2019 (4) TMI 534 - AT - Service Tax

Business support services - the appellant is purchasing space from the shipping lines and selling it to the exporters for profit - Held that - It is not in dispute that the appellant herein is purchasing the space from the shipping lines and then is selling the same to exporters. It is the case of the revenue that this amounts to acting as an intermediary for helping the business of the shipping lines and therefore they are liable to pay service tax on business auxiliary services on the profit which they receive. It is the case of the appellant that this is a deal on principal to principal basis between them and the shipping lines and again between the exporters and them. They are not acting as an agent. They could purchase the space for a lower price and sell it at a higher price and thereby earn profit. On the other hand, if they failed to sell the space to exporters, after purchasing from the shipping lines, they may incur a loss. They are not receiving any commission whatsoever from the shipping line or from the exporters. In an identical case, in the case of Phoenix International Freight Service Pvt Ltd 2016 (9) TMI 585 - CESTAT MUMBAI , the Tribunal has held that buying and selling space on ships does not amount to rendering a service and any profit or income earned through such transactions is not leviable to service tax. The demand of service tax, interest and penalties are liable to be set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Interpretation of service tax liability on profit earned by a freight forwarder from purchasing and selling space on ships.

Analysis:
The appeal was filed against an order seeking to charge service tax on the profit earned by the appellant, a freight forwarder, from purchasing space from shipping lines and selling it to exporters. The central issue was whether the appellant was liable to pay service tax on this profit, with the revenue contending that the appellant acted as an intermediary, while the appellant argued that they were trading on a principal to principal basis. The appellant relied on a Tribunal decision in a similar case to support their position.

The appellant maintained that they did not render any service to the shipping lines or receive any service charges, emphasizing that they operated on a principal to principal basis, buying spaces at lower rates and selling them at higher rates to exporters. The revenue department argued that the appellant acted as an intermediary between the shipping lines and exporters, citing a circular explaining the levy of service tax on freight forwarders. The Tribunal analyzed the arguments and records, noting that the appellant's transactions were on a principal to principal basis, and they were not receiving any commission from either party.

Referring to a circular by CBEC, the Tribunal highlighted that service tax liability arises when a freight forwarder acts as an intermediary, not as a trader dealing on their own account. Citing a previous Tribunal decision in a similar case, the Tribunal concluded that buying and selling space on ships did not constitute a service, and any profit earned through such transactions was not subject to service tax. Therefore, the Tribunal set aside the demand for service tax, interest, and penalties, allowing the appeal.

In conclusion, the Tribunal held that the appellant, as a freight forwarder, was not liable to pay service tax on the profit earned from trading spaces on ships, as they operated on a principal to principal basis. The decision was supported by a previous Tribunal ruling and a CBEC circular, emphasizing that service tax liability arises when acting as an intermediary. The impugned order was set aside, and the appeal was allowed.