TaxTMI 
TaxTMI 
2026 (8) TMI 1603
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....ce Tax Audit Commissionerate, Kolkata, during March 2014, covering the financial years 2011-12 and 2012-13. On scrutiny of the appellant's ST-3 Returns, financial records, Trial Balances and other documents, the Department noticed, inter alia, that the appellant, while discharging Service Tax on Business Auxiliary Service, had claimed deduction of substantial amounts as pertaining to international air and sea freight and related charges, treating the same as exempted services. The appellant had explained before the Department that such amounts pertained to its activity as an international freight forwarder and were not liable to Service Tax. 3. The Department, however, entertained the view that the aforesaid activities were classifiable under the then taxable category of Custom House Agent (CHA) Service and that the appellant had incorrectly claimed exclusion of the corresponding amounts from the taxable value. It was alleged that the appellant had recovered amounts from its customers in excess of the amounts paid to airlines, shipping lines or other service providers towards the corresponding freight-related expenditure. Relying upon Rule 5(2) of the Service Tax (Determinat....
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....ng to such credit. The proposed recovery comprised Rs.8,265/- pertaining to 2011-12 and Rs.4,447/- pertaining to 2012-13, together with applicable interest and penalty. 4. A Show Cause Notice dated 14.10.2016 was accordingly issued proposing recovery of the aforesaid Service Tax demand of Rs.3,21,53,062/- and CENVAT Credit of Rs.12,712/-, along with applicable interest and penalties under the Finance Act, 1994 and the CENVAT Credit Rules, 2004. 4.1. The appellant contested the allegations and the proposed liabilities, reiterating, inter alia, that the freight-related receipts arose from its activity as an international freight forwarder and that the differential amount represented 'trading profit' rather than consideration for CHA service. The appellant also disputed the denial of CENVAT Credit, contending that the corresponding charges had in fact been paid to M/s. CMC Limited and that the credit could not be denied merely on account of perceived deficiencies in the supporting documentation. 5. The said proceedings culminated in the impugned Order-in-Original dated 27.02.2017, whereby the ld. adjudicating authority rejected the appellant's contentions and confirmed th....
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.... charges and Service Tax, the same were not duly appreciated by the adjudicating authority. It is further contended that the mere fact that the Service Tax component was not separately quantified on the receipts issued by M/s. CMC Ltd. could not, in the circumstances, constitute a valid ground for denial of credit, particularly when the actual payment of Service Tax had been duly substantiated. payment of tax and receipt of the service stand established. 6.2. On the strength of the aforesaid submissions, the Ld. Counsel for the appellant prayed for setting aside the demand of Rs.3,21,53,062/- under the category of CHA service as well as the consequential demand of Rs.12,712/- towards alleged inadmissible CENVAT Credit, together with the interest and penalties imposed thereon. 7. On the other hand, the Ld. Authorized Representative of the Revenue justified the findings of the ld. adjudicating authority in the impugned order. Accordingly, he prayed for rejection of the instant appeal. 8. Heard both sides and perused the records of the case. 9. At the outset, we find that the dispute arising in the present appeal essentially encompasses two distinct issues, namely: (i) the....
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....re of trading profit arising from the purchase and sale of cargo space and cannot be regarded as consideration for a service unless the Department establishes, by cogent evidence, that the amount represents a separately identifiable service fee, commission or other consideration attributable to a taxable service rendered by the appellant. 10.2. We are unable to accept the Revenue's proposition that the mere existence of a profit element in the freight-related transactions is sufficient to bring the entire amount under the taxable category of CHA service. The presence of an accounting profit, or a mark-up between the buy rate and sell rate, cannot by itself transform an otherwise independent trading activity into a taxable service. More particularly, where the freight forwarder acts on a 'principal-to-principal' basis and assumes the commercial risks and obligations associated with the procurement and resale of cargo space, the differential between the purchase price and the resale price represents the margin arising from such commercial transaction. The same cannot, without the presence of tangible and corroborative evidence in support, be treated as consideration for CHA se....
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.... basis and it is not incidental to their CHA activity. He also notes that Airline/shipping line does not directly deal with customer whose goods are being transported; the airline / shipping line enters into agreement with freight forwarder and the appellant company is given a quote for air / ship cargo transportation charges, i.e. tonnage / space rates on pallet basis by an airline / shipping line. Moreover, the ld. adjudicating authority has taken note of the fact that such quotes are usually offered by airline / shipping line for bulk cargo on large quantity basis and that this quote is referred to as the 'Buy rate'; that this contractual arrangement is therefore only between the airline / shipping line and the appellant-company, that is, on principal-to-principal basis. It has also been noted by the ld. adjudicating authority therein that the difference between the buy rate and sell rate is the appellant company's margin on trading in such cargo space; such amount is generated by trading in cargo space and by no stretch of imagination, it can be considered as a consideration for rendering 'Custom House Agent's Service'. We agree with the above categorical fi....
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.... (5) Customs clearance (6) Logistic. For example, in respect of Air exports, for the year 2000-2001 the Freight revenue is of the order of 8.8 crores. That means, this amount represents the freight collected by the appellants towards air freight for the customers and then paid to the airliners. This amount has also been sought to be taxed under the Customs House Agent activity. This shows the adjudicating authority has not applied his mind to the details of the various activities undertaken by the appellants and how they relate to the amount collected by them. In respect of air exports apart from freight, they collected various other charges i.e. Cartage revenue, MSIL/JWG charges, due carrier, documentation etc. In all these cases the services are rendered by the third party and the appellants initially make payment for the activities on behalf of the client and later collect the amount from the clients. These are actually reimbursable expenses and they do not relate to any CHA activities. In these cases, on going through the statement, we find that in certain cases the appellants had incurred less cost and in certain cases, they had incurred more cost. In any cas....
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.... or from a place in India to any other place in a foreign country. These freight charges cannot be said to be related to the activity of the CHA. In any case, the air freight fee is for a passage beyond India. This service is also not rendered by the CHA. The freight charges collected is for the transportation of the goods and the transportation service is rendered actually by the Airliner and not the CHA. These points have not been properly gone through by the adjudicating authority. Similarly if we see the breakup of other services, they do not relate to CHA activity at all. Further we find that storage and handling charges came into the service tax net only with effect from 16-8-2002. In these circumstances, we are of the opinion that there is no merit in the impugned order. Moreover as contended by the learned Advocate, the major amount portion of the Billing represents freight charges and the Commissioner (Appeals) had already decided the issue in favour of the appellants. The order of the Commissioner (Appeals) has not been challenged by the Revenue. In such circumstances, we agree with the learned Advocate for the appellants that the Revenue cannot agitate over the issue whi....