Freight Space Trading & Export Services Not Taxable Under Service Tax: CESTAT
Pranav B Prem
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi, comprising Ms. Binu Tamta (Judicial Member) and Mr. P.V. Subba Rao (Technical Member), has set aside a large service tax demand confirmed against Shine Travels & Cargo Pvt. Ltd., holding that income from freight space trading, export of services, trade discounts, reimbursements, and prior period items cannot be subjected to service tax.
The case arose from five show cause notices covering financial years 2007-08 to 2015-16, where the Principal Commissioner of CGST, Delhi South, demanded service tax aggregating more than ₹23 crore under Section 73 of the Finance Act, 1994, with interest under Section 75, and penalties under Sections 76, 77, and 78. The demand was based on treating various categories of receipts as consideration for taxable services, including freight and incidental charges, discounts from airlines and shipping lines, reimbursements, export-linked services, prior period items, and other income.
The appellant, a cargo service provider registered with the department, contended that it was engaged in the business of purchasing cargo space from airlines and shipping lines on a principal-to-principal basis and reselling it to exporters. The airlines issued master airway bills in its name, and the appellant issued house airway bills to exporters. In such transactions, the appellant bore the risk of profit or loss depending on whether it was able to sell the booked space. This, it argued, was a trading activity and not a service. The appellant also contended that discounts received from airlines and shipping lines were merely price concessions for bulk bookings, not consideration for services.
Further, the appellant pointed out that it had rendered services to overseas clients and received payment in convertible foreign exchange. Under the Export of Service Rules, 2005 (applicable until 30 June 2012) and the Place of Provision of Services Rules, 2012 (effective from 1 July 2012), such services qualified as exports and were outside the service tax net. It was also argued that reimbursements received in its capacity as a pure agent and entries under “prior period items” or “other income” had no nexus with provision of taxable services. The Revenue, however, defended the Commissioner’s order and maintained that the impugned income categories were liable to service tax.
After considering the submissions, the Tribunal held that the demand could not be sustained. It observed that freight and incidental charges involved purchase and resale of cargo space, which amounted to trading activity and not provision of service, relying on its earlier decision in Greenwich Meridian Logistics (India) Pvt. Ltd. v. CST, Mumbai [2016 (4) TMI 547]. The bench held that discounts from airlines and shipping lines were in the nature of commercial concessions and not taxable receipts. On export-linked income, the Tribunal clarified that both under the Export of Service Rules and the Place of Provision of Services Rules, services rendered to recipients located outside India against foreign remittances qualified as exports and were non-taxable.
With respect to reimbursements and prior period items, the bench found no evidence to show that they were consideration for services, and accordingly ruled out any liability. It concluded that none of the disputed income categories were exigible to service tax under the Finance Act, 1994. Since the case was decided on merits, the Tribunal did not examine the appellant’s arguments on limitation or penalties. Allowing the appeal, the bench set aside the Commissioner’s order and granted consequential relief to the appellant.
Appearance
Shri A.K. Batra and Ms. Sakshi Khanna, Chartered Accountants for the Appellant
Shri S.K. Meena, Authorised Representative for the Respondent
Cause Title: Shine Travels & Cargo Pvt Ltd V. Principal Commissioner
Case No: Service Tax Appeal No. 51079 Of 2022
Coram: Ms. Binu Tamta (Judicial Member), Mr. P.V. Subba Rao (Technical Member)
