Principal-to-principal freight forwarding is not intermediary service, and inbound cargo transport retained exemption under the service tax regime.

A freight forwarder acting on a principal-to-principal basis is not an intermediary where it provides transportation services on its own account rather than merely arranging the carrier's service. For outbound consignments, the place of provision for goods transportation follows the destination rule, so shipment destined outside India was not taxable under the Finance Act, 1994. For inbound shipments, transportation of goods by aircraft or vessel from outside India to the customs station of clearance remained outside service tax up to 31.05.2016 under the negative list, and exemption continued for aircraft transport from 01.06.2016 under the relevant notification.

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Issues: (i) Whether the freight margin recovered on outbound shipment was taxable as intermediary service or otherwise under the Place of Provision of Services Rules, 2012. (ii) Whether the freight margin recovered on inbound shipment was exempt from service tax under the negative list and the subsequent notification regime.

Issue (i): Whether the freight margin recovered on outbound shipment was taxable as intermediary service or otherwise under the Place of Provision of Services Rules, 2012.

Analysis: The service arrangement with the carrier was on principal to principal basis. The applicant provided the main service on its own account and was not merely arranging or facilitating the carrier's service as an intermediary. Since the place of provision for transportation of goods is the place of destination under Rule 10, outbound consignments destined outside India had a place of provision outside India. The service also was not shown to be a single indivisible bundled service.

Conclusion: The freight margin on outbound shipment was not taxable under the Finance Act, 1994.

Issue (ii): Whether the freight margin recovered on inbound shipment was exempt from service tax under the negative list and the subsequent notification regime.

Analysis: For the period up to 31.05.2016, transportation of goods by aircraft or vessel from a place outside India to the customs station of clearance in India fell within section 66D and was outside the charge of service tax. With effect from 01.06.2016, the negative-list entry was omitted, but exemption continued for transportation of goods by aircraft under Notification No. 9/2016-ST.

Conclusion: The freight margin on inbound shipment was exempt up to 31.05.2016, and exemption continued for transportation by aircraft from 01.06.2016.

Final Conclusion: The applicant's core freight-margin questions were answered in its favour, while the residual questions on liability on only the differential margin and CENVAT credit did not survive independently.

Ratio Decidendi: A freight forwarder acting on its own account under a principal to principal contract is not an intermediary, and the place of provision for goods transportation follows the destination rule under Rule 10; inbound carriage from abroad is exempt where covered by the negative list or the continuing notification exemption.

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