The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in the case M/s. Geodis Overseas Private Limited Versus The Commissioner of Service Tax, consisting of Sulekha Beevi C.S. (Judicial Member) and P. Anjani Kumar (Technical Member) observed and has held that the ocean freight charges collected from customers are not subject to the levy of Service Tax under Business Support Services.
It was observed that the appellant or assessee is a freight forwarder and is engaged in freight forwarding of import and export shipments. Various services are provided by them and collect charges in the nature of LCL charges, Bill of Lading fees, handling charges, etc., on which they pay Service Tax. An ocean freight charges are also collected by them from their customers and pay them to shipping lines or shipping companies. On the ocean freight charges, the appellant did not pay any service tax.
In the present case, the department was of the view that the appellant is liable to pay service tax on the ocean freight charges collected by them as these falls under business support services. By the department it is alleged that the applicant, which is a SEZ unit, is not eligible for a refund or credit in respect of the input services and the reason for the same is that the services are not physically consumed within the SEZ unit.
The bench further issued a show cause notice to the appellant, proposing to demand service tax.
In the case, the issue raised was weather the ocean freight charges collected are subject to the levy of Service Tax.
It was contended by the petitioner that according to Section 67 of the Finance Act of 1994, the value of a taxable service is the gross amount for providing such a service and in the course of providing freight forwarding service, the ocean freight is not a charge incurred by the appellant. However, the payment is made by the appellant to the shipping liners for transportation of its clients’ cargo and recovers it from their clients. However, ocean freight does not form part of the value of taxable service rendered by the appellant in relation to freight forwarding service.
Further, the CESTAT relied on the decision of the Mumbai bench of CESTAT in the case of M/s. Greenwich Meridian Logistics (I) Pvt. Ltd. v. Commr. of S.T., wherein it was held that freight is paid to the shipping line and freight is collected from client-shippers in two independent transactions. Section 65(19) of Finance Act, 1994 will not address these independent principal-to-principal transactions of the appellant, with the space so purchased being allocable only to the appellant. In its description, the shipping line fails as a client whose services are promoted or marketed.