The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Bangalore, has ruled that service tax is not leviable on profit margins earned on freight and commissions received from shipping lines. The Tribunal set aside a demand of over Rs. 6.59 lakh along with interest and penalties, providing clarity on a long-disputed issue for the logistics industry.
The bench of Dr. D.M. Misra (Judicial Member) and Mr. A.K. Jyotishi (Technical Member) has examined whether the charges fell under “Cargo Handling Services” or “Business Auxiliary Services.” Relying on earlier rulings, including its own decisions in 2018 and 2024 in similar matters, the Tribunal noted the activities involved monitoring and managing the consolidation/deconsolidation of consignments, not physical handling of cargo, and hence could not be taxed as cargo handling services. Commissions and incentives received from shipping lines were already held to be outside the scope of taxable services under Business Auxiliary Services, citing the precedent of Bax Global India Ltd. v. CST Chennai (2017).
The dispute arose after tax authorities alleged that certain charges collected from importers — including freight, currency adjustment fees, and delivery order/courier charges — amounted to taxable income. The department argued that the difference between freight collected from customers in India and the amount remitted abroad should be treated as a taxable margin under service tax law.
An adjudication order confirmed the demand, which was upheld by the Commissioner of Central Excise (Appeals). This prompted the affected logistics operator to approach CESTAT.
The Tribunal concluded that the service tax liability on freight margins and commissions “cannot survive,” striking down the demand and related penalties.
Case Details
Case Title: M/s. Flyjac Logistics Pvt. Ltd. Versus Commissioner of Central Excise
Case No.: Service Tax Appeal No. 28332 of 2013
Date: Service Tax Appeal No. 28332 of 2013
Counsel For Petitioner: Radhika Shivaranjini, Advocate
Counsel For Respondent: Vinod Kumar Garhwal, Superintendent (AR)
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