Mark-Up On Ocean Freight Cannot Be Taxed Merely Because It Exceeds Actual Freight Paid: CESTAT Chennai

On 10 June, the Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that a freight forwarder's mark-up or profit on ocean freight charges cannot be subjected to service tax merely because the amount collected from customers exceeds the freight actually paid to shipping lines.

Judicial Member Ajayan T.V. and Technical Member M. Ajit Kumar allowed the appeal filed by GAC Shipping (India) Pvt. Ltd. and set aside the service tax demand, interest, and penalties imposed on the company. The Bench held:

“The above judgment of the Hon'ble Supreme Court and the judgments cited by the appellant above, including those in their own case makes it clear that the profit made by the appellant by markup of transport charges which has nothing to do with the activity of Steamer Agent Service would not be liable to Service Tax by adding it to the value of the said taxable service.”

The dispute arose after the department, during an audit, found that the taxpayer paid ocean freight charges to shipping lines and recovered a higher amount from customers during the period October 2012 to September 2013. The Department treated the difference between freight paid and freight collected as mark-up or profit and demanded service tax of Rs. 27,599 under the category of “Steamer Agent Service”, along with interest and penalties.

Before the Tribunal, GAC Shipping submitted that CESTAT had already decided the issue in its favour for the immediately preceding period. It further argued that the differential amount represented only profit on freight and did not constitute consideration for any taxable service.

The Bench also held that the issue no longer remained res integra as judicial precedents had already settled it. It relied on its earlier order in the taxpayer's own case and the Supreme Court judgment in Baroda Electric Meters Ltd. v. Collector of Central Excise. It further noted that the Revenue failed to show that the earlier decision in the taxpayer's own case or the relied-upon judgments had been stayed, modified, or set aside by any higher forum.

Applying principles of judicial discipline, consistency, and propriety, the Bench held that the impugned order could not be sustained. Since the demand failed on merits, the interest and penalty proceedings also did not survive.

Accordingly, the CESTAT allowed the appeal and granted consequential relief.

Appearance for the Appellants: None

Appearance for the Respondents: Smt. G. Krupa, Authorised Representative