Whether purchase and sale of air cargo space liable to service tax?

PJ/Case Law/2019-2020/3608

PAWAN CARGO FORWARDS PVT. LTD. VS. PR. COMMR. OF S.T., CHENNAI-I[2020 (34) G.S.T.L. 559 (TRI.-CHENNAI)]
Brief facts:-The appellants are an air cargo agent and are paying service tax on the commission amount paid from the airlines. Department took the view that appellants should have been paying service tax also on the freight charges reimbursed by them from their customers charged over and above the freight amount payable to the airline companies.

Issue:-Whether purchase and sale of air cargo space liable to service tax?
Appellant’s contentions:-It was submitted that although department wants to levy service tax on the profit earned but has calculated service tax demand on the gross amount collected from the customer on behalf of the airlines, which is contrary to the order itself.
It was submitted that the appellant is merely an agent collecting the freight on behalf of the Airlines and hence, the amount collected cannot be treated as service provided by the appellant-assessee to the customers.

It was submitted that on the freight amount, service tax has already been paid by the airlines and hence, only again taxing the same in the hands of the appellant, would amount to double-taxation, which is incorrect. Reliance is placed on Hon’ble Delhi High Court in the case of -Intercontinental Consultants and Technocrats Pvt. Ltd. v. Union of India & Anr. - 2013 (29) S.T.R. 9 (Del.)wherein it was held that the double taxation must be clearly provided for and intended; at any rate, double taxation cannot be enforced by implication.The aforesaid order has also been upheld by the Hon’ble Apex Court in Union of India and Anr.v. M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. - 2018 (3) TMI 357-SUPREME COURT OF INDIA = 2018 (10) G.S.T.L. 401 (S.C.).

It was also submitted that even if the entire amount collected from customer is taxable in the hands of the appellant, then the service tax paid by the airlines would be available as cenvat credit to the appellant, which would make the entire exercise revenue neutral.

It was also submitted that, it is a settled law that no service tax can be demanded on difference between freight amount collected from the customer and paid to the airlines. Reliance is placed on :-

1.	M/s. Skylift Cargo (P) Ltd.v. Commissioner of Service Tax, Chennai And (Vice-Versa)	2018 (2) TMI 320-CESTAT CHENNAI
2.	M/s. La Freight Pvt. Ltd.v. Commissioner of Service Tax, Chennai	2018 (3) TMI 113-CESTAT CHENNAI

Respondent’s contentions:- The respondent submits that the assessee adopts two types of transaction, one in respect of which they act as intermediary which involves commission on agreed terms and the other booking cargo space from airlines and sale to their customers. The issue revolves around retaining of air freight amount collected by them. Assessee as an agent had performed booking and marketing of cargo space and such activity falls under the category of service in terms of Section 65B(44) of the Finance Act, 1994 and is chargeable to service tax on the gross amount received. Hence, appellants are liable to discharge service tax on the total value realized by them from their customers.
Reasoning of judgment:-After considering the submissions, it was concluded that mere sale and purchase of cargo space and earning profit in the process is not a taxable activity as held in the case of Skylift Cargo (P) Ltd.v. CST, Chennai and La Freight Pvt. Ltd. v. CST, Chennai.
It was held that the same view has been taken by this Tribunal earlier also in the case of Tax Global India Ltd. v. CST, Chennai [Final Order No. 42113/2017, dated 18-9-2017 in Appeal No. ST/150/2008]. Hence following the ratio already laid down, the impugned order was set aside and the appeals were allowed with consequential benefits.
Comment:- The issue regarding taxability of the activity of purchase and sale of cargo space has been a matter of dispute and there have been favourable decisions wherein it has been held that the margin earned on such activity is not liable to service tax. It is pertinent to mention that there was service tax exemption on air freight and so when the said activity was exempted, the transaction of purchase and sale of space should also not be liable to service tax.
Prepared By- CA Neeetu Sukhani

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