Principal-to-principal freight space trading: markup on resale of ocean freight was treated as non-taxable, not intermediary service.

Markup earned on resale of ocean freight or cargo space purchased on a principal-to-principal basis was analysed as trading margin, not consideration for Business Support Service, intermediary service, or a taxable composite service. The document notes that where a freight forwarder buys space on its own account, bears commercial risk, and resells it at a markup, the transaction is a principal-to-principal trade in space rather than facilitation of another person's service. It also states that the Revenue's attempt to treat the markup as bundled support services was unsupported by evidence, and that the applicable circulars and coordinate-bench view exclude such activity from service tax.

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Issues: Whether the markup earned on purchase and resale of ocean freight or cargo space on a principal-to-principal basis was liable to service tax as Business Support Service or declared service, and whether the activity could be treated as intermediary service or a taxable composite service.

Analysis: The appellant purchased cargo space from shipping lines on its own account and resold it to exporters at a markup, bearing the commercial risk of profit or loss. The Revenue's theory that the markup represented consideration for ancillary support activities was found unsupported by evidence and internally inconsistent, because the impugned demand was built on the premise that the appellant was neither a pure agent nor merely an intermediary, while simultaneously treating the markup as the value of bundled support services. The transaction was held to be a principal-to-principal trade in space, not facilitation of another's service. The applicable circulars and the settled view of coordinate benches were followed to hold that freight forwarders acting as principals are not liable where the activity is purchase and sale of space on their own account, and that the destination-based rule for transportation of goods did not convert such trading margin into taxable service.

Conclusion: The markup on resale of ocean freight was not taxable service, the demand and penalties could not survive, and the appeal succeeded in favour of the assessee.

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