Ocean Freight Receipts and Cargo Space Trading Profits Not Taxable Under Service Tax Rules

The CESTAT Kolkata upheld the earlier findings of CESTAT Allahabad and the SC, ruling that receipts from ocean freight and profits from trading cargo space are not taxable under Service Tax as Business Auxiliary Service or Business Support Service. The Tribunal held that buying and selling cargo space does not constitute a service, and surplus income earned is not consideration for any taxable service. Consequently, the demand for service tax was correctly dropped by the adjudicating authority. The Revenue's appeal was dismissed, and the assessee's appeal was allowed.

---

---

ISSUES:

Whether the mere purchase and sale of cargo space by a clearing and forwarding agent constitutes a "service" liable to Service Tax under the Finance Act, 1994.Whether the margin earned on trading of cargo space qualifies as consideration for rendition of "Business Support Services" or "Business Auxiliary Services".Whether the activity of booking and selling cargo space on principal-to-principal basis attracts Service Tax liability under the Negative List regime post 01.07.2012.Whether the appellant is liable to pay Service Tax on ocean freight receipts and profit earned thereon from foreign clients/Indian exporters for export of goods from India.Whether failure to take Service Tax registration under the appropriate service category contravenes statutory provisions.

RULINGS / HOLDINGS:

The mere purchase and sale of cargo space is not a "service" and thus not liable to Service Tax under either the Positive List or Negative List regimes; the surplus income/receipts earned is not "consideration" towards rendition of any Business Support Service (BSS) or Business Auxiliary Service (BAS).The margin earned on trading of cargo space does not amount to consideration for any taxable service, as the appellant acts on a principal-to-principal basis, not as an intermediary or service provider.Post 01.07.2012, under the Negative List regime, the said activity does not qualify as a taxable service under Section 65B(44) of the Finance Act, 1994, as confirmed by the Hon'ble Apex Court.The appellant is not liable to pay Service Tax on ocean freight receipts and profit earned thereon from foreign clients/Indian exporters for export of goods from India since the place of provision of service is outside the taxable territory.The demand for Service Tax on these transactions is unsustainable and rightly dropped by the adjudicating authority; consequently, the appeal filed by the Revenue is dismissed and the appellant's appeal is allowed.

RATIONALE:

The legal framework applied includes the Finance Act, 1994, specifically Sections 65(104c), 65(105)(zzzq), and 65B(44), along with the Service Tax Rules, 1994, and relevant Circular No. 197/7/2016 dated 12.08.2016 regarding place of provision of services.The Tribunal relied on precedent from the appellant's own case as reported in 2024(3) TMI 285-CESTAT Allahabad, affirmed by the Hon'ble Apex Court in 2025(1) TMI 1041-SC, establishing that buying and selling cargo space on principal-to-principal basis is not a taxable service.The decision distinguished between acting as an intermediary and acting as a principal; the statute requires at least three parties (service provider, service recipient, and client) for Business Auxiliary Service classification, which was absent here.The Tribunal applied the principle that the place of provision of transportation service of goods by air/sea is the destination outside India, thus outside the taxable territory, rendering such receipts non-taxable under Service Tax.No doctrinal shift or dissent was recorded; the decision follows settled law and statutory interpretation consistent with Circular guidance and judicial precedents.

---