Freight charges for air and ocean transportation are cargo movement payments, not taxable services under Section 78

CESTAT Chennai held that freight charges collected for air and ocean transportation constitute payment for cargo movement, not taxable services. Following precedent in Geodis Overseas Private Ltd. case, the Tribunal ruled that service tax demands on freight charges and mark-up for periods both before and after 01.07.2012 cannot be sustained. The extended limitation period and penalty under Section 78 were also set aside. Appeal allowed in favor of the assessee.

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Issues Involved:
1. Whether the air freight charges/ocean freight charges along with mark-up collected by the appellant is subject to levy of service tax.
2. Whether the activity of the appellant would fall under 'Business Support Service' prior to 1.7.2012 and under Section 65B (44) of the Act for the period post 1.7.2012.

Summary:

Issue 1: Levy of Service Tax on Air Freight/Ocean Freight Charges with Mark-Up

The appellant, engaged in various services including transportation of export cargo, was scrutinized for non-payment of service tax on ocean and air freight charges collected. The department argued that these charges were taxable under Business Support Service (BSS) before 01.07.2012 and under Section 65B (44) of the Finance Act, 1994 thereafter. The appellant contended that their activity involved trading in cargo space, which does not fall under the definition of BSS. They emphasized that the freight charges are for transportation of goods, not for any other service, and thus should not be subject to service tax. The Tribunal, referencing multiple precedents, agreed that the activity of buying and selling cargo space is a principal-to-principal transaction and not a service, thereby not subject to service tax. The Tribunal cited decisions in cases like Greenwich Meridian Logistics (I) Pvt Ltd and others to support this view.

Issue 2: Classification of Services under Business Support Service

The appellant argued that their activities do not fit within the definition of BSS as per Section 65(104c) of the Finance Act, 1994, which is aimed at taxing outsourcing services. They relied on the principle of noscitur-a-socis and various judicial precedents to argue that their activities are not related to managing distribution and logistics as defined under BSS. The Tribunal supported this argument, stating that the appellant's activities are more akin to trading in cargo space rather than providing BSS. It was noted that the appellant's role as a freight forwarder, buying and selling cargo space, does not constitute a taxable service under the Act.

Extended Period of Limitation and Penalty

The appellant contended that they were under a bona fide belief that their activities were not taxable and thus the extended period of limitation should not apply. They argued that the department failed to prove deliberate suppression of facts. The Tribunal agreed, citing that the figures were derived from publicly available documents and there was no willful intent to evade tax. The Tribunal also noted that for a subsequent period, a similar demand was set aside by the Commissioner (Appeals), and the department did not appeal against that decision.

Conclusion

The Tribunal concluded that the demand for service tax on air freight/ocean freight charges along with mark-up for the period prior to 1.7.2012 as well as post-1.7.2012 cannot be sustained. The impugned order was set aside, and the appeal was allowed with consequential relief.

(Order dictated and pronounced in the open court)

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