Freight Forwarder Service Tax

Non-Taxability of Freight Margins

Various tribunals and courts have held that the freight margin retained by the appellant is not subject to taxation. Authorities have consistently ruled that the buying and selling of space on outbound aircraft or vessels constitutes a non-taxable service.

The judgment in Greenwich Meridian Logistics (India) Pvt Ltd v. Commissioner of Service Tax (2016) 43 STR 215 (Tri.-Mumbai) supports the view that when a freight forwarder acts as a principal, they are engaging in a business activity rather than rendering a service. This case established that the margin earned from the difference in freight charges is part of a business transaction and not taxable under service tax, as it does not constitute consideration for a service rendered.

The NEW ERA TRAVEL AND CARGO AGENCIES v. SERVICE TAX (CESTAT, 2024)  judgment emphasizes that discounts or incentives received by the appellant from airlines do not qualify as taxable income since they are not considered remuneration for services rendered. The court noted that mere sale and purchase of cargo space and earning profit in the process is not a taxable activity, reinforcing the idea that the income derived from such transactions is not subject to service tax.

In the Progeon Global Forwarding Pvt Ltd v. CST Ch - I (CESTAT, 2023) [FLAG D], it was established that when a service provider negotiates freight charges and acts on their account, they are not merely facilitating a service but are engaged in a transaction where they bear the risk and responsibility of transportation.

Incorrect Valuation of Freight Charges as Value of Service

Freight charges, in their nature, do not constitute the value of service. The following points substantiate this argument:

   - Freight Charges vs. Commission for Services: Freight charges are primarily fees collected for the transportation of goods and do not represent remuneration for services rendered. The actual taxable component is the commission earned for booking freight, which is distinct from the freight charges themselves.

   - Valuation of Services Rendered: The value of service for freight forwarding should accurately reflect the commission or fees for the logistical services provided, not the gross freight charges levied. Mischaracterizing freight charges as remuneration for services leads to an erroneous tax assessment.

- Legal Precedents and Guidelines: According to established tax principles and guidelines, only the actual service fees or commissions are subject to service tax, whereas pass-through charges like freight should be excluded from the taxable value unless they represent additional service benefits.

Tiger Logistics (India) Ltd. v. Commissioner of Service Tax-II (2022), where the tribunal ruled that the profit earned from buying and selling cargo space is a business activity and not a service, further reinforce the argument against the imposition of service tax in this context.

Therefore, the assertion that service tax should be levied on freight charges, treating them as remuneration for services rendered by us, is fundamentally incorrect and lacks legal substantiation.