2025 (6) TMI 1170 - AT - Service Tax

Levy of service tax - Business Auxiliary Service - incentives received from airliners/shipping lines are liable to service tax under the category of Business Auxiliary Services and collection charges recovered from the customers - Service tax on commission received by the appellant. Levy of service tax - Business Auxiliary Service - incentives received from airliners/shipping lines are liable to service tax under the category of Business Auxiliary Services and collection charges recovered from the customers - HELD THAT - This issue has been considered by this Tribunal in the matter of Freightlinks International (India) Pvt. Ltd. 2025 (2) TMI 315 - CESTAT BANGALORE it is held that such margin earned on sale of space is business and cannot be called as a service at all. Thus the profit earned from such business cannot be considered as a service. Similar view was upheld by this Tribunal in large number of cases including the case of M/s. Freightlinks International (India) Pvt. Ltd. 2024 (10) TMI 1629 - CESTAT BANGALORE . Following the ratio in the above decisions the demand against incentives under Business Auxiliary Service and the demand against commission charges under Business Support Service are unsustainable. Service tax on commission received by the appellant - HELD THAT - Since the appellant had admitted and paid service tax along with interest and the adjudicating authority has appropriated the same the same is upheld. Conclusion - i) The demand of service tax on incentives received from airlines under Business Auxiliary Service is unsustainable and set aside. ii) The demand on additional amounts retained under Business Support Service is unsustainable and set aside. iii) The admitted service tax on commission received is upheld. The appeal is partially allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

• Whether the incentives or discounts received by the appellant from airlines or shipping lines, based on freight quantity or space occupied, are liable to service tax under the category of Business Auxiliary Service.
• Whether the additional amounts retained by the appellant, collected from clients in India for services arranged with foreign freight forwarders, constitute taxable consideration under Business Support Service.
• The applicability of extended period of limitation in the demand of service tax on such incentives or commissions.
• The correctness of classification of such incentives or additional amounts as Business Auxiliary Service or Business Support Service by the adjudicating authority.
• Whether the appellant's admitted service tax liability on commission received is correctly appropriated.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of Incentives/Discounts Received from Airlines under Business Auxiliary Service

Relevant legal framework and precedents: The appellant is registered under Custom House Agent, Storage Warehouse Service, and Business Auxiliary Service. The relevant service tax provisions apply to Business Auxiliary Services which include services that support business operations. The Tribunal has considered similar issues in several precedents, including Greenwich Meridian Logistics (India) Pvt. Ltd., Freightlinks International (India) Pvt. Ltd., Phoenix International Freight Services Pvt. Ltd., Sindu Cargo Services Ltd., Direct Logistics India Pvt. Ltd., DHL Lemuir-Logistics Pvt. Ltd., and CST vs. Karan Freight Movers.

Court's interpretation and reasoning: The Court noted that the incentives or discounts received by the appellant are contingent upon factors such as demand and supply conditions, volume of cargo booked, and space occupied. These incentives are essentially margins or discounts on freight charges rather than separate service considerations. The Court relied on the Tribunal's earlier decisions, particularly in Freightlinks International (India) Pvt. Ltd., where it was held that such margins earned on sale of space constitute business profits and not taxable services.

Key evidence and findings: The appellant's records showed that the incentives were performance-based discounts from airlines, linked to freight volume or space booked. These were not additional charges for separate services but adjustments in freight rates.

Application of law to facts: Applying the legal principle that business profits or discounts are not taxable as services, the Court found that such incentives do not fall within the ambit of Business Auxiliary Service. The incentives are part of the freight business and not a separate taxable service.

Treatment of competing arguments: The Revenue argued that the incentives are consideration for promoting and marketing airlines, thus taxable as Business Auxiliary Service. The Court rejected this, noting the absence of a principal-agent relationship and that the incentives are not linked to any additional service but are discounts on freight.

Conclusions: The demand for service tax on incentives under Business Auxiliary Service is unsustainable and liable to be set aside.

Issue 2: Taxability of Additional Amounts Retained by Appellant under Business Support Service

Relevant legal framework and precedents: Business Support Service covers services that support business operations but are distinct from freight forwarding. The appellant challenged the classification of additional amounts retained as taxable Business Support Service.

Court's interpretation and reasoning: The Court examined invoices, including one from British Airways showing incentives as markups over actual freight collected. The appellant had already discharged service tax on commission received for actual services rendered. The Court found no principal-client relationship between appellant and airlines, and the additional amounts lacked nexus with any separate service.

Key evidence and findings: The invoice and financial records showed that the additional amount was a difference between published freight rates and actual rates booked, essentially a margin. The adjudicating authority's classification of this as Business Support Service was factually incorrect.

Application of law to facts: The Court concluded that if taxable, such amounts fall under Freight Forwarders Service rather than Business Support Service. Since the appellant had already paid service tax on commission, the additional amount does not constitute a separate taxable service.

Treatment of competing arguments: The Revenue's contention that the appellant's activities enhanced airline business and thus were taxable under Business Support Service was rejected due to lack of factual and legal basis.

Conclusions: The demand under Business Support Service for additional amounts retained is unsustainable.

Issue 3: Extended Period of Limitation

Relevant legal framework: Service tax demands are subject to limitation periods as per the applicable law.

Court's interpretation and reasoning: The appellant challenged the demand invoking extended limitation period. However, the Court did not elaborate extensively on this point but implicitly accepted the appellant's position by setting aside demands on substantive grounds.

Conclusions: The extended limitation issue is subsumed in the overall decision against the demand.

Issue 4: Appropriation of Service Tax Paid on Commission

Relevant legal framework: Service tax paid voluntarily or admitted liability is subject to appropriation by the adjudicating authority.

Court's interpretation and reasoning: The appellant admitted and paid service tax of Rs.7,74,594/- along with interest of Rs.4,54,417/-. The adjudicating authority appropriated this amount correctly.

Conclusions: The Court upheld the appropriated amount and did not interfere with this part of the demand.

3. SIGNIFICANT HOLDINGS

The Court held that:

"Such margin earned on sale of space is business and cannot be called as a service at all. Thus, the profit earned from such business cannot be considered as a service."

This principle was applied to the incentives and discounts received from airlines, leading to the conclusion that these are not taxable under Business Auxiliary Service.

Similarly, the Court observed:

"There is no principal-client relationship between the appellant and the airlines. Such finding is factually incorrect and unsustainable."

Regarding the additional amounts retained by the appellant, the Court confirmed that if taxable, the amounts fall under Freight Forwarders Service and not Business Support Service.

On admitted service tax paid on commission, the Court held that:

"Since the appellant had admitted and paid service tax along with interest and the adjudicating authority has appropriated the same, the same is upheld."

Final determinations:

• The demand of service tax on incentives received from airlines under Business Auxiliary Service is unsustainable and set aside.
• The demand on additional amounts retained under Business Support Service is unsustainable and set aside.
• The admitted service tax on commission received is upheld.
• The appeal is partially allowed accordingly.