2026-VIL-1530-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax - Classification of services rendered by shipping agents and freight forwarders - Distinction between taxable support services and non-taxable transportation - Appellant raises invoices on customers including freight component with mark-up along with ancillary charges such as LCL charges, documentation charges, terminal handling charges and delivery order charges - Appellant discharges service tax on ancillary charges but not on ocean/air freight in the belief that the same was not taxable/exempt during the relevant period - Respondent alleges that mark-up charged by appellant on freight charged by shipping companies constitutes consideration for taxable service classified - Whether freight component recovered by appellant on principal-to-principal basis with a commercial mark-up constitutes taxable consideration for Business Support Service - HELD - Prior to 01.07.2012 transportation of goods by vessel or aircraft from place outside India to customs station in India did not fall within definition of taxable service - With effect from 01.07.2012 the activity stood expressly excluded by Section 66D(p)(ii) of negative list and continued till its omission with effect from 01.06.2016 - Freight component paid by appellant to shipping lines and airlines recovered from its customers therefore represents consideration for an activity which statute itself has by deliberate design kept outside tax net throughout the period in question. Where principal activity is non-taxable by legislative design the profit or margin earned in course of that very activity cannot be severed and taxed as if it were consideration for distinct service - Rule 5 of Valuation Rules cannot itself be source of taxability nor can it convert non-taxable transaction into taxable one merely because person recovering amount fails to qualify as pure agent - Classification and taxability of activity must be determined with reference to its substance and charging provisions applicable to it not with reference to manner of billing or presence of margin - The mark-up earned by Custom House agent or freight forwarder on ocean or air freight recovered on principal-to-principal basis does not constitute consideration for business support service – The invocation of extended period of limitation is not justified as issue involved is interpretational dispute and ingredients of fraud collusion wilful misstatement or suppression with intent to evade tax are not established - Demand of service tax on freight/mark-up amount for entire period is set aside - Impugned order is set aside and appeal is allowed
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