Principal-to-principal resale of ocean freight space was not commission income and could not be taxed as Business Auxiliary Service.

Margin earned from procuring and reselling ocean freight space on a principal-to-principal basis was not taxable as commission income under Business Auxiliary Service. The activity was treated as purchase of cargo space from shipping lines and resale to customers in two independent transactions, with freight paid to the shipping line and collected from clients separately. Because the arrangement did not involve acting as an agent for the shipping line or promoting a client's services, the service tax demand could not be sustained under section 65(19) of the Finance Act, 1994.

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Issues: Whether the margin earned from procuring and reselling ocean freight space on a principal-to-principal basis was taxable as commission income under Business Auxiliary Service.

Analysis: The activity was found to be purchase of cargo space from shipping lines and resale of that space to customers, with freight paid to the shipping line and collected from clients in two independent transactions. The arrangement did not amount to acting as an agent for the shipping line or promoting the services of a client. On this reasoning, the demand could not be sustained under section 65(19) of the Finance Act, 1994.

Conclusion: The demand for service tax was unsustainable and the appeal succeeded.

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