Service Tax Demand on Cargo Space Transactions Unsustainable: CESTAT Allows Relief to Airlift Associates [Read Order]

The Customs, Excise and Service Tax AppellateTribunal (CESTAT) Chennai Bench has set aside the service tax demand on freight margins and reimbursable expenses holding that such transactions are not eligible for tax under the Finance Act, 1994.

The Tribunal allowed the appeals partly holding that service tax demand on freight margins arising from cargo space transactions and reimbursable expenses is unsustainable. However, the demand relating to airway bill charges which was not contested by the assessee was upheld. Penalties imposed under Sections 76 and 77 were also set aside.

The assessee Airlift Associates, who was in the business of providing services like air travel agency, cargo handling and customs house agency was involved in booking cargo spaces with airlines/shipping lines and then selling them to exporters.

However, during the audit it was found that service tax was not paid on airway bill fees, commissions, freight margins, and reimbursable expenditure. As such, show cause notice was issued and demand was confirmed.

The assessee, however, contended that the freight margin represents profit from principal to principal transactions involving purchase and sale of cargo spaces and cannot be regarded as consideration for service.

The assessee further contended that expenditure was collected on actual basis, and as per the Supreme Court ruling in Intercontinental Consultants, such expenditure cannot be included in the value of service prior to 2015 amendment.The Revenue department however, has supported the findings of the lower authorities.

The Tribunal comprising Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member ) noted that the activity involves booking and selling cargo space which is a trading activity on a principal-to-principal basis and hence the margin earned is merely a business profit and is exempt from service tax.

The Tribunal noted that Rule 5 of Valuation Rules is ultra vires Section 67 and hence such expenses cannot be included in taxable value for the relevant period.Accordingly, the impugned orders were set aside to the extent contested and consequential relief was granted to the assessee.

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