Despatch Money for Faster Cargo Unloading Not Taxable as ‘Port Service’: CESTAT

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad Bench, has held that “despatch money” received for faster unloading of cargo cannot be subjected to service tax under the category of ‘Port Service’. The Bench of A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) has observed that the appellant sometimes receives despatch money and at other times pays demurrage, depending on whether unloading is completed earlier or later than the agreed timeline. This further indicates that the payment is not consideration for a consistent service activity Rashtriya Ispat Nigam Ltd (RINL), a Government of India undertaking engaged in steel production, regularly imports raw materials through sea routes. For transportation of cargo, the company enters into charter party agreements with vessel owners and separately hires stevedores for unloading operations at ports. Under the terms of such agreements, the vessel owner may pay “despatch money” if cargo is unloaded faster than the agreed time, resulting in quicker turnaround of the vessel. Conversely, if unloading takes longer than the stipulated time, the importer may have to pay demurrage charges to the vessel owner. The tax department alleged that the despatch money received by RINL constituted consideration for providing “port services” to vessel owners, as faster unloading benefited the vessel operator. Based on this reasoning, the department issued a demand of ₹2,58,30,254 along with an equal penalty under the Finance Act, 1994. RINL contended that the despatch money was not payment for any service, but merely an incentive or contractual adjustment linked to freight arrangements under the charter party agreement. The company argued that despatch money and demurrage are contractual conditions regulating loading and unloading time. These payments are integral to the freight contract and cannot be separated as independent services. The arrangement does not involve providing any service to the vessel owner. The appellant also relied on previous judicial precedents where similar amounts were held not taxable as service consideration. The Tribunal examined whether despatch money could be treated as consideration for “port services” under the Finance Act, 1994. It noted that under the charter party agreement the vessel owner provides transportation services to the importer. If unloading is completed early, the importer receives despatch money. If unloading is delayed, demurrage charges become payable. The Bench observed that both despatch money and demurrage are contractual incentives or disincentives tied to turnaround time, rather than payment for a separate service. The Tribunal emphasized that these provisions are conditions within the transport contract and cannot be artificially separated to create a taxable service. CESTAT further observed that the arrangement does not involve an independent agreement for providing port services to vessel owners. The quicker unloading merely results in operational efficiency within the existing transportation contract. According to the Tribunal, such payments are similar in nature to penalties, liquidated damages, or contractual incentives, which cannot be treated as consideration for a taxable service. Based on its analysis, the Tribunal held that despatch money cannot be classified as consideration for port services. Consequently, the service tax demand and penalty imposed by the adjudicating authority were set aside. The Bench concluded that the attempt by the department to sever the despatch clause from the charter party agreement and treat it as a taxable service was legally unsustainable. Case Details Case Title: M/s Rashtriya Ispat Nigam Ltd Versus Commissioner of Central Excise & Service Tax, Visakhapatnam - I Citation: JURISHOUR-382-CES-2026(HYD) Case No.: Service Tax Appeal No. 27916 of 2013 Date: 13/03/2026 Counsel For Appellant: Narendra Dave & Ms. Adithi Reddy, Advocates Counsel For Respondent: A. Rangadham, AR Click Here To Read Order Read More: Value of Land Can’t Be Included in Taxable Value for ‘Club or Association Service’: CESTAT

Despatch Money for Faster Cargo Unloading Not Taxable as ‘Port Service’: CESTAT

Membership Required

Latest articles

AO Can’t Pass Assessment Order Once Limit Lapses As Per S. 153(2) Proviso: Gujarat High Court

GST Appeals Filed Beyond 4 Months Can’t Be Entertained, Limitation Act S. 5 Excluded: Uttarakhand High Court

Omission of GST Rule 96(10) Applies to Pending Export Refund Cases: Supreme Court

ECIR Not Beyond Judicial Review: Karnataka HC

More like this

AO Can’t Pass Assessment Order Once Limit Lapses As Per S. 153(2) Proviso: Gujarat High Court

GST Appeals Filed Beyond 4 Months Can’t Be Entertained, Limitation Act S. 5 Excluded: Uttarakhand High Court

Omission of GST Rule 96(10) Applies to Pending Export Refund Cases: Supreme Court

About us

Company

Categories