2017 (12) TMI 1878 - AT - Service Tax

Classification of services - Business Auxiliary Services or not - commission or a discount received, as a consideration from airlines - HELD THAT - The respondent is engaged in the activity of freight forwarding. They are booking cargo in various airlines and pay freight for the same. The said freight is collected from shippers. The airlines pay to the respondent certain portion of such freight as a commission/discount. This is sought to be taxed in Business Auxiliary Service. Similar dispute before Tribunal are noted on various occasions. One such reference can be made to the Tribunal s decision in the case of COMMISSIONER OF SERVICE TAX, NEW DELHI VERSUS M/S. KARAM FREIGHT MOVERS 2017 (3) TMI 785 - CESTAT NEW DELHI wherein it was held that brokerage and commission received from various airlines cannot be considered as a commission earned for acting on behalf of the airlines. This is more akin to a discount or incentive provided by the airlines on the freight charges which is on principal-to-principal basis, with no knowledge of the shipper. There are no merit in the present appeal by the Revenue - appeal dismissed.

Summary

Issues:
Interpretation of liability for service tax on commission/discount received from airlines in freight forwarding activities under "Business Auxiliary Services."

Analysis:
The judgment by the Appellate Tribunal CESTAT CHENNAI involved a dispute regarding the liability of service tax on the commission or discount received by a respondent engaged in freight forwarding activities from airlines. The Commissioner (Appeals) had ruled in favor of the respondent, stating that the commission or discount received could not be attributed to any taxable services classifiable under "Business Auxiliary Services."

Upon hearing both sides and examining the appeal records, the Tribunal observed that the respondent's primary business involved booking cargo with airlines and paying freight for the same, which was collected from shippers. The airlines, in turn, paid the respondent a portion of the freight as commission or discount. The crux of the issue was whether this commission/discount should be taxed under "Business Auxiliary Services."

In its analysis, the Tribunal referred to a previous decision in the case of Commissioner of Service Tax, New Delhi Vs M/s. Karnam Freight Movers, where it was held that the commission received from airlines should not be considered as remuneration for acting on behalf of the airlines. Instead, it was likened to a discount or incentive provided by the airlines on a principal-to-principal basis, without the shipper's involvement or knowledge.

Based on the above precedent and reasoning, the Tribunal found no merit in the Revenue's appeal and dismissed it. The judgment highlighted that the commission/discount received from airlines in the context of freight forwarding activities did not fall within the ambit of taxable services classified under "Business Auxiliary Services." The decision was pronounced in open court, concluding the matter in favor of the respondent.