Cargo space trading margins not taxable as service; export freight also fell outside India under place of provision rules.

Air and ocean freight charges, together with mark-up on purchase and sale of cargo space, were treated as consideration from principal-to-principal trading and not as payment for a taxable service. The Tribunal held that the freight differential did not constitute business support service or any other service under the pre-01.07.2012 regime. For the post-01.07.2012 period, it further found that export cargo transportation fell outside India under the place of provision rule and did not amount to intermediary service. Demand, interest and penalties were therefore unsustainable.

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Issues: Whether the air freight and ocean freight charges, along with mark-up earned on purchase and sale of cargo space, were liable to service tax under the pre-01.07.2012 regime as business support service and under the post-01.07.2012 regime as taxable service.

Analysis: The activity undertaken was found to be booking and selling cargo space on a principal-to-principal basis, where freight was paid to shipping lines or airlines and collected from customers in independent transactions. The margin earned was treated as profit from trading in space, not as consideration for a service rendered to a client. The Tribunal followed its earlier decisions holding that such freight differential does not fall within business support service or any other taxable service. For the post-01.07.2012 period, the Tribunal also accepted that the transportation of export cargo placed the service outside India under the relevant place of provision rule, and that the activity did not assume the character of an intermediary service. The demand, interest, and penalties therefore had no sustainable basis.

Conclusion: The freight charges and mark-up were not taxable, and the demand could not be sustained.

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