Custom, Excise & Service Tax Tribunal
North Star Shipping Services Pvt Ltd vs Cst Ch - Ii on 11 September, 2025
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. III
Service Tax Appeal No. 41032 of 2015
(Arising out of Order-in-Appeal No. 13/2015 dated 11.01.2015 passed by Commissioner of
Service Tax (Appeals-I), No. 26/1, Mahatma Gandhi Road, Nungambakkam, Chennai - 600
034)
M/s. North Star Shipping Services Pvt. Ltd. ...Appellant
No. 18, (Old No. 8,9/1),
Jaffer Sarang Street, Mannady,
Chennai - 600 001.
Versus
Commissioner of GST and Central Excise ...Respondent
Chennai II Commissionerate, Newry Towers, No. 2054-I, 2nd Avenue, 12th Main Road, Anna Nagar, Chennai - 600 040.
APPEARANCE:
For the Appellant : Ms. Saravana Selvi P., Advocate For the Respondent : Mr. N. Satyanarayana, Authorised Representative CORAM:
HON'BLE MR. P. DINESHA, MEMBER (JUDICIAL) HON'BLE MR. VASA SESHAGIRI RAO, MEMBER (TECHNICAL) FINAL ORDER No. 41013 / 2025 DATE OF HEARING : 05.08.2025 DATE OF DECISION : 11.09.2025 Per Mr. VASA SESHAGIRI RAO This Service Tax Appeal No. ST/41032/2013 has been filed by M/s. North Star Shipping Services Private Limited (hereinafter referred to as the 'Appellants') assailing the Order-in-Appeal No. 13/2015 dated 11.01.2015 passed by the Commissioner of Service Tax (Appeals-1), Chennai who 2 ST/41032/2015 upheld the Order-in-Original No. 26/2011 dated 19.05.2011 of the Deputy Commissioner of Service Tax confirming demand of service tax amounting to Rs.1,42,382/- under CHA service and of Rs.54,558/- on Business Auxiliary Service along with interest and imposed a penalty of Rs.1,96,940/-
under Section 76 of the Finance Act, 1994.
2. The facts of the case are that the Appellants herein are engaged in rendering service under the category of Custom House Agent Service apart from Freight Forwarding. The appellant discharged service tax on the consideration received for CHA service in accordance to the provisions of Chapter V of the Finance Act 1994 as amended.
3. However, the expenses such as freight, C&F charges, Documentation charges, Transportation charges etc., incurred by the appellant on behalf of their clients were reimbursed. The revenue is of the view that the portion of reimbursement is includable in the taxable value for the purpose of Section 67. Further, the appellant has received incentive from various liners and the same is proposed to service tax under the category of Business Auxiliary Service alleging that the appellant has promoted the business of the Liners.
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4. The appellants were issued with a Show Cause Notice No. 72/2009 proposing to levy service tax on the expenses reimbursed and the incentive received apart from interest and penalty. The main contention in the show cause notice is that in terms of Rule 5 of the Service Tax (Determination of value) Rules 2006, the expenses reimbursed are liable to be included subject to the conditions laid down in Rule 5(2).
5. The Appellants submitted their reply contending that the tax was not payable in view of the decisions rendered in the cases of Union of India Vs. Intercontinental Consultants & Technocrats (P.) Ltd. [2018 10 GSTL 401 (SC)] and in International Clearing and Shipping Agency Vs. Commissioner of GST and Central Excise [2024 15 CENTAX 357 (Tri. Mad.)].
6. The Deputy Commissioner of Service Tax vide Order-in-Original No. 26/2011 dated 19.05.2011 has confirmed the proposals in the Show Cause Notice on the following grounds: -
i. In terms of Board Circular No. 119/13/32009-ST dated 21.12.2009 the onus lies on the assessee to prove that there is no mark up. The appellant has not established 4 ST/41032/2015 that they are acting as a pure agent to exclude the reimbursement from the taxable value.
ii. The incentive received from the steamer agent is nothing but a consideration for providing taxable service under the category of Business Auxiliary Service.
7. Being aggrieved, the Appellant preferred an appeal before the Commissioner (Appeals) who vide impugned order confirmed the proposed demands in the Order-in-Original.
8. Consequently, the Appellant has preferred an Appeal before this Tribunal.
9. The Ld. Advocate Ms. Saravana Selvi P. appeared on behalf of the Appellant and submitted as follows: -
i. That they had already discharged the service tax on the consideration received for the CHA service.
ii. During the course of CHA Service, the appellants have incurred certain expenses on behalf of the clients such as freight charges, C&F charges, DO Charges, documentation charges, transport charges etc., which were reimbursed by the clients.5
ST/41032/2015 iii. Service Tax is to be paid only on services actually provided by service provider and not on reimbursed expenses incurred on behalf of the clients. Reliance is placed on the following decisions to substantiate that reimbursement of expenses is not taxable during the relevant period: -
a. UOI vs. Intercontinental Consultants & Technocrats (P) Ltd. [(2018) 67(SC)] (Paras 24 to 29).
b. International clearing and shipping Agency vs. Commissioner of GST and Central Excise [(2024) 15 Centax 357 (Tri. Mad.)] (paras 7.1.3 to 7.1.4) iv. It is further informed that they have purchased cargo slots from various Airlines/Shipping-lines and subsequently sold the same to the shippers and earned some profit. Airline/ Shipping gives commission/ incentive to the Appellant to encourage more purchases.
a. The appellant contended that they buy cargo space in various airlines/shipping lines for International movement of cargo and receives commission/incentives from the airline/shipping line based on the volume of business. The cargo space is then sold to the exporters.
b. The service rendered by them is to the exporter and no service is provided to the Airline/Shipping 6 ST/41032/2015 line by the appellant. There is no service provider- service recipient relationship between the appellant and the airline/shipping line. Therefore, the discount given by the Airline/shippingline is not a consideration to be subjected to service tax. c. They are not marketing or promoting the business of the Airline/shipping line to be covered by Business Auxiliary Service relying on the following decisions: -
i. AVR Cargo Agency Pvt. Ltd. [(2018) 97 (Chennai CESTAT)] - para 5.
ii. International clearing and shipping Agency Vs. Commissioner of GST and Central Excise [(2024) 15 Centax 357 (Tri. Mad)] (paras 7.4.1 & 7.4.2)
10. Per Contra, the Ld. Authorized Representative N. Sathyanarayana appearing for the Revenue, re-iterated the findings in the order in appeal and submitted the appeal is liable to be rejected.
11. Heard both sides and considered the rival submissions including the evidence available in the appeal records and the case laws relied upon.
12. The issues that arise for determination are: - 7
ST/41032/2015 i. Whether the appellant is liable to pay service tax on the reimbursement of expenses recovered during rendering CHA activities?
ii. Whether the Appellant is liable to pay service tax on the incentive/commission received for sale of cargo space?
Whether the appellant is liable to pay service tax on the reimbursement of expenses while rendering CHA service?
13.1 We find that the Adjudicating Authority has in the impugned Order-in-Original placed reliance on Rule 5(1) and Rule 5(2) of the Service Tax Valuation Rules, 2006 read with Board's Circular dated 21.12.2009 to determine when the reimbursable charges are eligible for exclusion and thereby in confirming the demands in so far as the reimbursable expenses are concerned. We find that the issue of whether service tax is applicable on reimbursement of expenses is no longer res-integra in view of the Supreme Court's ruling in the case of UOI vs. Intercontinental Consultants & Technocrats (P) Ltd. [(2018) 91 67(SC)]. The relevant extract of the ruling is reproduced below: -
"24) In this hue, the expression 'such' occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing 'such' taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing 8 ST/41032/2015 such 'taxable service'. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 01, 2006) or after its amendment, with effect from, May 01, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider 'for such service' and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service.
25) This position did not change even in the amended Section 67 which was inserted on May 01, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined.
However, Section 67(4) is expressly made subject to the provisions of sub- section (1). Mandate of sub-section (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider.
26) It is trite that rules cannot go beyond the statute. In Babaji Kondaji Garad, this rule was enunciated in the following manner:
"Now if there is any conflict between a statute and the subordinate legislation, it does not require elaborate reasoning to firmly state that the statute prevails over subordinate legislation and the bye- law, if not in conformity with the statute in order to give effect to the statutory provision the Rule or bye-law has to be ignored. The statutory provision has precedence and must be complied with."
27) The aforesaid principle is reiterated in Chenniappa Mudaliar holding that a rule which comes in conflict with the main enactment has to give way to the provisions of the Act. 9
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28) It is also well established principle that Rules are framed for achieving the purpose behind the provisions of the Act, as held in Taj Mahal Hotel:
'the Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect."
29) In the present case, the aforesaid view gets strengthened from the manner in which the Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with 'consideration' is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. Though, it was not argued by the learned counsel for the Department that Section 67 is a declaratory provision, nor could it be argued so, as we find that this is a substantive change brought about with the amendment to Section 67 and, therefore, has to be prospective in nature.
On this aspect of the matter, we may usefully refer to the Constitution Bench judgment in the case of Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited8 wherein it was observed as under:
"27. A legislation, be it a statutory Act or a statutory rule or a statutory notification, may physically consists of words printed on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non-fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of "interpretation of statutes". Vis-à-vis ordinary prose, a legislation differs in its provenance, layout and features as also in the 10 ST/41032/2015 implication as to its meaning that arise by presumptions as to the intent of the maker thereof.
28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities."
Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit: law looks forward not backward. As was observed in Phillips v. Eyre [(1870) LR 6 QB 1] , a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.
29. The obvious basis of the principle against retrospectivity is the principle of "fairness", which must be the basis of every legal rule as was observed in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which 8 (2015) 1 SCC 1 impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later." 11
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30) As a result, we do not find any merit in any of those appeals which are accordingly dismissed." 13.2 Thus, following judicial discipline, we order that reimbursement of expenses is not subject to levy of service tax.
Whether the Appellant is liable to pay service tax on the incentive/commission received for sale of cargo space? 14.1 The second issue is whether purchase of cargo slots from various Airlines/Shipping-line and subsequent sale of the same to shippers and thus earning profit is taxable under "Business Auxiliary Service" or not. The Airline/Shipping line gives commission/incentive to the Appellant to encourage more purchases by the appellant. 14.2 The said issue is no also longer res-integra in view of the following judgments of this Tribunal: -
a. AVR Cargo Agency Pvt. Ltd. [(2018) 97 taxmann.com 221 (Chennai CESTAT)]: -
"5. The issue whether the respondent is liable to pay service tax for the activity of booking space and selling the same to the client for air cargo goods has been decided by the Tribunal in the decisions cited by the ld. Counsel for the respondent. The Tribunal has held the issue in favour of the respondent. The relevant portion of the decision in the case of Continental Carriers (supra) is reproduced as under :-12
ST/41032/2015 "5. We have heard both sides and perused the material available on record. We note that the tax liability on similar activities under the category of 'Business Auxiliary Service' has already come up for consideration before the Tribunal in the above mentioned cases and Service Tax Appeal No.40895 of 2015 the Tribunal in the case of DHL Logistics (P) Ltd. (supra) has observed that:
"4.2. Demand has been made on service tax under the head of Business Auxiliary Service for the revenue earned as freight rebate. Ld. Counsel has argued that the income is generated as a result of appellants buying cargo space in bulk and selling the same to foreign shipper, he argued that various essential activity in which there is no third party involved except the appellant and the carriers. In these circumstances demand under Business Auxiliary Service cannot sustain. It is argued that for sustaining demand under BAS, there has to be third party involved in the transaction namely a client. In the absence of any client, no demand under BAS can be raised. We find substantial force in the argument of Ld. Counsel, the freight rebate is a revenue stream generated out of trading of the space in the airline incentives. Unless the space is booked by the appellant specifically for a client the components of the Business Auxiliary Service do not come into play. In the instant case. there is no such allegation and the appellants are booking the space for their own trading activities. In these circumstances demand of service tax under BAS cannot be sustained and the same is set aside.
4.3. The next issue relates to the income under the head of airline commission and airline incentive sought to be taxed under BAS. It is seen that the said income is generated during the course of booking of bulk cargo by the appellant with the airline. The appellant have received the incentive and commission from the airline. The appellants are engaged in buying and selling of space in the airline and depending on the volume of the space bought by the appellant from the airlines they received the commission/incentive. The appellants are not buying and selling space on the airline on behalf of their client but on their own behalf. To consider the activity of buying and selling the taxable activity under the head of BAS, the same should be done on behalf of the client Thus, if the appellants were selling the space on carrier from the airline directly to the exporters without themselves purchasing the space then it could have been considered as an activity involving promotion of sales. In the instant case the appellant are directly buying themselves and thereafter 13 ST/41032/2015 selling the same to the exporters. In this activity they are receiving incentive and commission based on the total space purchase by them from the airline. This activities can be no stretch of imagination by considered as BAS Service Tax Appeal No.40895 of 2015 as for any service to statute the BAS at least three parties should be involved in the transaction namely the service provider, service recipient and the client. In the instant case there are only two parties in the transaction, the seller of space and the buyer of space. Any commission/incentive received, as a result of this transaction of sale cannot be considered as supply of BAS. In view of above, the demand under the head of BAS for the Revenue generated as airline/airline incentive is set aside."
6. Similar ratio has also been followed in the case of Karam Freight Movers (supra). The observations of the Tribunal are as below :
"11. On the second issue regarding the service tax liability of the respondent under BAS, we find that the impugned order examined the issue in detail. lt was recorded that the income earned by the respondent, to be considered as taxable under any service category, should be shown to be in lieu of provision of a particular service. Mere sale and purchase of cargo space and earning profit in the process is not a taxable activity under Finance Act, 1994. We are in agreement with the findings recorded by the original authority, In this connection, we refer to the decision of the Tribunal in Greenwich Meridian Logistic (I) Pvt Ltd. v CST, Mumbai - 2016 (43) STR 215 (Tri-Mumbai) = 2016- TIOL-869-CESTAT-MUM. The Tribunal examined similar set of fact and held that the appellants often, even in the absence of shippers, contract for space or slots in vessels in anticipation of demand and as a distinct business activity. It is a transaction between principal to principal and the freight charges or consideration for space procured from shipping-
lines. The surplus earned by the respondent arising out of purchase and sale of space and vessel. It cannot be considered that the respondents are engaged in promoting or marketing the services of any "client"."
7. As the issue has already been decided in favour of the assessee-respondents in the above mentioned orders of the Tribunal, we find no merit in the present appeal filed by the Revenue and the same is dismissed'.
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ST/41032/2015 b. International Clearing and Shipping Agency vs. Commissioner of GST and Central Excise [(2024) 15 Centax 357 (Tri. Mad)]: -
"7.4.1 The third issue is the demand raised on freight and brokerage, etc.,. The Ld. Counsel submitted that the appellant receives a brokerage / rebate from the shipping line on the ocean freight that they have to pay to the shipping lines. It is in the form of the discounts or incentives paid to the CHA and such amount is not a consideration for providing any CHA services. In fact, the appellant does not provide any CHA service to the shipping line. They act as an agent on behalf of the importer / exporter. So the incentive or the discount received by the appellant from the shipping line cannot be treated as a consideration received for CHA services. In the case of Commissioner of Service Tax, New Delhi Vs. Karam Freight Movers [2017 (4) GSTL 215 (Tri. Del.)], the Tribunal observed that the mark-up value collected by the assessee from the exporter is an element of profit in the transaction. The said amount is not a commission earned by the assessee and is not while acting as an agent of the exporter or shipping line and cannot be considered as a consideration. The assessee while acting as an agent on behalf of the shipping line was discharging the Service Tax as Steamer Agency services. The Tribunal took the view that the mark-up value collected by the assessee being an element of profit in the transaction cannot be subject to levy of Service Tax. Similar view was taken by the Tribunal in the case of Commissioner of Service Tax, New Delhi Vs. M/s. Continental Carriers [2017-TIOL-3964- CESTAT-DEL] and in the case of Greenwich Meridian Logistics (I) Pvt. Ltd. vs. Commissioner of Service Tax, Mumbai [2016 (43) STR 215 (Tri. Mumbai)]. In the present case also the Department does not have a case that the appellant has not discharged Service Tax on the agency commission received 15 ST/41032/2015 as a Steamer Agent or CHA. The demand is raised on the mark-up made which is the profit out of the difference in value of ocean freight collected by the shipping line and paid by the exporter / client. The Tribunal in the case of Greenwich Meridian Logistics (1) Pvt. Ltd. (supra) held as under:-
"13. The notional surplus earned thereby arises from purchase and sale of space and not by acting for a client who has space or slot on a vessel. Section 65(19) of Finance Act, 1994 will not address these independent principal-to-principal transactions of the appellant and, with the space so purchased being allocable only by the appellant, the shipping line fails in description as client whose services are promoted or marketed.
14. We, therefore, find no justification for sustaining of the demand and, accordingly, set aside the impugned order. Demands, with interest thereon, and penalties in both orders are set aside. Cross-objections filed by the department are also disposed of."
7.4.2 Following these decisions, we are of the opinion that the demand of Service Tax on freight brokerage cannot sustain and requires to be set aside. Ordered accordingly." 14.3 We also find that this Bench of the Tribunal in the case of M/s. International Clearing & Shipping Agency Versus Commissioner of GST & CE, Chennai North Commissionerate [2025 (2) TMI 615-CESTAT CHENNAI] has followed the earlier ruling of International Clearing & Shipping Agency (referred supra). Judicial discipline demands to follow the same order where the facts and circumstances are identical. Thus, by following judicial discipline, we set aside the demand pertaining to margin made on sale of cargo.
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15. In view of the above findings, the impugned Order-in-Appeal No. 13/2015 dated 11.01.2015 passed by Commissioner of Service Tax (Appeals-I), Chennai is set aside. Thus, the appeal is allowed with consequential relief, if any as per law.
(Order pronounced in open court on 11.09.2025) Sd/- Sd/-
(VASA SESHAGIRI RAO) (P. DINESHA) MEMBER (TECHNICAL) MEMBER (JUDICIAL) MK