2023 (5) TMI 192 - AT - Service Tax

Levy of Service tax - ocean cargo / air cargo freight income as received by appellant as marked up charges - Business Auxiliary service or not - Brokerage and special commission/incentive - penalty - Extended period of limitation. Ocean cargo / air cargo freight income as received by appellant as marked up charges - Business Auxiliary service or not - HELD THAT - The issue has been addressed in the decisions of this Tribunal itself specifically in the case of DHL Logistics (P) Ltd. vs. Commissioner of Service Tax Mumbai 2017 (8) TMI 600 - CESTAT MUMBAI . It has been held that the freight rebate is a revenue stream generated out of trading of the space in the airline incentives. Unless the space is booked by the appellant specifically for a client the components of the Business Auxiliary Service do not come into play. In the instant case there is no such allegation and the appellants are booking the space for their own trading activities. In these circumstances demand of service tax under BAS cannot be sustained and the same is set aside. Brokerage and special commission/incentive - to be an income received in the activity of trading of freight space in various shipping lines or not - HELD THAT - Reliance placed in the case of Karam Freight Movers 2017 (3) TMI 785 - CESTAT NEW DELHI where it was held that The surplus earned by the respondent arising out of purchase and sale of purchase and sale of space and not by acting for client who has space or not on a vessel. It cannot be considered that the respondents are engaged in promoting or marketing the services of any client. - demand do not sustain. Penalty - Extended period of limitation - HELD THAT - It is observed to be an apparent fact that the appellant was otherwise discharging the liability for providing the chargeable services and was admittedly filing the regular ST-3 returns. Once it is held that there was no liability upon the appellant to be discharged as far as the markup charges are concerned there remains no reason with the Department to invoke the extended period of limitation while issuing the impugned Show Cause Notice. For want of intention to evade duty there can be imposed no penalty upon the appellant. Appeal allowed.

Summary

Issues involved:
The issues involved in the judgment are whether the ocean cargo/air cargo freight income, received by the appellant as marked up charges, is subject to service tax or not.

Summary of Judgment:

Issue 1: Taxability of mark-up charges on freight income
The appellant, engaged in freight forwarding and related activities, was charged with not paying service tax on certain income heads, including mark-up charges collected over and above the ocean freight actually paid. The Department issued a Show Cause Notice demanding service tax for a specified period. The appellant contended that the mark-up charges were not liable to service tax as they were part of trading activities, not involving a third party client. The Tribunal cited precedents and circulars to support the appellant's position, ultimately holding that the mark-up charges were not taxable under the category of 'Business Support Service.'

Decision:
The Tribunal set aside the order under challenge, allowing the appeal. The imposition of penalty was deemed unwarranted as the appellant had been compliant in discharging other tax liabilities and filing returns. The Department's invocation of the extended period of limitation was found unjustified due to the lack of intent to evade duty. The findings of the adjudicating authority were not sustained, and the appellant's position was upheld based on legal precedents and circulars.

Conclusion:
The Tribunal ruled in favor of the appellant, holding that the mark-up charges on freight income were not subject to service tax. The order under challenge was set aside, and the appeal was allowed, with no penalty imposed on the appellant due to their compliance with other tax obligations. The judgment was dictated and pronounced in open court.