CESTAT Bangalore Allows Flyjac Logistics Appeals; Freight Margin, Forex Gains Not Subject To Service Tax

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Bangalore, has recently allowed appeals filed by Flyjac Logistics Pvt. Ltd., holding that freight margin and foreign exchange fluctuation gains cannot be treated as consideration for service tax.

Observing that the issue is no longer res integra, the tribunal held, "Since, these issues are squarely covered by the decisions of this Tribunal in appellant's own case vide Final Order No. 20650/2024 dated 23.07.2024 and 21361-21362/2025 dated 02.09.2025, demand against said impugned orders are unsustainable."

Judicial Member P.A. Augustian and Technical Member R. Bhagya Devi were dealing with appeals arising from multiple show cause notices alleging short payment and non-payment of service tax under heads including CHA, C&F and GTA services, exchange fluctuation gains, SEZ services and reimbursable expenses.

The adjudicating authority had dropped certain demands while confirming others. In appeal, the Commissioner (Appeals) allowed the department's appeal and rejected that of Flyjac Logistics Pvt. Ltd., with the result that the demands as proposed in the show cause notices stood restored, leading to the present appeals before the tribunal.

Before the tribunal, Flyjac Logistics submitted that service tax on freight had been demanded on the difference between the amount charged from customers and that paid to carriers and that such freight margin is trading profit arising from the sale of cargo space and not consideration for any service.

On exchange fluctuation, it submitted that the gain is purely a financial gain or loss incidental to forex conversion and not consideration for a service under Section 67 of the Finance Act, 1994.

The tribunal accepted these submissions, noting that the issues are squarely covered by its earlier decisions in Flyjac's own case, and held that the demands on these counts are unsustainable.

As regards services provided to SEZ units, the Tribunal recorded that Flyjac had produced the order dated 24.09.2007 along with the list of authorised operations, and found that the services in question were covered as specified services required for authorised operations. It accordingly held that the demand on this count is not sustainable

It held that exemption from service tax was available and set aside the demand of Rs 3,50,747.

Dealing with demands on reimbursable expenses, the tribunal relied on the Supreme Court's ruling in Intercontinental Consultants & Technocrats Pvt. Ltd. and held that demands raised by invoking Rule 5 of the Service Tax (Determination of Value) Rules, 2006, were not sustainable in law.

On the demand under Business Auxiliary Services, the tribunal found that there was no finding that Flyjac Logistics Pvt. Ltd. was acting as an agent or promoting anyone's business and held that the activities were carried out on a principal-to-principal basis, making the demand unsustainable.

However, the tribunal remanded a limited issue relating to a demand of Rs 7,55,327 arising from trial balance entries for verification, noting that the issue had not been examined by the adjudicating authority.

Accordingly, the tribunal allowed two appeals in full and partly allowed the third appeal by way of remand.

For Appellant: Advocate R. Radhika Shriranjini

For Respondent: M. Sreekanth, Assistant Commissioner (AR)