Custom, Excise & Service Tax Tribunal
Jn Freight Forwarders Pvt Ltd vs Cochin-Cus on 19 January, 2024
Service Tax Appeal Nos. 26242, 26243/2013
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 1
Service Tax Appeal No. 26242 of 2013
(Arising out of Order-in-Original No.04 & 05/2013 dated
25.01.2013 passed by the Commissioner of Central Excise,
Customs and Service Tax, Cochin.
M/s. JN Freight Forwarders Pvt. Ltd. .....................Appellant(s)
VERSUS
The Commissioner of Central Excise,
Customs and Service Tax
Cochin. ..................Respondent(s)
AND Service Tax Appeal No. 26243 of 2013 (Arising out of Order-in-Original No.04 & 05/2013 dated 25.01.2013 passed by the Commissioner of Central Excise, Customs and Service Tax, Cochin.) M/s. JN Freight Forwarders Pvt. Ltd. ....................Appellant(s) VERSUS The Commissioner of Central Excise, Customs and Service Tax Cochin. ..................Respondent(s) Appearance:
Mr. Sanjay, Advocate for the Appellant Mr. P. Saravana Perumal, Authorised Representative for the Respondent CORAM:
Hon'ble Dr. D.M. Misra, Member (Judicial) Hon'ble Mr. Pullela Nageswara Rao, Member (Technical) Final Order No. 20046 - 20047 / 2024 Date of Hearing: 04.09.2023 Date of Decision: 19.01.2024 Page 1 of 9 Service Tax Appeal Nos. 26242, 26243/2013 Per : Dr. D.M. Misra These two appeals are filed against Order-in-Original No.04 & 05/2013 passed by the Commissioner of Central Excise and Customs, Cochin Commissionerate.
2. Briefly stated the facts of the case are that the appellant are registered with the Service Tax department under the category of 'Clearing and Forwarding Agency Service' and the 'Business Auxiliary Service' during the relevant period. They are engaged in movement of cargo from client's place to final destination in foreign countries and collected freight charges from the clients and paid a part of freight charges to shipping lines, after retaining balance portion with them. The amount so retained has been alleged to be chargeable to Service Tax under 'Steamer Agent Services'. Show-cause notices were issued to the appellant on 21.09.2011 for the period 2006-07 to 2010-2011 for recovery of service tax of Rs.5,55,19,765/- with interest and penalty.
Also show-cause notice dated 05.11.2012 was issued for the subsequent period from April 2011 to March 2012 on 05.11.2012 demanding service tax of Rs.1,30,36,131/- with interest and penalty. Both the show-cause notices have been adjudicated by a common order confirming the demands with interest; also penalty of Rs.5,000/- under Section 77 and equivalent amount of penalty imposed under Section 78 of the Finance Act, 1994. Hence, the present appeals.
3. At the outset, the learned advocate for the appellant has submitted that the appellants are registered as 'Multimodal Transport Operator (MTO) under the relevant Act of 1993. The appellant act as Page 2 of 9 Service Tax Appeal Nos. 26242, 26243/2013 principal and not as an agent of either the shipper or the shipping lines. They undertake transportation of the cargo to foreign destinations under Bills of Lading issued by them. There is privity of contract only between the appellant and its clients and not between shippers and shipping lines. He has submitted that appellant deal with agents of shipping lines and not directly with them and hence cannot be considered as agents of shipping lines.
3.1 Explaining the operations carried out by the appellant, he has submitted that the exporters/importer approached the appellant for export/import of goods to/from a destination outside India. The appellant after analysing the requirement of their clients, quote the freight charges and book containers with the shipping lines and obtain delivery order from the customers to book empty containers. The clearing agent moves the containers to the place of loading and stuffs the goods meant for export/import. Thereafter, the container is loaded into the proposed vessel for export/import. Once the container is onboard and ship has sailed, the appellant releases the Bill of Lading to the exporter. The appellant collects freight charges, terminal handling charges and documentation charges from the customers. They discharge Service Tax on terminal handling charges and documentation charges, however, no Service Tax is paid on ocean freight nor collected it from the customers as it is not leviable to Service Tax. The department proposed to levy Service Tax on the difference between the ocean freight collected from customers and ocean freight paid to shipping lines under the taxable category of 'Steamer Agent Services' as defined under Section 65(100) of the Finance Act, 1994. He has Page 3 of 9 Service Tax Appeal Nos. 26242, 26243/2013 submitted that since the appellants are registered as MTO and authorised to engage with shipping lines on principal-to-principal basis, the demand and penalty imposed is legally unsustainable as the same is based on mis-interpretation of definition of 'Steamer Agent Services' and improper understanding of the services rendered by the appellant. They do not act on behalf of any shipping lines exclusively or otherwise nor they resale the cargo space to the customers acting as shipping agent. Further, they did not have any ongoing revenue sharing business arrangement with the shipping lines nor any evidence has been placed by the Revenue. The shipping line used for a particular shipment is chosen by the customer on various parameters and the appellant contacts the shipping line and obtain a quote according to the customers requirement and fix price with a margin. He submits that unlike a Steamer Agents commission, which is fixed and decided by the shipping lines, the appellant's margin varies and is entirely prerogative of the appellant. He has further submitted that the shipping line does not have a say on the margin earned by the appellant in trading in the course of appellant's business i.e., Ocean Freight, which is not taxable under the Service Tax. Further, he has submitted that excess freight collected cannot be subjected to Service Tax as has been held by this Tribunal in a series of cases. The relied upon case laws are:
• Balmer Lawrie and Co. Ltd. vs. CST: Final Order No.50579 - 50580 /2023 dated 01.05.2023 • M/s. Direct Logistics India Pvt Ltd vs. CST: Final Order No.20731
- 20735/2021 dated 01.09.2021 • Commissioner vs. M/s. Reliance Industries Ltd.: 2023 (8) Centax 96 (SC) • Greenwich Meridian Logistics (India) Pvt. Ltd. vs. CST, Mumbai:
2016-TIOL-869-CESTAT-MUM Page 4 of 9 Service Tax Appeal Nos. 26242, 26243/2013
4. Further, he has referred to the Board's Circular bearing No.197/7/2016 in support of his claim that excess ocean freight collected cannot be subjected to service tax.
5. Learned Authorised Representative for the Revenue reiterated the findings of the learned Commissioner.
6. Heard both sides and perused the records. The short issue involved in the present appeals is whether the appellants are liable to pay Service Tax for the excess ocean freight collected and retained by them for transportation of the goods to foreign destinations under the taxable category of 'Steamer Agent Service'. Undisputedly, the appellants are registered with the Service Tax department under the category of 'Clearing and Forwarding Agency Service' and 'Business Auxiliary Service' during the relevant period. As per the customers' requirements, they import/export goods from/to foreign destinations; book space with the shipping lines and collect freight charges, terminal handling charges and documentation charges from the customers. They discharge Service Tax on terminal handling charges and documentation charges; however, no Service Tax has been paid on excess ocean freight collected from the customers.
6.1 We find that the show-cause notice was issued to the appellant proposing to recover Service Tax on differential ocean freight collected from the customers alleging that the same is chargeable to Service Tax under 'Steamer Agent Service' defined under Section 65(100) read with Section 65(105)(i) of the Finance Act, 1994. The definition 'Steamer Page 5 of 9 Service Tax Appeal Nos. 26242, 26243/2013 Agent Service' under Section 65(100) read with Section 65(105)(i) of the Finance Act, 1994, reads as:
Section 65(100): 'Steamer Agent' means any person who undertakes, either directly or indirectly -
(i) to perform any service in connection with the ship's husbandry or dispatch including the rendering of administrative work related thereto; or
(ii) to book, advertise or canvas for cargo for or on behalf of a shipping line; or
(iii) to provide container feeder service for or on behalf of a shipping line.
Section 65(105)(i): 'taxable service' in respect of 'Steamer Agent Service' means any service provided or to be provided to a shipping line, by a steamer agent in relation to a ship's husbandry or dispatch or any administrative work related thereto as well as the booking, advertising or canvassing of cargo, including container feeder services".
6.2 The learned adjudicating authority after analysing the definition of 'Steamer Agent Service' held that the differential amount collected as freight charges i.e., paid to shipping lines and the amount collected from the customers be considered as chargeable to Service Tax under subclause (ii) of Section 65(100) of definition of 'Steamer Agent Service' i.e., "to book, advertise or canvas for cargo for or on behalf of Page 6 of 9 Service Tax Appeal Nos. 26242, 26243/2013 shipping line" and accordingly taxable under the category of 'Steamer Agent Service'. On the other hand, the learned advocate for the appellant has vehemently argued that there is no contract between the appellant and the shipping lines to act for and on behalf of the shipping lines but the cargo space is booked by the appellant as per the requirement of the customers directly or through agents of the shipping lines on principal-to-principal basis. They do not receive any commission from the shipping lines for booking the cargo space but the actual amount of freight charges is paid to them against the amount collected from their customers. The excess freight charges collected from the customers are retained by them which is nothing but ocean freight charges only and cannot be considered as commission paid by the shipping line for booking the space.
6.3 We find merit in the contention of the learned advocate for the appellant. Analysing the transaction between the appellant, their customers and shipping lines, we find that the appellant do not act as agents of the shipping line for booking the cargo space or for canvassing or booking of the cargo space for their customers. They purchase the cargo space on behalf of the customers from the shipping lines on principal-to-principal basis. The excess ocean freight collected from the customers, thus cannot be considered as a commission paid by the shipping lines to the appellant. Whether Service Tax be leviable on the excess ocean freight collected from the customers is the issue now needs to be addressed.
Page 7 of 9
Service Tax Appeal Nos. 26242, 26243/2013 6.4 This issue of chargeability of Service Tax on excess ocean freight retained by the service provider is no more res integra and considered by the Tribunal in a series of cases. Recently, the Principal Bench in Balmer and Lawrie and Company Ltd. case referring to the judgments by the Tribunal held as follows:
"6. The primary issue for decision is the issue on taxability of service tax on ocean freight and the liability of tax on profit/mark up, which is no more res integra as the same has been decided in catena of decisions, the latest being the judgment in the case of M/s Tiger Logistics (India) Ltd. vs Commissioner of Service Tax- II, Delhi. The relevant paragraphs of the aforesaid judgment is reproduced hereinafter:
"9. As far as the differential in ocean freight is concerned, the appellant buys space on ships from the Shipping Line and the Shipping Line issues a Master Bill of Lading in favour of the appellant. In turn, it sells the space to its customers and issues a House Bill of Lading to each of them. The first leg is the contract between the Shipping line and the appellant. The second leg is the contract between the appellant and its customers. Evidently, anyone who trades in any merchandise or service buys low and sells high and the margin is his profit. To earn this profit, he also takes the risk of being unable to sell. In the appellant's case, if the space on the ships which it bought cannot be sold to its customers fully, or due to market conditions, or is compelled to sell at lower than purchase price, the appellant incurs loss. In a contrary situation, it gains Page 8 of 9 Service Tax Appeal Nos. 26242, 26243/2013 profits. This activity is a business in itself on account of the appellant and cannot be called a service at all. Neither can the profit earned from such business be termed consideration for service. Respectfully following Satkar Logistics, Nilja Shipping Pvt. Ltd., Surya Shipping and ITC Freight Services, we hold that the appellant is not liable to pay service tax."
7. Following the ratio of the aforesaid judgment, we do not find merit in the impugned order, consequently, the same is set aside and the appeals are allowed with consequential relief, if any, as per law.
(Order pronounced in Open Court on 19.01.2024) (D.M. Misra) Member (Judicial) (Pullela Nageswara Rao) Member (Technical) rv Page 9 of 9