Ocean freight markup not taxable where profit element has no nexus with steamer agent service

Mark-up collected on ocean freight, being the difference between freight charged from customers and freight paid to shipping lines, was analysed under the Finance Act, 1994 and the relevant exemption notification. The Tribunal noted that an identical earlier period dispute had already been decided in the assessee's favour, and that the earlier ruling and other coordinate bench decisions had not been stayed, reversed, or modified. Applying judicial discipline, comity, propriety, and consistency, it followed the earlier view that the profit element in freight markup had no nexus with steamer agent service and could not be included for service tax. The demand was therefore unsustainable, and the related interest and penalties did not survive.

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Issues: Whether the mark-up collected on ocean freight, being the difference between freight charged from customers and freight paid to shipping lines, is liable to service tax and, if not, whether the demand, interest and penalties can be sustained.

Analysis: The issue was examined with reference to the statutory scheme under Sections 65B(44), 65B(51), 66B, 66D and 67 of the Finance Act, 1994, along with the exemption notification relied upon by Revenue. The Tribunal also noticed that in the assessee's own earlier period, an identical dispute had already been decided in its favour, and that the earlier decision as well as other coordinate bench rulings had not been shown to have been stayed, reversed, or modified. Applying judicial discipline, comity, propriety, and consistency, the Tribunal followed the earlier view that the profit element in freight markup has no nexus with steamer agent service and cannot be added for service tax purposes.

Conclusion: The mark-up on ocean freight was held not liable to service tax. The demand was unsustainable, and the related interest and penalties did not survive.

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