Income from Freight Trading, Discounts, and Reimbursements Not Taxable as Service: CESTAT [Read Order]
CESTAT held that income from freight trading, trade discounts, reimbursements, and export of services is not liable to service tax under the Finance Act, 1994.
The New Delhi Principal Bench of the Customs,Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that income earned from freight trading, trade discounts, reimbursements, and export of services is not liable to service tax under the Finance Act, 1994.
Shine Travels & Cargo Pvt. Ltd., the appellant, is engaged in facilitating export and import shipments as an agent for local exporters, importers, and international freight forwarders.
Based on an investigation, the department alleged that the appellant had failed to discharge full service tax liability on certain income components and issued five show cause notices for the financial years 2007-08 to 2015-16, demanding service tax exceeding Rs. 23 crore, along with interest and penalties under Sections 76, 77, and 78 of the Finance Act.
The Principal Commissioner confirmed the demand by treating the following as taxable services: freight and incidental charges, discounts received from airlines and shipping lines, prior period income, reimbursements, other income, and export of services. The appellant challenged the order before the tribunal.
The appellant’s counsel argued that freight income was earned from buying and selling cargo space on a principal-to-principal basis, which amounted to trading, not a service. They further argued that discounts represented price concessions, reimbursements were received in the capacity of a pure agent, and services rendered to foreign clients qualified as export of services, which are not taxable.
The revenue supported the findings of the Commissioner, claiming that all these incomes formed part of the gross value of taxable services.
The bench comprising P.V. Subba Rao (Technical Member) and Binu Tamta (Judicial Member) accepted the appellant’s submissions. The tribunal observed that freight and incidental charges related to trading activity and not service provision.
The tribunal pointed out that discounts were not consideration for any service and reimbursements as a pure agent were outside the taxable value. It also explained that services rendered to overseas clients were exported services, as recipients were located abroad and payments were received in foreign currency.
Finding that none of the income heads constituted taxable services, the tribunal set aside the entire demand, along with interest and penalties, and allowed the appeal with consequential relief.
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