Ocean Freight Mark-Up Not Taxable as Service Tax: CESTAT

The Chennai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that the profit or mark-up earned by a shipping and freight forwarding company on ocean freight charges cannot be subjected to service tax merely because the amount collected from customers exceeded the freight actually paid to shipping lines. The bench of Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) noted that the mark-up earned on freight charges was essentially a profit element and could not be added to the value of any taxable service for the purpose of levying service tax. The dispute arose after a departmental audit of GAC Shipping (India) Pvt. Ltd., a company registered under various taxable service categories, including Custom House Agent Service, Transport of Goods by Road Service, and Business Auxiliary Service. During the audit, the department noticed that the company paid ocean freight charges to shipping lines on behalf of its customers and subsequently billed its clients for those freight charges with an additional mark-up or margin. The department also noted that the company earned what was described as “share profit” from customers. Based on these findings, the authorities concluded that the mark-up earned on ocean freight was liable to service tax under the category of “Steamer Agent Services.” A show cause notice was issued demanding service tax of ₹27,599 along with interest and penalties for the period October 2012 to September 2013. The adjudicating authority confirmed the demand, and the Commissioner (Appeals) subsequently upheld the order, prompting the company to approach the Tribunal. The appellant argued that the issue had already been decided in its favour for the immediately preceding period, January 2012 to September 2012, by the same Tribunal. It contended that the difference between freight collected from customers and freight paid to shipping lines represented its profit margin and could not be treated as consideration for a taxable service. The company also relied on a series of judicial precedents, including: Gudwin Logistics decided by the Ahmedabad Bench of CESTAT; the Supreme Court’s decision in Baroda Electric Meters Ltd.; and recent Tribunal decisions in A.G.X Logistics Pvt. Ltd., Tiger Logistics Ltd., and EMU Lines Pvt. Ltd. According to the appellant, these decisions consistently held that ocean freight and the mark-up earned thereon are not liable to service tax. The department contended that after the introduction of the negative list regime from 1 July 2012, all services became taxable unless specifically excluded or exempted. It argued that the appellant’s activity amounted to freight forwarding services and that the mark-up collected from customers constituted consideration for services rendered. According to the department, the mark-up formed part of the gross taxable value under Section 67 of the Finance Act, 1994 and therefore attracted service tax. The core issue was whether the differential amount between freight collected from customers and freight paid to shipping lines could be subjected to service tax. The Tribunal observed that an identical dispute in the appellant’s own case for an earlier period had already been decided in its favour in Final Order No. 40854/2024. In that decision, the Tribunal had relied upon the Supreme Court’s landmark ruling in Baroda Electric Meters Ltd. v. Collector, where it was held that freight-related profits cannot be included in the assessable value merely because the actual freight paid is lower than the amount collected. The earlier order had emphasized that taxes on services cannot be extended to cover mere profits earned on transportation charges when such profits have no nexus with the taxable service itself. The Tribunal further noted that the Revenue failed to show that any of the earlier decisions relied upon by the appellant—including the Tribunal’s own order in the appellant’s favour—had been stayed, modified, or overturned by a higher court. In such circumstances, principles of judicial discipline, consistency, and comity required the Bench to follow the earlier decisions. Allowing the appeal, CESTAT set aside the impugned order and held that the service tax demand was unsustainable. Since the demand itself failed on merits, the related interest and penalties also automatically fell. The Tribunal granted consequential relief to the appellant in accordance with law. Case Details Case Title: GAC Shipping (India) Pvt. Ltd. Versus Commissioner of GST & Central Excise Citation: JURISHOUR-1580-CES-2026(CHE) Case No.: Service Tax Appeal No. 41944 of 2016 Date: 10.06.2026 Counsel For Appellant: None Counsel For Respondent: G. Krupa, Authorised Representative Click Here To Read Order Read More: One-Time Water Infrastructure Charges on Long-Term Industrial Leases Not Taxable as Support Services: CESTAT

Ocean Freight Mark-Up Not Taxable as Service Tax: CESTAT

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