2026 (1) TMI 1493 - AT - Service Tax

Leviability of service tax on excess freight income denied where profit share in multimodal forwarding is business profit, not taxable.

Issue concerns leviability of service tax on excess income earned from ocean freight under the category of Business Auxiliary Service. The reasoning ... Leviability of service tax on excess income / profit share - Business Auxiliary Service - Principal-to-principal multimodal freight forwarding / joint delivery of service - Section 65(19) of the Finance Act, 1994 - Whether service tax is leviable on the excess income earned out of the ocean freight amount under the category of “Business Auxiliary Service”. - HELD THAT:- It is seen that this is a continuing SCN and the Order of the Commissioner confirms the demand. Previous Order on the earlier SCN has been set aside by this Tribunal. It is also seen that the Appellants have relied on other decisions also on the issue of levy of Service Tax on “Profit Share”. The common thread running in all these Tribunal decisions relating to “Profit Share” on Freight Forwarding Services, is that, the “Business Profits” cannot be taxed to Service Tax and also that when the two Partners are jointly delivering the service in multi modal transport, operating in different geographical locations, such sharing of Profit cannot be taxed to Service Tax. We find that the above issues challenged in the present appeal is no longer res integra with regard to the leviability of service tax on the excess income earned under the category of “Business Auxiliary Service.” The said issue stands settled by various decisions as cited by the Appellants. Further, we find that the very same issue, in the Appellant’s own case for an earlier period, has already been decided in favour of the Appellants by this Tribunal vide Final Order [2018 (6) TMI 723 - CESTAT CHENNAI], wherein it was held that service tax is not leviable on such excess income earned. Therefore, we find that there is no reason for us to deviate from the decision of this Tribunal (supra) rendered in the Appellant's own case for the earlier period. Thus, we hold that the Appellants are not liable to pay service tax on the excess income earned under the category of “Business Auxiliary Service.” Issues: Whether service tax is leviable on excess income (profit/markup/profit share) earned by a freight forwarder from ocean freight transactions under the category of Business Auxiliary Service (Section 65(19) of the Finance Act, 1994).Analysis: The appeal involves transactions where the freight forwarder procures carriage (space/slots) and jointly performs multimodal transport with overseas counterparts, sharing profit or loss under commercial arrangements. Judicial authorities cited establish that where the activity constitutes purchase and sale of carriage capacity or principal-to-principal commercial dealings (including allocation of procured space and attendant market risk), the surplus arises from business profits and not from provision of a service to the overseas freight forwarder. Under that legal framework, such profit/markup is not consideration for a taxable service within the scope of Business Auxiliary Service in Section 65(19) of the Finance Act, 1994. Prior tribunal decisions, including the appellant's own earlier period decision, have set aside similar demands and held service tax not leviable on such profit sharing in comparable facts. Applying those precedents and the principal-to-principal analysis to the facts of the present case leads to the same conclusion.Conclusion: Service tax is not leviable on the excess income earned as profit/markup/profit share from the ocean freight transactions under the category of Business Auxiliary Service; the appeal is allowed in favour of the assessee.