2024 (5) TMI 672 - AT - Service Tax

Levy of Service tax - Clearing and Forwarding Agent Service - place of provision of services - difference in expenses which has been incurred by the appellant - Department observed that freight income as being expenses incurred towards freight expenses were less than freight charged by the appellant from their customers - post negative period of service tax - HELD THAT - The appellant would enter into an agreement with the carrier for transportation of cargo i.e. airline/shipping line. This service agreement would be on principal to principal basis and not as agent of said airline/shipping line. Therefore, applicant would be covered by the exclusion clause i.e. provides the main service- inbound and outbound shipment on his own account in terms of Rule 2(f) of POP Rules and thus not covered under Rule 9 (c) ibid as intermediary service. Therefore, place of provision of said service will not be location of service provider. Rule 10 of POP Rules will not be applicable in respect of the applicant. Applicant submits that said Rule 10 is wide to cover not only the actual transportation, but also a person who arranges for the transport, that this is expressly clear from the exclusion to mail or courier from Rule 10 of POP Rules; that proviso to Rule 10 suggests the place of provision of service in respect of goods transport agency (GTA); that but for said exclusion, courier or GTA would be covered by said Rule 10. It is reiterated that place of provision of service of transportation of goods shall be the place of destination of the goods, as per Rule 10 of POP Rules. In the case of outbound shipment, both by aircraft and vessel, destination of goods shall be outside India. Therefore, place of provision of service of outbound shipment shall be outside India, hence there will be no Service Tax on freight margin recovered by the applicant from the customer. The impugned order-in-appeal is without any merits and is set aside - appeal allowed.

Summary

Issues involved:
The issues involved in the judgment are the demand of service tax by the department u/s 73(1) of the Finance Act, 1994 on the appellant under the category of Business Auxiliary Service for retaining a differential amount of freight, and the classification of ocean freight as a taxable service based on the place of provision of service and destination of goods.

Issue 1: Demand of service tax u/s 73(1) of the Finance Act, 1994:
The appellant firm, registered for service tax under the category of 'Clearing and Forwarding Agent Service,' faced a demand for service tax by the department due to a positive difference in expenses incurred by the appellant compared to the freight charged from customers. The department issued a show cause notice demanding service tax of Rs. 3,93,172/- along with interest and penal provisions. The appellant contended that no service tax is payable on ocean freight and relied on Board Circulars and Tribunal decisions to support their argument.

Issue 2: Classification of ocean freight as a taxable service:
The appellant argued that ocean freight for export cargo falls outside the taxable territory of India, making it non-taxable. They referred to an educational guide and Tribunal decisions to support their stance. The department reiterated the findings of the impugned order-in-appeal. The Tribunal considered the CBEC Circular which distinguished between a freight forwarder acting as an agent or a principal in providing transportation services. It was noted that the appellant entered into agreements with carriers on a principal to principal basis, not as an agent, and thus was excluded from the category of an intermediary service provider.

Conclusion:
The Tribunal held that the impugned order-in-appeal lacked merit and set it aside, allowing the appeal of the appellant. The judgment emphasized that the place of provision of service of transportation of goods, especially for outbound shipments, determines the applicability of service tax on freight margins. The decision was pronounced in the open court on 14.05.2024 by the members of the Tribunal.