The tribunal heard the parties and noted that the assessee submitted that it purchased cargo space on its own behalf from shipping lines and airlines on a principal-to-principal basis and then sold it to customers at a profit, at cost, or at a loss. The assessee argued that it was trading in cargo space and not providing any service for customers or carriers.

The assessee relied on earlier tribunal decisions, including CST, New Delhi vs. Karam Freight Movers, Tiger Logistics (India) Ltd. vs. CST-II, Delhi, and Greenwich Meridian Logistic (I) Pvt. Ltd. vs. CST, Mumbai, which held that the markup earned on sale of cargo space was part of a business transaction and not a service.

The appellate tribunal noted that in Greenwich Meridian, the freight forwarder assumed all risks and contracted for space independently, making it a principal-to-principal transaction.

The assessee also relied on Circular No. 197/7/2016-ST, which clarified that freight forwarders acting as principals, bearing all legal responsibilities and risks, are not intermediaries and provide the service on their own account.

The two member bench comprising Binu Tamta (Judicial Member) and Subba Rao ( Technical Member) observed that the assessee operated on a principal-to-principal basis, held MTO registration with the Director General of Shipping, booked cargo space, paid the charges, and sold it to customers at varying prices.

As a Multimodal Transport Operator, the assessee assumed responsibility for the safe custody of goods and obtained insurance to cover transportation risks.

Considering the consistent decisions in favour of the assessee the tribunal set aside the impugned order and allowed the appeal.

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