2025 (10) TMI 730 - AT - Service Tax

Appeal dismissed; commission on cargo space non-taxable and reimbursed expenses satisfy Rule 5(2) pure-agent conditions

CESTAT held the appeal dismissed. It found commission from sale of cargo space not exigible to service tax, following prior tribunal precedent. Amounts ... Non-payment of service tax - commission earned in lieu of sale of cargo space - amount received as reimbursable expenses - pure agent - services provided to Indian Army for transportation of stores to United Nations Peace Mission out of India. Commission earned in lieu of sale of cargo space - HELD THAT:- The same is no more res integra. This Tribunal in Tiger Logistics India Ltd. vs. Commissioner, Central Tax and GST, New Delhi [2023 (7) TMI 546 - CESTAT NEW DELHI] held that 'In MARINETRANS INDIA PVT. LTD. VERSUS CST, HYDERABAD - ST [2019 (4) TMI 534 - CESTAT HYDERABAD], the Division Bench held after considering the Circular dated 12.08.2016 issued by the Central Board of Excise and Customs that buying and selling space on ships does not amount to rendering a service and any profit or income earned through such transactions would not be leviable to service tax.' Amount received as reimbursable expenses - HELD THAT:- The impugned order clearly notes that the sample invoices separately indicate the statutory charges viz., Customs duty IAAI charges, Airlines, Air Console agent charges for air freight & delivery order, Municipal Government levies such as Octroi, Toll tax, Service Tax etc. It has also been clearly noted that Rule 5 (2) of Service Tax Rules 1994 lays down certain conditions on 'Pure Agent' services and it has been held that the respondent had satisfied all the conditions. We note that the Department has not led any evidence contrary to this finding. Hence, the Commissioner (Appeals) has rightly dropped the demand in this regard. Service provided to Indian Army for transportation of stores to UN Peace Mission - HELD THAT:- The appellant was providing services to UN Peace Keeping mission. The Security Council is one of the primary organs of the United Nations Organization. One of the roles and responsibilities of the Security Council is to execute peace keeping operations and political missions. The role of the Security Council is to place for the political, military, operational and support (i.e. logistics and administration) aspects of the peace operation. The service provided by them is to the United Nations and not International Organization and therefore the same is also exempted under Notification No.16/2002 dated 02.08.2002 and is not liable to service tax at all in its entirety - It is a fact that such Peace Keeping missions are under the aegis of the Security Council, which is an integral part of the U.N. Consequently, supply of all services to the UN Peacekeeping Mission by the respondent is eligible for the exemption under Notification No.16/2002-ST dated 02.08.2002. Further, it is also held that the said exemption was also available under Notification No.25/2012-ST dated 20.06.2012. There are no infirmity with the impugned order - appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether service tax is leviable on the markup/commission earned from purchase and resale of cargo space (i.e., difference between price paid to carriers and price charged to customers). 2. Whether amounts received as reimbursable expenses qualify for exclusion from taxable value as payments made by a pure agent and thus escape service tax. 3. Whether services rendered for transportation of stores to a United Nations Peacekeeping mission are exempt from service tax under the applicable exemption notifications. ISSUE 1 - LEVY ON MARKUP FROM SALE OF CARGO SPACE Legal framework: Taxability depends on whether the transaction is a service (e.g., business-support or intermediary service) or a principal-to-principal sale of goods/space where no service is rendered; negative list and place-of-provision rules are relevant for cross-border considerations. Precedent Treatment: The Tribunal and multiple Division Benches have consistently held that buying and selling of cargo space by freight forwarders who act as principals is trading and not rendering a service; departmental view treating markup as business auxiliary/support service has been rejected in earlier Tribunal decisions and supported by administrative circulars. Interpretation and reasoning: The markup arises from acquiring space from carriers and reselling at a higher price on own account; the appellant bears commercial risk and liability (i.e., transactional exposure if unable to resell), consistent with principal-to-principal dealing rather than intermediary agency. Administrative guidance recognizes distinct scenarios where a freight forwarder acts either as an agent or as a principal - only the former attracts service tax under intermediary rules. Ratio vs. Obiter: Ratio - where a supplier purchases cargo space on its own account and resells to customers, earning markup while bearing risk/liability, such markup does not constitute consideration for a taxable service and is not leviable to service tax. Observations about supporting circulars and bench decisions are ratio-supporting; ancillary remarks on negative list consequences are explanatory. Conclusion: The Tribunal upholds the appellate finding that markups from sale of cargo space are not taxable as service; the demand relating to such markup is to be set aside. ISSUE 2 - TAXABILITY OF REIMBURSABLE EXPENSES (PURE AGENT CLAUSE) Legal framework: Section(s) governing value of taxable services and the Service Tax (Determination of Value) Rules, specifically the pure agent exclusion under Rule 5(2) (conditions enumerated for exclusion of expenditure or costs incurred by service provider as a pure agent). Precedent Treatment: Higher court decisions have struck down certain valuation provisions that broadly included reimbursements, and a later Supreme Court decision affirmed that reimbursements prior to statutory amendment could not be taxed; post-amendment legislative changes brought reimbursements within tax net from a specified date. Tribunal and appellate findings emphasize factual satisfaction of Rule 5(2) conditions where invoked. Interpretation and reasoning: The impugned order examined sample invoices showing separate indication of statutory levies and identified that statutory charges were billed at actuals and separately stated. The Rule 5(2) conditions-service provider acting as pure agent, recipient using the procured goods/services, liability and authorization of recipient, separate invoice indication, and recovery limited to amounts paid to third parties-were found to be satisfied. The Department did not produce contrary evidence to rebut these factual findings. Even where a mark-up is alleged on reimbursements, finding on invoices and absence of contrary material supported application of the pure agent exclusion in the facts of the case for the relevant period. Ratio vs. Obiter: Ratio - when all statutory conditions of the pure agent rule are satisfied and reimbursements are separately indicated and recovered only to the extent paid to third parties, such amounts are excluded from taxable value; factual absence of mark-up or contrary evidence is decisive. Observations regarding struck-down valuation rules and later legislative amendments are explanatory regarding temporal scope. Conclusion: The Commissioner (Appeals) correctly found reimbursable statutory expenses to be excluded under the pure agent provisions; departmental demand in respect of such reimbursements is rightly dropped. ISSUE 3 - EXEMPTION FOR SERVICES TO UNITED NATIONS PEACEKEEPING MISSION Legal framework: Notification-based exemptions that exempt taxable services provided to the United Nations or specified international organizations; interpretation of the scope of 'United Nations' and affiliated organs/agencies for exemption purposes; relevance of invoice-based quantification and need for specific quantification in show-cause notices. Precedent Treatment: Tribunal decisions have treated offices/agencies/programmes/entities that are part of the UN system (e.g., UNDP, UNICEF, etc.) as covered by mega-exemption notifications; appellate findings sustained that such entities are effectively part of the United Nations for exemption purposes. Prior decisions by the Tribunal and appellate bodies were cited to support that services to UN entities are exempt. Interpretation and reasoning: Factually, contract was awarded by the national authority for provisioning multi-modal transportation services to the UN Peacekeeping mission and it was admitted that a major portion of consideration was for ocean freight. The exemption notification(s) were construed as granting exemption for taxable services provided to the United Nations and for specified international organizations; the Security Council and peacekeeping operations fall within the UN's functions and thus services to such missions are services to the United Nations. Where the show-cause notice failed to quantify amounts by reference to invoices and instead raised demand by taking differences from profit-and-loss figures, the notice lacked the necessary invoice-based quantification and intelligible particulars; additionally, ocean freight portion was non-taxable for the relevant period under the statutory regime applicable to ocean freight. Ratio vs. Obiter: Ratio - services provided to the United Nations or its constituent offices/representatives engaged in peacekeeping activities are covered by exemption notifications and are not liable to service tax; additionally, demands based on generalized differences in financial statements without invoice-based quantification lack sufficient basis. Observations on the structural role of United Nations organs and on the application of multiple exemption notifications are central to the holding. Conclusion: The Commissioner (Appeals) rightly dropped the demand in respect of services rendered for UN Peacekeeping mission - the services fall within exemption notifications and the show-cause notice did not properly quantify taxable amounts; the departmental challenge to this conclusion is rejected. OVERALL CONCLUSION The Tribunal affirms the appellate order: (i) markup from purchase-resale of cargo space is not taxable as service where transactions are on principal-to-principal basis; (ii) reimbursable statutory expenses shown separately and meeting pure-agent conditions are excluded from taxable value; and (iii) services to United Nations Peacekeeping mission qualify for exemption under the relevant notifications and the demand based on unaudited profit/loss differences without invoice quantification is unsustainable. The departmental appeal is dismissed.