2017 (9) TMI 709 - AT - Service Tax

Business Auxiliary Services - the amount collected as excess freight represents charges for rendering BAS - Held that - in the case of Greenwich Meridian Logistics (I) Pvt. Ltd. 2017 (3) TMI 873 - CESTAT MUMBAI , the Tribunal has observed that, in the shipping line there is possibility of trading in space or slots on vessels. It cannot be stated that such trading was figment and only freight was transacted - it also appears that the assessee-Appellants were never appointed by the airlines as Commission Agent . They have purchased the space in bulk and paid to airlines if the space is vacant, and have also suffered the loss. When the assessee-Appellants are suffering with the transaction loss, then certainly they are not the agent. CBEC vide Circular No.197/7/2016-ST dated 12.08.2016 has clarified that a freight forwarder, when acting as a principal, will not be liable to pay service tax when the destination of the goods is from a place in India to a place outside India. Appeal allowed - decided in favor of assessee-Appellants.

Summary

Issues:
Interpretation of "Business Auxiliary Services" under Section 65(19) of the Finance Act, 1994 in the context of air cargo agency and freight forwarding services.

Analysis:
The appeal was filed against an order-in-original passed by the Commissioner of Central Excise & Service Tax, Jaipur-I for the period 2006-11. The appellant, engaged in air cargo agency and freight forwarding, bought space from airlines in bulk and sold it to customers, earning income. The Department classified this as "Business Auxiliary Services" and raised a Service Tax demand. The appellant argued they were not commission agents but engaged in trading of freight forwarding. They contended the nature of their transactions was "principal-to-principal," supported by documentation like airway bills. The Department viewed the collected excess freight as charges for providing Business Auxiliary Services. The Tribunal referred to precedents and a CBEC circular stating that freight forwarders acting as principals for transportation outside India are not liable for service tax. Relying on these, the Tribunal set aside the impugned order, allowing the appeal.

In the case of Greenwich Meridian Logistics (I) Pvt. Ltd., the Tribunal observed the possibility of trading in space or slots on vessels in the shipping line, distinct from mere freight transactions. It emphasized the contractual responsibility of freight forwarders for safe delivery and their independent transactions with carriers. The Tribunal concluded that the appellant's transactions were principal-to-principal, involving the purchase and sale of space, not acting as agents for clients. The Tribunal also noted the CBEC circular clarifying the status of freight forwarders acting as principals for transportation outside India, exempt from service tax. Following these findings, the impugned order was set aside, and the appeal was allowed.

The appellant's argument that they were not commission agents but engaged in trading of freight forwarding was supported by the Tribunal's analysis of the nature of their transactions. The Tribunal emphasized the principal-to-principal nature of the appellant's dealings, where they bore risks and losses, indicating a trading relationship rather than agency. The Tribunal's reliance on the CBEC circular further strengthened the appellant's position, leading to the setting aside of the demand for Service Tax. The Tribunal's thorough examination of precedents and legal provisions supported the appellant's contentions, resulting in a favorable outcome for the appellant in the appeal.