2025 (8) TMI 937 - AT - Service Tax

Multimodal Transport Operator acted as principal buying and reselling cargo space, not a Business Auxiliary Service, appeal allowed

M/s. Shikhar Logistics Pvt. Ltd. Versus Commissioner of Central Tax, New Delhi

M/s. Shikhar Logistics Pvt. Ltd. Versus Commissioner of Central Tax, New Delhi - TMI 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether amounts charged by a freight forwarder/booking agent over and above the amounts actually paid to carriers for cargo space constitute consideration for a taxable service (e.g., Business Auxiliary Service) or constitute profits from a principal-to-principal sale/trading of cargo space. 1.2 Whether the appellant operates as a principal (Multimodal Transport Operator) - bearing contractual responsibility, risk and liability for carriage - such that transactions in procuring and allotting cargo space are independent principal-to-principal transactions and not intermediary/agency services. 1.3 Whether the departmental characterization of the excess charged as service tax-able under service tax law (as provision of Business Auxiliary Service) is sustainable in light of statutory definitions, regulatory registration (MTO), circular guidance, and Tribunal precedent. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Characterisation of mark-up/extra amounts - taxable service vs. trading/profit Legal framework 2.1 Tax liability depends on whether the excess charged is consideration for a service within the taxable ambit (e.g., Business Auxiliary Service) or is consideration arising from a commercial transaction in which the appellant acts as principal - i.e., sale/trading of cargo space with attendant profit or loss. Precedent Treatment (followed/distinguished/overruled) 2.2 The Tribunal has consistently held in earlier decisions that mark-ups retained by freight forwarders who procure carriage space and resell it act as commercial profit from a principal-to-principal transaction rather than compensation for rendering a service; those decisions are followed and relied upon. Interpretation and reasoning 2.3 The Tribunal examines the substance of the transactions: the appellant procures cargo space from carriers on its own account, pays the carriers directly, and subsequently sells or allocates that space to exporters/importers at negotiated rates which may yield profit, zero margin, or loss. The mark-up is not tied to the provision of a discrete service but arises from the trading risk and pricing decision inherent in resale of space. 2.4 The presence of profit motive and exposure to loss indicates commercial supply rather than an agency or intermediary service. The procurement and re-allotment are two independent transactions - payment of freight to carrier and separate collection from customer - supporting characterization as principal-to-principal dealings. Ratio vs. Obiter 2.5 Ratio: Where a freight forwarder procures carriage capacity on its own account and bears the commercial risk of resale, mark-ups charged to customers are attributable to a principal commercial transaction (trade) and not to a taxable service such as Business Auxiliary Service. Conclusions 2.6 The excess/mark-up charged by the appellant does not constitute consideration for a taxable service; it is commercial profit from trading in cargo space and is not liable to service tax as Business Auxiliary Service on that element. Issue 2: Whether the appellant functions as a principal / Multimodal Transport Operator (MTO) and consequences for tax characterisation Legal framework 3.1 Statutory and regulatory recognition (MTO registration and relevant statutory definition) and the legal attributes of an MTO - contractual responsibility, issuance of transport documents, custody obligations, and liability for loss/damage - are central to determining whether the appellant acts as principal rather than intermediary. Precedent Treatment (followed/distinguished/overruled) 3.2 Tribunal decisions and administrative circulars have treated freight forwarders who assume legal responsibility, contractual obligations and risk for carriage as principals/MTOs rather than intermediaries; those authorities are applied. Interpretation and reasoning 3.3 The appellant is registered as an MTO, issues transport documents (e.g., multimodal bill of lading), contracts with carriers without the shipper being privy to contract terms, sometimes contracts for space in anticipation of demand, and procures insurance to cover carriage risks. These actions evidence assumption of legal liability and commercial risk. 3.4 Contracting for and holding space in anticipation of demand, with risk of non-usage falling on the appellant, cannot be reconciled with an agency function. The contractual and commercial profile corresponds to principal-to-principal transactions where freight is both paid and collected in separate, independent transactions. Ratio vs. Obiter 3.5 Ratio: An entity registered as and acting as a Multimodal Transport Operator that assumes contractual responsibility, risk and liability for transportation and procures carriage space on its own account is a principal; its procurement and allotment of carriage space are independent principal-to-principal transactions, not intermediary services. Conclusions 3.6 The appellant's status and conduct as an MTO support treating the excess/mark-up as commercial trading income from principal-to-principal transactions rather than as service consideration liable to service tax. Issue 3: Relevance of administrative circular and its application Legal framework 4.1 Administrative circulars elucidating tax administration positions on freight forwarders acting as principals are material for construing whether a transaction falls within intermediary/service tax coverage, particularly where they explain risk, liability and invoicing practice. Precedent Treatment (followed/distinguished/overruled) 4.2 The Tribunal has previously relied on the cited circular to conclude that freight forwarders who bear legal responsibility and risk are providing transportation services on their own account and are not covered under intermediary definition; that approach is followed. Interpretation and reasoning 4.3 The circular recognizes scenarios where a freight forwarder negotiates freight with carriers and with exporters, raises invoices on the exporter, and bears risk and liability - in such cases the forwarder is not an intermediary. This supports treating procurement/allotment transactions as principal commercial activity rather than intermediary service provision. Ratio vs. Obiter 4.4 Ratio: Administrative guidance confirming that entities undertaking full responsibility and risk for transportation are principals reinforces the legal characterisation of transactions as non-intermediary/principal and not service tax-able on the mark-up element. Conclusions 4.5 The circular's exposition, as applied to the appellant's facts, supports setting aside a departmental demand premised on treating mark-ups as taxable service consideration. Cross-references and synthesis 5.1 Issues 1-3 are interlinked: the legal characterisation of the mark-up depends on whether the appellant is functioning as a principal/MTO (Issue 2) and whether administrative guidance and Tribunal precedent treat such conduct as outside intermediary/service tax ambit (Issue 3); combined analysis leads to the conclusion at Issue 1. Overall Conclusion (Court's holding) 6.1 The Tribunal concludes that the appellant procured cargo space on its own account, bore the attendant commercial risks and contractual responsibilities as an MTO, and resold/allocated that space to customers in distinct principal-to-principal transactions. Accordingly, the excess/mark-up retained by the appellant is trading/profit from principal transactions and not consideration for a taxable service; the departmental demand is therefore set aside.