2024 (4) TMI 474 - AT - Service Tax

Recovery of Service Tax - Business auxiliary services - sale and purchase of cargo space - demand of service tax on the difference between the amounts shown in the TDS certificates issued by the airlines to the appellant and the amounts on which the appellant had paid service tax - HELD THAT - If the cargo space is sold by the airlines to the appellant, and by the appellant to the exporter, there is no privity of contract between the airlines and the exporter. The appellant gets the cargo space on that flight and pays the airlines for it. There is another contract between the appellant and the exporter whereby the appellant sells a part of the cargo space which it had bought to the exporter and the exporter pays the appellant. In such an arrangement, the appellant is not acting as an agent of the airlines but as an independent business acting on its own account. Since the appellant buys the cargo space in bulk, the airlines offers a better price and the appellant sells the cargo space at a higher price to the exporter and earns a profit. Neither is the appellant a service provider nor is the airlines a service recipient in such an arrangement and no service tax can be levied. This issue is no longer res integra and it was decided so in COMMISSIONER OF SERVICE TAX, MUMBAI VERSUS GREENWICH MERIDIAN LOGISTICS (I) PVT LTD 2013 (8) TMI 453 - CESTAT MUMBAI , M/S. TIGER LOGISTICS (INDIA) LTD. VERSUS COMMISSIONER OF SERVICE TAX-II, DELHI 2022 (2) TMI 455 - CESTAT NEW DELHI and M/S BHATIA SHIPPING PRIVATE LIMITED VERSUS COMMISSIONER OF SERVICE TAX-I, MUMBAI 2022 (1) TMI 1175 - CESTAT MUMBAI . In these appeals, it is not in doubt that the appellant was buying and selling cargo space on airlines and it has been specifically recorded so in the impugned order dated 1.3.2016. The Commissioner, however, confirmed the demand under the erroneous impression that unless the buyer becomes a permanent owner of the cargo space, this arrangement amounts to rendering a taxable service and accordingly confirmed the demand. The demands for the subsequent periods were confirmed on the same grounds. The impugned orders cannot be sustained and need to be set aside - appeal allowed.

Summary

Issues Involved:

1. Validity of Service Tax Demands based on TDS Certificates.
2. Classification of Activities as Trading or Service.
3. Applicability of Extended Period of Limitation.
4. Imposition of Interest and Penalties.

Summary:

1. Validity of Service Tax Demands based on TDS Certificates:
The appellant contested the service tax demands issued based on TDS certificates, arguing that the amounts shown in these certificates pertained to trade discounts and not commissions. The Tribunal found that the appellant's claim of trade discounts being recorded as payments by airlines was valid. The Tribunal held that the mere deduction of TDS by airlines does not imply a commission payment and does not justify service tax demands on the differential amounts shown in TDS certificates.

2. Classification of Activities as Trading or Service:
The appellant argued that buying and selling cargo space is a trading activity, not a service. The Tribunal agreed, citing precedents such as "Tiger Logistics (India) Ltd. versus CST Delhi" and "Bhatia Shipping Pvt. Ltd. versus CST Mumbai," which held that trading of cargo space does not constitute a service. The Tribunal criticized the Commissioner for incorrectly interpreting the sale of cargo space as a service, noting that the sale of cargo space is akin to selling a seat on a bus or a movie ticket, where the buyer does not become a permanent owner but still engages in a sale transaction.

3. Applicability of Extended Period of Limitation:
The appellant contended that the extended period of limitation was not invokable. However, since the Tribunal decided the matter in favor of the appellant on merits, it did not delve into the issue of the extended period of limitation.

4. Imposition of Interest and Penalties:
The appellant argued against the imposition of interest and penalties. The Tribunal, having found that the primary activity was trading and not a service, set aside the penalties imposed u/s 76, 77, and 78 of the Finance Act. Consequently, the demands for interest were also nullified as the principal demands themselves were not sustainable.

Conclusion:
The Tribunal allowed the appeals, set aside the impugned orders, and granted consequential relief to the appellant, emphasizing that the sale of cargo space is a trading activity and not subject to service tax. The Tribunal's decision was pronounced in open court on 10/04/2024.