2026-VIL-1302-CESTAT-HYD-ST
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SERVICE TAX CESTAT Cases

Service Tax - Taxability of despatch money received from foreign buyers - Appellant received despatch money from foreign buyers as consideration for faster completion of loading of exported cargo within the port area before expiry of agreed laytime under FOB (Free on Board) export contracts - Whether despatch money represents consideration for rendering taxable service under Port Services or is a contractual adjustment akin to demurrage and not liable to service tax - HELD - Despatch money is not consideration for an independent taxable service but is merely a contractual adjustment and incentive for faster performance akin to demurrage - Appellant is primarily engaged in sale and export of goods and loading and associated operations are incidental to fulfilment of export obligations and therefore, receipt of financial incentive merely because of efficient performance cannot automatically be concluded to be consideration for a taxable service. Consideration under service tax law must be for a service rendered to another person and must have direct nexus with taxable service. No separate agreement exists between appellant and vessel owner for providing quick loading service. The payment arises solely because of contractual performance under sale and export arrangement and is in nature of demurrage and liquidated damages which cannot be subjected to service tax as they are conditions of contract and not consideration for executing contract - Revenue's attempt to isolate despatch from the contract by artificially separating it is legally unsustainable as contractual clauses cannot be dissected artificially to impose tax on isolated components unless statute clearly permits - The despatch money received by appellant is not liable to service tax and demand, interest and penalties are set aside and the appeal is allowed
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