2025 (1) TMI 1208 - AT - Service Tax

Applicability of Service Tax on the markup charged by the appellant M/s Balaji Integrated Shipping India Pvt Ltd. on ocean freight services provided to their clients - HELD THAT - Reliance placed on BIZSOLINDIA SERVICES PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE PUNE - III 2016 (5) TMI 134 - CESTAT MUMBAI wherein the Tribunal considered that since the appellant has been charging more than the expenditure incurred by him as pure agent while billing the client he was liable to Service Tax. This reliance by the Commissioner (Appeals) in the impugned order is misplaced inasmuch as the issue here is that the appellants were trading in space whereby they were buying in bulk and then selling to different clients in due course as per their requirement. While selling they were charging more than what they have paid to the shipping lines etc. The appellant never said that they are acting as pure agent for this charge. In so far as the markups are concerned admittedly there is no separate Service Tax liability on the ocean freight which has been considered as not chargeable to Service Tax. The markup in respect of the activity which is not chargeable to Service Tax cannot be fastened to some other activities without having clear evidence that there was some service provided by them in integrated manner. Therefore the profit earned on account of trading in space cannot be added to the gross value of other services without bringing sufficient evidence to support that this was a ploy adopted by the appellant to charge towards the CFS charges by suppressing the actual value of CFS. No such specific charges have been made out in the SCN. Conclusion - The markup on ocean freight constitutes a trading profit not a service charge and thus is not subject to Service Tax. Appeal allowed.

Summary

The core legal issue considered in this judgment revolves around the applicability of Service Tax on the markup charged by the appellant, M/s Balaji Integrated Shipping India Pvt Ltd., on ocean freight services provided to their clients. The appellant contends that this markup should not be subject to Service Tax as it constitutes a trading profit rather than a service charge.

In terms of the legal framework, the relevant provisions are sections 76 and 77 of the Service Tax regulations, which deal with the imposition of tax and penalties on service providers. The Tribunal also considered precedents such as the judgments in Bizsolindia Services Pvt Ltd Vs CCE, Pune-II and Haiko Logistics India Pvt Ltd Vs CST, Delhi-II, which address similar issues regarding the classification and taxation of markups in service transactions.

The Tribunal's interpretation and reasoning focused on distinguishing between service charges and trading profits. It was noted that the appellant was engaging in a form of trading by purchasing bulk container space and selling it to clients at a markup. This activity, the Tribunal reasoned, does not constitute a service liable to Service Tax but rather a trading activity, which falls outside the scope of Service Tax liability.

Key evidence considered included the appellant's financial records, which reflected the difference between ocean freight income and expenditure. The Tribunal found that the appellant had already paid Service Tax on other related services, such as Clearing & Forwarding Agency (C&F) services and Goods Transport Agency (GTA) services, and that the markup on ocean freight was not directly tied to these services.

The Tribunal addressed competing arguments by examining the department's assertion that the markup should be considered part of the C&F or GTA services. However, it concluded that there was no clear evidence to support this classification, as the markup related specifically to the trading of container space, not the provision of a service.

In its conclusions, the Tribunal emphasized that the markup on ocean freight was a profit from trading activities and not a service fee. Therefore, it should not be subject to Service Tax. The Tribunal also noted that similar issues had been previously decided in favor of the appellant in their own case and in other similar cases, reinforcing their decision to allow the appeal.

Significant holdings from the judgment include the Tribunal's determination that the markup on ocean freight constitutes a trading profit, not a service charge, and thus is not subject to Service Tax. The Tribunal also highlighted the lack of specific evidence in the Show Cause Notice (SCN) to support the department's claim that the markup was part of a service liable to tax.

The final determination was to allow the appeals filed by the appellant, setting aside the orders of the Commissioner (Appeals) and confirming that the markup on ocean freight should not be taxed as a service.