Freight Forwarder Not Liable for Service Tax When Acting as Principal for Goods Exported Outside India: CESTAT [Read Order]

The Allahabad Bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT) ruled that a freight forwarder arranging transport of goods abroad is not liable for Service Tax when acting as a principal.

Santosh Kumar Tiwari, appellant-assessee, received a Show Cause Notice based on third-party information from the Income Tax Department. It was noted that he declared gross receipts of Rs. 97,32,640/- for FY 2016-17 but had not registered under the Service Tax Act or filed ST-3 returns.

The Show Cause Notice (SCN) sought to recover Service Tax of Rs. 14,59,896/- with interest and proposed penalties under Sections 77 and 78 for non-registration, non-filing of returns, suppression of facts, and failure to provide documents.

The Adjudicating Authority confirmed the tax demand with interest and imposed the penalties. The Commissioner (Appeals) upheld this order, noting that the appellant had provided cargo handling services. The assessee contended that they acted as a freight forwarder transporting carpets abroad as per exporters’ instructions.

The assessee counsel stated that the assessee received goods from exporters or manufacturers and arranged their transport abroad. They coordinated local transport to the port, completed customs formalities, and booked ocean liners, purchasing cargo space on a principal-to-principal basis and selling it to exporters.

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The counsel argued that such transactions did not qualify as a “service” and were therefore not subject to Service Tax. The appellant incurred various expenses,including local transport, THC, seal charges, bill of lading, S/Bill, EP copy charges, loading/unloading, and ocean freight and recovered these costs along with a profit from the exporters. They relied on Board Circular No. 197/7/2016-Service Tax dated 12.08.2016 to support their claim.

The Departmental Counsel supported the impugned order and submitted that the appeal had no merit and should be dismissed.

A single member bench comprising P.K Choudhary (Judicial Member) considered the submissions and records and found that the assessee arranged transportation of carpet consignments from exporters or manufacturers to a place outside India. The assessee coordinated local transport, completed customs formalities, and booked ocean-going vessels, paying all related charges, and then raised bills to the exporters recovering these costs along with profit.

The appellate tribunal held that the appellant was not providing “Cargo Handling Service” and relied on Central Board of Excise and Customs (CBEC) Circular No. 197/7/2016, which clarified that a freight forwarder acting as a principal is not liable for Service Tax when transporting goods from India to a foreign destination, as they bear all legal responsibility and risks.

It observed that the main service was transportation of goods to a foreign destination, and under Rule 10 of the Place of Provision of Services Rules, 2012, the place of service was outside India. Accordingly, Service Tax was not leviable, and the appeal was allowed with consequential relief, if any.

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