[2016-TIOL-20-ARA-ST] M/s Global Transportation Services P. Ltd.

Facts:
The Applicant a provider of logistic solutions provides a number of services which are mutually exclusively viz. transportation of goods by road, loading/unloading of goods, air/ocean freight etc. on various outbound and inbound shipments. They enter into a contract with the airline for transportation of consignment who issues an Airway Bill which governs the terms of contract between them on a principal-to-principal basis. The Applicant in turn in a majority of cases issues a House Airway Bill upon its customers. The earning for all the services rendered is the difference between the amount charged to the customer and paid to the airlines/shipping lines/transporters etc. They also enter into reciprocal freight business arrangements with freight forwarders in other jurisdictions. The questions raised before the authority were whether the freight margin recovered from their customer/freight partner in case of outbound shipments is not taxable in light of Rule 10 of the Place of Provision of Service Rules, 2012 and whether in case of inbound shipments the same is covered under section 66D(p)(ii) of the Finance Act, 1994-Negative list which provides an exemption to transportation of goods by aircraft/vessel from a place outside India upto the customs station. Further questions of valuation and CENVAT availability were also raised in case the above transactions were held to be taxable.

Held: 
The Authority noted that the relationship between the airline/shipping line and applicant is separate and distinct from the relationship between the applicant and its customer. The contract with the customer is to provide the service of transportation of cargo. In case of any damage or destruction, the applicant has an independent right against the airline/shipping line and the customer also has a right to recover damages from the applicant independently.  Therefore they are acting on a principal-to-principal basis providing the main service and are thus excluded from the definition of intermediary provided in Rule 2(f) of the Place of Provision of Services Rules, 2012 . Accordingly the place of provision of the said service will not be location of the service provider. The place of provision of transportation of goods is the destination of goods as per Rule 10 of the said rules and therefore in case of an outbound shipment the destination is outside India and accordingly the freight margin is not liable for service tax. Similarly in case of inbound shipments the service is covered by the Negative List – section 66D(p)(ii) and therefore is not exigible to service tax. However with effect from 01/06/2016, the said section has been omitted and therefore the said service of transportation is made taxable. However the exemption to transportation of goods by aircraft continues under the mega exemption notification vide notification 9/2016-ST dated 01/03/2016.
[Note: Readers may note the decision of Greenwich Meridian Logistics (India) P. Ltd [2016-TIOL-869-CESTAT-MUM] on similar facts reported in the May 2016 issue of BCAJ dealing with the period prior to July 12. Reference can also be made to the decision of Phoenix International Freight Services P. Ltd vs. Commissioner of Service Tax, Mumbai-II [2016-TIOL-2353-CESTAT-MUM] wherein the Tribunal relying on the decision of Greenwich Meridian (supra) has dropped the demand prior to July 2012.]