Freight forwarder's differential freight earnings not liable for service tax under Business Support Service

CESTAT Chennai set aside service tax demand on freight forwarder's differential freight earnings under Business Support Service. The Tribunal held that excess freight charges over actual costs constitute profit from cargo space trading, not consideration for services rendered to clients. Following precedents from Greenwich Meridian Logistics and Karam Freight Movers cases, the differential amount cannot be subjected to service tax levy. Additionally, the extended limitation period was deemed invalid as the department failed to establish suppression with intent to evade tax, and the issue remained contentious with favorable precedents for the assessee.

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Issues Involved:
1. Whether the amount accounted as net-operating income in the financial accounts of the appellant is a consideration received by the appellant for providing services under the category of Business Support Service (BSS).
2. Whether the extended period is invocable or not.

Summary:

The appellants, engaged in handling export and import cargo, were audited, revealing that they did not discharge service tax on the mark-up received on freight charges. The department issued a show cause notice demanding service tax, interest, and penalties, which the appellants contested.

Issue 1: Net-Operating Income as Consideration for Services under BSS

The appellants argued that the excess amount received from freight charges, accounted as net operating income, is not subject to service tax as it represents profit from trading in cargo space, not for services rendered. They cited several judicial precedents, including EMU Lines Pvt. Ltd. and Greenwich Meridian Logistics, which held that such profits are not taxable under BSS. The Tribunal agreed, noting that the differential freight earned by the appellant is not consideration for services rendered and thus not liable to service tax under BSS. The Tribunal referenced multiple decisions supporting this view, including CST New Delhi Vs Karam Freight Movers and CST New Delhi Vs Continental Carriers, which affirmed that profit from the sale and purchase of cargo space is not a taxable service.

Issue 2: Invocation of Extended Period

The appellants contended that the issue was interpretational and they had a bona fide belief that these amounts need not be included in taxable value. The Tribunal found no evidence of suppression with intent to evade tax, as the demand was based on accounts maintained by the appellant and the issue was contentious with several decisions in favor of the assessee. Thus, the invocation of the extended period was not justified.

Conclusion

The Tribunal set aside the impugned orders, allowing the appeals with consequential relief, if any, and ruled in favor of the appellants on both issues, stating that the demand of service tax cannot sustain and the extended period cannot be invoked.

(Pronounced in court on 13.12.2023)

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