The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai Bench has allowed the appeal setting aside the demand of service tax on reimbursable expenses as well as incentives/commission earned from cargo space transactions.
The bench of Ajayan T.V (Judicial Member) and Ajit Kumar (Technical Member) has observed that invocation of the extended period of limitation was unsustainable in the absence of suppression or intent to evade tax.
The dispute arose from an Order-in-Appeal which upheld the confirmation of service tax demand amounting to ₹34 lakh along with interest and penalty under Section 78 of the Finance Act, 1994. The Department had alleged that the appellant, a Custom House Agent (CHA), failed to include certain receipts such as clearing and forwarding charges, documentation charges, incentives, and commissions in the taxable value, thereby contravening Section 67 of the Finance Act, 1994 read with Rule 5 of the Service Tax (Determination of Value) Rules, 2006.
The Revenue further contended that incentives received from airlines and shipping lines for booking cargo space constituted consideration for “Business Auxiliary Services,” and were therefore taxable. It was also alleged that the appellant suppressed material facts by not disclosing these incomes in ST-3 returns, justifying invocation of the extended limitation period.
However, the Tribunal found that the issues involved were no longer res integra and were squarely covered by earlier decisions, including the appellant’s own case. Relying on the Supreme Court ruling in Union of India v. Intercontinental Consultants & Technocrats Pvt. Ltd., the Tribunal reiterated that reimbursable expenses cannot be included in the value of taxable services prior to the amendment of Section 67 in 2015. It observed that service tax is leviable only on the consideration received for services actually rendered, and not on amounts merely reimbursed.
On the issue of cargo space booking, the Tribunal held that the activity of purchasing cargo slots from airlines or shipping lines and selling them to exporters is a principal-to-principal transaction. The incentives or commissions earned in such transactions were held to be in the nature of trade discounts or profit margins, and not consideration for any service rendered to the airlines or shipping lines. Consequently, such income could not be taxed under “Business Auxiliary Service.”
The Bench emphasized that for a service to qualify under Business Auxiliary Service, there must be a clear service provider–client relationship involving promotion or marketing of another’s services. In the present case, no such relationship existed, as the appellant was acting on its own account and not on behalf of any airline or shipping line.
The Tribunal also rejected the Department’s invocation of the extended period of limitation. It noted that an earlier show cause notice had already been issued on similar grounds, indicating that the Department was aware of the appellant’s activities. In such circumstances, extended limitation could not be invoked. Further, there was no evidence of suppression, wilful misstatement, or intent to evade tax, which are essential prerequisites for invoking the extended period.
The Tribunal held that the entire demand of service tax, along with interest and penalties, was unsustainable in law. Accordingly, the impugned order was set aside, and the appeal was allowed with consequential relief to the appellant.
Case Details
Case Title: M/s. North Star Shipping Service Pvt. Ltd. Versus Commissioner of GST & Central Excise
Citation: JURISHOUR-1036-HC-2026(CHE)
Case No.: Service Tax Appeal No.41677 of 2016
Date: 28.04.2026
Counsel For Appellant: Radhika Chandra Sekhar, Advocate
Counsel For Respondent: G. Krupa, Authorised Representative
