The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bengaluru Bench, has held that mark-up on ocean freight, exchange rate fluctuation gains, and reimbursements collected as a pure agent cannot be subjected to service tax.
The bench of P.A. Augustian (Judicial Member) and Pullela Nageswara Rao (Technical Member) has observed that the impugned orders confirming service tax demands were unsustainable in law and therefore liable to be set aside.
The appeals challenged four separate service tax demands amounting to ₹21.73 lakh, ₹20.16 lakh, ₹19.37 lakh, and ₹18.77 lakh.
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The department had issued show cause notices alleging that service tax was payable on the excess ocean freight recovered from customers over the freight actually paid to shipping lines; amounts recovered towards boat hire, launch hire, barge expenses and watchman charges; and gains arising from fluctuations in foreign exchange rates.
The adjudicating authority had confirmed the demands along with interest and penalties, which were subsequently upheld by the Commissioner (Appeals).
The appellant argued that the issues had already been settled in its favour in earlier proceedings involving subsequent periods. It also relied upon several judicial precedents, including Baroda Electric Meters Ltd. (Supreme Court), Tiger Logistics (India) Ltd., Freight Links International (India) Pvt. Ltd., and Gudwin Logistics, all of which held that ocean freight or the profit element arising from freight transactions is not liable to service tax. The appellant further pointed out that an order passed by the Commissioner (Appeals) for later periods had already accepted that neither ocean freight nor exchange fluctuation gains were taxable, and that order had attained finality.
With respect to boat hire, launch hire, barge expenses and watchman charges, the appellant submitted that these were merely reimbursements of actual expenses incurred on behalf of clients in its capacity as a pure agent under Rule 5 of the Service Tax (Determination of Value) Rules, 2006.
It produced invoices and Chartered Accountant certificates to establish that the recoveries represented actual expenditure and relied on the Supreme Court’s landmark judgment in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd., which held that reimbursable expenses became taxable only from 14 May 2015.
After considering the submissions, the Tribunal observed that all three issues raised in the appeals were squarely covered by binding precedents of the Supreme Court as well as earlier decisions of the Tribunal.
Allowing all four appeals, the Tribunal ordered, “Following the decisions of the Hon’ble Apex Court and the Tribunal, the impugned orders are not sustainable and are liable to be set aside. Accordingly, the impugned orders are set aside, and the appeals are allowed with consequential relief, if any, as per law.”
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