Principal-to-principal cargo space resale is not taxable service when mark-up arises from trading, not service provision.

Purchase and resale of cargo space on a principal-to-principal basis was held not to constitute a taxable service under Business Auxiliary Service or Business Support Service, because the assessee was dealing on its own account and not promoting or marketing another person's services. The surplus earned as freight mark-up arose from trading in cargo space, not from consideration for service activity, so the mark-up could not be taxed as service consideration. On that basis, the demand for service tax, interest, and penalties on the freight mark-up was unsustainable.

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Issues: Whether the mark-up earned by the assessee on booking cargo space and reselling the space to clients was exigible to service tax as Business Auxiliary Service or Business Support Service, and whether the entire freight collected was taxable.

Analysis: The assessee booked cargo space from shipping lines on its own account and thereafter allotted the space to customers at negotiated rates. The surplus arose from purchase and sale of space and not from rendering any service to the shipping line or to the customers. The activity was held to be a principal-to-principal transaction and not an activity of promoting or marketing the services of another person within the scope of Section 65(19) of the Finance Act, 1994. The Tribunal also followed earlier decisions on the same activity and found that the freight mark-up could not be treated as taxable consideration. As the taxable character itself failed, the exclusion of freight from the demand was not open to interference in favour of the Revenue.

Conclusion: The demand of service tax, interest, and penalties on the freight mark-up was unsustainable. The issue was decided in favour of the assessee and against the Revenue.

Ratio Decidendi: Purchase and resale of cargo space on a principal-to-principal basis does not amount to rendering a taxable service under Business Auxiliary Service merely because a surplus or mark-up is earned.

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