No Service Tax payable on freight margin recovered from the customer in case of outbound shipments

[CA Bimal Jain]

The CESTAT, Ahmedabad in the case of VISHAL TANSUKHBHAI GOHEL VERSUS COMMISSIONER OF CENTRAL EXCISE & ST, RAJKOT  - 2024 (5) TMI 672 - CESTAT AHMEDABAD held that in the case of outbound shipment, both by aircraft and vessel, the destination of goods shall be outside India. Therefore, there will be no Service tax on the freight margin recovered by the Appellant from the customer.

Facts:

Vishal Tansukhbahai Gohel (“the Appellant”) being a proprietary concern, was registered for the Service Tax under the category of ‘Clearing and Forwarding Agent Service’. During the course of inquiry of the financial record of the Appellant, the Department observed that freight income as being expenses incurred towards freight expenses was less than freight charged by the Appellant from their customers. There was some positive difference in expenses which were incurred by the Appellant.

This income as per the Department was nothing but an excess amount charged by the Appellant from their customers towards ocean freight. The Department after verification of the accounts, issued a Show Cause Notice (“the SCN”) to the Appellant demanding Service Tax of INR 3,93,172/- under Section 73(1) of the Finance Act, 1994 (“the Finance Act”). The interest and penal provisions were also invoked as per the provisions of the Finance Act. The Department has demanded the Service Tax under the category of Business Auxiliary Service stating that the differential amount of freight retained was nothing but commission received towards the provision of service.

The matter got adjudicated and the original adjudicating authority vide its Order dated January 13, 2016 (“the Impugned Order”) confirmed all the charges. The Appellant filed an appeal before the Commissioner (Appeals) but did not succeed. Therefore, the Appellant filed an appeal before the CESTAT.

Issue:

Whether an Assessee can charge Service Tax on freight margin collected from the customers in cases of outbound shipments?

Held:

The Hon’ble CESTAT, Allahabad in VISHAL TANSUKHBHAI GOHEL VERSUS COMMISSIONER OF CENTRAL EXCISE & ST, RAJKOT  - 2024 (5) TMI 672 - CESTAT AHMEDABAD held as under:

• Noted that, the Appellant entered into an agreement with the carrier for transportation of cargo i.e. airline/shipping line. This service agreement was on a principal-to-principal basis and not as an agent of said airline/shipping line. Therefore, the Appellant was covered by the exclusion clause i.e. provides the main service inbound and outbound shipment on his account in terms of Rule 2(f) of Point of Provision of Service Rules, 2012 (“the POP Rules”). Thus, the Appellant is not covered under Rule 9 (c) of the POP Rules as "intermediary" service. Therefore, the place of provision of said service will not be the location of the service provider.
• Opined that, Rule 10 of POP Rules is wide enough 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 of POP Rules.  A proviso to Rule 10 of POP Rules suggests the place of provision of service in respect of goods transport agency (“GTA”). However, for said exclusion, courier or GTA would be covered by Rule 10 POP Rules. Therefore, in the absence of specific exclusion, services provided by the Appellant cannot be excluded from the scope of Rule 10 of POP Rules.
• Held that, the 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, the destination of goods shall be outside India. Therefore, the place of provision of service of outbound shipment shall also be outside India. Hence, there will be no Service Tax on the freight margin recovered by the Appellant from the customers. Hence, the appeal was allowed.

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