Mark-Up Earned By Purchasing & Selling Cargo Space To Importers/Exporters On Principal-To-Principal Basis Is Not Liable To Service Tax: CESTAT

The Bench of Binu Tamta (Judicial Member) and Rajeev Tandon (Technical Member) has observed that “when the assessee is acting on a principal to principal basis, as regards purchase and selling of space from shipping line/airline and selling to importers the said act would not amount to an activity liable to Service Tax.”

In this case, a show cause notice was issued to the assessee/appellant in the matter seeking recovery for alleged non-payment of Service Tax on extra charges collected i.e. mark up for the freight income (ocean freight/air freight).

The department therefore alleged that the said mark up was a consideration liable to Service Tax as the nature of service rendered by the assessee could not be considered as transportation of goods.

The Commissioner of Central Goods & Service Tax (Appeals) confirmed the demand alleged in the show cause notice. The assessee has challenged the order passed by the Commissioner of Central Goods & Service Tax (Appeals) before the Tribunal.

The assessee submitted that they act as agent or intermediary who is procuring the transportation service being rendered by the shipping line/airline for and on behalf of importer/exporter of goods. It is in this process that they earn freight margin/mark up as a consideration.

The Tribunal noted that the Commissioner has not disputed the fact that the assessee is providing provisioning of input service by performing various activities such as transportation of goods by sea, air, rail, road and customs clearance required for such transportation of goods, to its clients and acts on a principal to principal basis. However, despite so, he has taken the stance that the assessee is covered under the category of an intermediary, which under the circumstances is not factually correct.

The bench stated that “when the assessee/appellant is acting on a principal to principal basis, as regards purchase and selling of space from shipping line/airline and selling to importers/exporters we are of the view that the said act would not amount to an activity liable to Service Tax. This is particularly so when they are not acting as an agent/intermediary for promoting the business of the shipping lines/ and airlines and the transactions of the assessee/appellant are independent of both backward and forward integration of the activities performed.”

In view of the above, the Tribunal allowed the appeal.

Case Title: M/s. Seagull Maritime Agencies Pvt. Ltd. v. Commissioner of Central Goods & Service Tax, Audit-II, New Delhi

Case Number: Service Tax Appeal No.51142 of 2019

Counsel for Appellant/ Assessee: P.K. Sahu

Counsel for Respondent/ Department: Jaya Kumari

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