Service Tax Not Leviable On Freight Brokerage: CESTAT

The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that service tax is not leviable on freight brokerage.

The bench of Sulekha Beevi C.S. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) observed that the demand is raised on the markup made, which is the profit out of the difference in the value of ocean freight collected by the shipping line and paid by the exporter or client.

The appellant/assessee is a partnership firm and holds a certificate of registration from the Service Tax Commissionerate under Customs House Agent (CHA) Services and Steamer Agency Services.

On scrutiny of the profit and loss account submitted for the financial years 1997–2004, it was revealed that the appellant has not discharged service tax on freight and brokerage. A show cause notice was issued proposing to demand the service tax.

The assessee contended that the appellant receives a brokerage or rebate from the shipping line on the ocean freight that they have to pay to the shipping lines. It is in the form of discounts or incentives paid to the CHA, and such an amount is not a consideration for providing any CHA services. The appellant does not provide any CHA service to the shipping line. They act as an agent on behalf of the importer or exporter. So the incentive or discount received by the appellant from the shipping line cannot be treated as a consideration received for CHA services.

The Tribunal observed that the markup value collected by the assessee from the exporter is an element of profit in the transaction. The amount is not a commission earned by the assessee, is not while acting as an agent of the exporter or shipping line, and cannot be considered a consideration. The assessee, while acting as an agent on behalf of the shipping line, was discharging the service tax as steamer agency services.

The tribunal quashed the demand for service tax on freight brokerage.

Counsel For Appellant: Radhika Chandrasekar

Counsel For Respondent: O.M. Reena

Case Title: M/s. International Clearing & Shipping Agency Versus Commissioner of GST and Central Excise

Case No.: Service Tax Appeal No. 81 of 2005

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