End-to-End Air Cargo Services on Principal-to-Principal Basis Not ‘Business Auxiliary Service’, No Service Tax Payable: CESTAT

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), has held that end-to-end air cargo services on principal-to-principal basis not ‘business auxiliary service’ and no service tax is payable. The Bench of Binu Tamta (Judicial Member) and Mr. P.V. Subba Rao (Technical Member) allowed the appeal and quashed the impugned order dated 16 May 2019 passed by the Principal Commissioner, CGST Delhi South, along with associated interest and penalties and observed that the company was not rendering Business Auxiliary Services but was providing principal-to-principal end-to-end transportation of goods by air, which was either exempt or outside the taxable territory. The appellant, Delmos Aviation had entered into a General Sales and Service Agent (GSSA) agreement with Russian airline Aeroflot, appointing it as the sole selling agent for air cargo services in India, Nepal, Bangladesh and Sri Lanka. While the agreement contemplated Delmos acting as an agent of Aeroflot, the actual business model adopted by Delmos was markedly different. Instead of merely selling cargo space on behalf of Aeroflot, Delmos offered exporters a complete end-to-end logistics package, covering domestic transportation (by road or domestic airlines) from the exporter’s premises to Delhi or Goa, international air transportation through Aeroflot, and handling, loading, unloading and incidental services. Delmos raised consolidated invoices on exporters and issued a single Airway Bill covering the entire journey up to the final overseas destination. Aeroflot, in turn, billed Delmos for the international leg, and Delmos paid Aeroflot and other service providers from its own account. The tax department issued two show cause notices covering the period 2010–11 to 2017–18, alleging that up to 30 June 2012, Delmos was providing Business Auxiliary Services (BAS) under Section 65(105)(zzb) of the Finance Act, 1994. After 1 July 2012, Delmos was acting as an intermediary, making the services taxable in India under Rule 9 of the Place of Provision of Services (POPS) Rules, 2012. On this basis, service tax demands of ₹39.95 crore, interest of ₹1.18 crore, and penalties including ₹28.26 crore under Section 78 were confirmed. The central question before the Tribunal was the true nature of the services rendered by Delmos—whether it acted as an agent/intermediary of Aeroflot or exporters (taxable as BAS), or a principal service provider offering transportation of goods by air on its own account. The Tribunal noted a clear dichotomy between the GSSA agreement and the actual business conduct. While the agreement described Delmos as Aeroflot’s agent, in practice Delmos did not receive commission from Aeroflot (except USD 1 per airway bill, on which service tax was already paid), exporters did not deal with Aeroflot directly, Delmos bore the commercial risk and arranged the entire logistics chain, and consideration flowed from exporters to Delmos, and from Delmos to Aeroflot and others. The Bench held that taxability must be determined by the actual nature of services rendered and not merely by the wording of agreements. Rejecting the department’s classification under Business Auxiliary Service, the Tribunal observed, “These were not transactions where the appellant procured any services for the exporters but rendered the services on its account and for the purpose used the services of other service providers.” The Tribunal further held that Delmos qualified as an “aircraft operator” under Section 65(3b) because it provided the service of transport of goods by air, even though it did not own or operate aircraft itself. Consequently, its services fell under Section 65(105)(zzn) – transportation of goods by air – which was exempt under Notification No. 29/2005-ST. For the post-negative list regime, the Tribunal rejected the Revenue’s attempt to apply Rule 9 of the POPS Rules by branding Delmos as an intermediary. It held that Delmos did not merely arrange or facilitate services between exporters and airlines, instead, it provided a composite transportation service on principal-to-principal basis. Applying Rule 10 of the POPS Rules, the Bench ruled that the place of provision of transportation of goods services is the destination of the goods. Since the destinations were outside India, the services were not taxable in India at all. The Tribunal held that the impugned order confirming the demand of service tax with interest and imposing penalties cannot be sustained.” Accordingly, the entire demand of ₹39.95 crore, interest and penalties were set aside, and the appeal was allowed in full. Case Details Case Title: Delmos Aviation Private Limited Vs Principal Commissioner, Cgst & Central Excise Case No.: SERVICE TAX APPEAL NO. 50240 OF 2020 Date: 06.01.2026 Counsel For Appellant: A.K. Batra, Chartered Accountant Counsel For Respondent: Aejaz Ahmad, Authorized Representative Click Here To Read Order Read More: Customs Dept. Illegally Relied On Statements Recorded U/s 108 Of Customs Act Without Following Mandatory Procedure U/s 138B: CESTAT

End-to-End Air Cargo Services on Principal-to-Principal Basis Not ‘Business Auxiliary Service’, No Service Tax Payable: CESTAT

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