As
per section 65B (44), service means any activity carried out by a person for
another person for consideration. Including declared services.
Service
to be taxed inthe Jurisdiction of Consumption. (For the purpose place of
provision of service Rules 2012)
LOGSTICS
& FREIGHT FORWARDING INDUSTRIES & service TAX
FREIGHT FOWARDING INDUSTRIES
Freight forwarding industries are those industries which provide
freight forwarding services to their National and international clients.
Freight forwarding is a service used by companies that deal in international or
multi-national import and export. While the freight forwarder doesn't actually
move the freight itself, it acts as an intermediary
between the client and various transportation & Logistics services. Sending
products from one international destination to another can involve a multitude
of carriers, requirements and legalities. A freight forwarding service handles
the considerable logistics of this task for the client, relieving what would
otherwise be a formidable burden.
Freight forwarding services guarantee that products will get
to the proper destination by an agreed upon date, and in good condition. The
freight forwarding service utilizes established relationships with carriers of
all kinds, from air freighters and trucking companies, to rail freighters and
ocean liners. Freight forwarding services negotiate the best possible price to
move the product along the most economical route by working out various bids
and choosing the one that best balances speed, cost and reliability.
A freight forwarding service generally provides one or more
estimates to the client along with advisement, when necessary. Considerations
that effect price will range from origin and destination to special
requirements, such as refrigeration or, for example, transport of potentially
hazardous materials. Assuming the client accepts the forwarder's bid, the
freight is readied for shipping. The freight forwarding service then undertakes
the responsibility of arranging the transport from point of origin to
destination.
SERVICES OF FREIGHT FORWARDING
INDUSTRIES
In Freight Forwarding, There are three distinct activities
1.
Freight
Forwarding service
2.
Custom
House Agent (CHA)
3.
Goods
transportation service (GTA)
As required by Finance Act, 1994 as per
Section 66F (3) of bundled service,
the taxability of a bundled service shall
be determined in the following manner, namely:-
If
various elements of such service are naturally bundled in the ordinary course
of business, it shall be treated as provision of the single service WHICH GIVES SUCH BUNDLE ITS ESSENTIAL
CHARACTER;
Examples:
1. Meals
and air/rail travel:
2. Breakfast
and hotel accommodation
3. Boarding
school and education
Explanation:
- “BUNDLED SERVICE” MEANS a bundle
of provisions of various services wherein an element of provision of one
service is combined in an element or elements of provision of any other service
or services.
So it is clarified that
service of Freight
Forwarding service, Custom House Agent (CHA) , Goods transportation service (GTA)
is classified as Freight Forwarding service and all provision of freight
forwarding applies.
OVERVIEW OF PLACE OF PROVISION ON
LOGISTICS INDUSTRY:
Generally, an “intermediary” is a person who arranges
or facilitates a supply of goods, or a provision of service, or both, between
two persons, without material alteration
or further processing. Thus, an intermediary is involved with two supplies
at any one time:
i)
The supply between the principal and the third party; and
ii)
The supply of his own service (agency service) to his principal, for which a
fee or commission is usually charged.
For the purpose of this
rule, an intermediary in respect of goods (such as a commission agent i.e. a
buying or selling agent or a stockbroker) is excluded by definition. Also excluded from this sub-rule is a
person who arranges or facilitates a provision of a service (referred to in the
rules as “the main service”), but provides the main service on his own account.
In order to determine
whether a person is acting as an intermediary or not, the following factors
need to be considered:-
§ Nature and value:
An intermediary cannot alter the
nature or value of the service, the supply of which he facilitates on behalf of
his principal, although the principal may authorize the intermediary to
negotiate a different price. Also, the principal must know the exact value at
which the service is supplied (or obtained) on his behalf, and any discounts
that the intermediary obtains must be passed back to the principal.
§ Separation of value:
The value of an intermediary’s service is invariably
identifiable from the main supply of service that he is arranging. It can
be based on an agreed percentage of the sale or purchase price. Generally, the
amount charged by an agent from his principal is referred to as “commission”.
§ Identity and title:
The service provided by the intermediary on behalf of the principal is clearly identifiable.
In accordance with the
above guiding principles, services provided by the following persons will
qualify as ‘intermediary services’:-
i.
Travel Agent (any mode of travel)
ii. Tour
Operator
iii. Commission
agent for a service [an agent for buying or selling of goods is excluded]
iv. Recovery
Agent
Even in other cases,
wherever a provider of any service acts as an intermediary for another person,
as identified by the guiding principles outlined above, this rule will apply.
Normally, it is expected that the intermediary or agent would have documentary
evidence authorizing him. To act on behalf of the provider of the
‘main service
ILLUSTRATION
A
freight forwarder arranges for export and import shipments. There could be two
possible situations here-one when he acts on his own account, and the other,
when he acts as an intermediary:
When
the freight forwarder acts on his own account
(say, for an export shipment) A freight forwarder provides domestic
transportation within taxable territory (say, from the Exporter’s factory
located in Pune to Mumbai port) as well as international freight service (say,
from Mumbai port to the international destination), under a single contract, on his own account (i.e. he buys-in and sells
fright transport as a principal), and charges a consolidated amount to the exporter. This is a service of
transportation of goods for which the place of supply is the destination of
goods. Since the destination of goods is outside taxable territory, this
service will not attract service tax due
to export of goods. Here, it is presumed that ancillary freight services (i.e.
services ancillary to transportation- loading, unloading, handling etc.) are
“bundled” with the principal service owing to a single contract or a single
price (consideration).On an import shipment with similar conditions, the place
of supply will be in the taxable territory, and so the service tax will be
attracted.
When
the freight forwarder acts as an intermediary:
Where the freight forwarder acts as an intermediary,
the place of provision will be his
location.servicetax will be payable on the services provided by him. However, when he provides a service to an exporter
of goods, the exporter can claim refund of service tax paid under notification
for this purpose.
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Particular
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Prepaid Shipment
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Collect Shipment
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In CASE of Import
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In CASE of Export
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·
Service
–Clearing and Forwarding
·
Service Provider
–Freight Forwarder
·
Place of Provision-Location
of service provider (as intermediary)
·
Value of taxable
service –As per valuation Rule 6(8) of service tax rules ,1994 read with sec 67
of Finance Act,1994,Gross amount of
remuneration or commission i.e. reimbursements
expenses on actual basis not liable to service tax (As decided CASE of Sangamitraservices
Agency June 27,2013, H.C.)
[2014]
43 taxmann.com 363 (Madras)
HIGH
COURT OF MADRAS
Commissioner
of service Tax, Chennai
v.
Sangamitra
services Agency
CHITRA VENKATARAMAN AND K.B.K.
VASUKI, JJ.
C.M.A. NO. 985 OF 2008
JUNE
27, 2013
I. Rule 6 of the service
Tax Rules, 1994 read with sections 65(25) and 67, of the Finance Act, 1994 -
Valuation of taxable service - Inclusion of Reimbursements - Period from
16-10-1998 to 18-4-2006 - As per rule 6(8), value of Clearing and Forwarding
Agent services would gross amount of remuneration or commission (by whatever
name called) paid to such agent by client - Phrase 'by whatever name called'
must necessarily have some link or reference or nature to receipt of
remuneration or commission and, therefore, gross amount referred to in rule
6(8) would apply to receipts of such sum, which would bear character of
remuneration or commission - If a receipt is for reimbursing expenditure
incurred for purpose of providing services, mere act of reimbursement cannot be
regarded as having character of remuneration or commission [Paras 7 to 9] [In
favour of assessee]
II. Rule 6 of the
service Tax Rules, 1994 read with sections 65(25) and 67, of the Finance Act,
1994 - Valuation of taxable services - Inclusion of Reimbursements - Period from
16-10-1998 to 18-4-2006 - Assessee, a clearing and forwarding agent,
reimbursements towards freight, labour, electricity, telephone etc. -
Department included said charges in taxable value - Assessee argued that as per
rule 6(8) of service Tax Rules, 1994, only gross amount of remuneration or
commission constituted value and, therefore, reimbursements were not includible
- HELD : In absence of any material to show understanding between principal and
client that commission was all inclusive, it is difficult to hold that gross
amount of remuneration/commission would nevertheless include expenditure/
incidental charges for running of business - Since revenue's CASE did not rest
on a contention that expenditure incurred has character to fall under
expression 'remuneration or commission', revenue's contention was liable to be
rejected [Paras 7 to 9] [In favour of assessee]
Words and Phrases: 'By
whatever name called' as used generally
Case
Review
CASES
REFERRED TO
N. Senthil Kumar for the
Appellant.
JUDGMENT
Chitra Venkataraman, J. - The Revenue is
on appeal as against the order of the Customs, Excise and service Tax Appellate
Tribunal passed in No.902/07 dated 24.07.2007 raising the following substantial
question of law :—
"1. Whether the decision of Tribunal that
the reimbursable expenses received by the assessee need not be added to the
taxable value related to clearing and forwarding agents service is correct,
when the Rule 6(8) of service Tax Rules, 1994, stipulates that Gross amount of
remuneration or commission should be the taxable value in relation to the
services provided by a Clearing and Forwarding Agent?"
2. Inspite of service
of notice on the assessee, there is no representation either in person or
through counsel. After hearing the learned Standing Counsel for the Revenue and
on going through the records, the present order is passed.
3. The Customs,
Excise and service Tax Appellate Tribunal, as a matter of fact found in this
CASE that various charges, which were alleged by the Revenue, to be includible
in the taxable value of Carrying and Forwarding service were reimbursed by the
principals on the basis of actuals. Those amounts received by the assessee from
the principals as remuneration/commission for service of clearing and
forwarding the goods has been rightly assessed as taxable value and tax paid.
4. It is seen from
the documents placed before this Court that the show cause notice pointed out
that the various charges received by the assessee from the Principal towards
freight, labour, electricity, telephone etc were required to be added to the value
of the taxable service in relation to the services provided by a Clearing and
Forwarding agent of the Principal. The assessee contended that as per Rule 6(8)
of service Tax Rules, 1994, only on the gross amount of remuneration or
commission would be paid to them by their principals for the service of
clearing and forwarding ; since the expenses were incurred by the assessee and
reimbursed to them by their principals for the service of clearing and
forwarding of excisable goods, the same could not enter into the taxable value
under Rule 6(8) of the service Tax Rules, 1994, read with 67 of the Finance
Act, 1994. The assessee further contended that the inclusion of such reimbursed
expenditure was bad in law.
5. In accepting the
CASE of the respondent/assessee, the Customs, Excise and service Tax Appellate
Tribunal referred to the decision rendered by the Tribunal in the CASE of Sri
Sastha Agencies (P.) Ltd. v. Asstt. CCE [2009] 18 STT 31 (Bang. -
CESTAT),
holding that no element other than remuneration received by a Clearing &
Forwarding agent from their principal was to be included in the taxable value
of the service. Thus, the Tribunal allowed the appeal.
6. Aggrieved by this,
the present appeal has been preferred by the Revenue. Learned Standing counsel
appearing for the Revenue submitted that as per the provisions of Rule 6(8) of
service Tax Rules, 1994, the value of taxable service in relation to the
services provided by the Clearing and Forwarding Agent to the client for
rendering services of Clearing and Forwarding operations, in any manner, shall
be deemed to be the gross amount of remuneration or commission (by whatever
name called) paid to such agent by the client, engaging such agent. He further
submitted that considering the charges collected towards freight, labor,
electricity, telephone etc., in connection with clearing and forwarding
services, the same would form part of remuneration / commission.
7. We do not agree with
the said contention. In the absence of any material to show the understanding
between the Principal and the Client that the Commission payable by the
principal was all inclusive, it is difficult to hold that the gross amount of
remuneration/commission would nevertheless include expenditure incurred by the
assessee providing the services; that all incidental charges for running of the
business would also form part of the remuneration or Commission (by whatever
name called). The phrase "by whatever name called" must necessarily
have some link or reference or nature to the receipt of remuneration or
commission. Thus, if a receipt is for reimbursing the expenditure incurred for
the purpose, the mere act of reimbursement, per se, would not justify the contention
of the Revenue that the same, having the character of the remuneration or
commission, deserves to be included in the sum amount of remuneration /
Commission.
8. As per Rule 6(8)
of service Tax Rules, 1994, the gross amount referred to therein would apply to
receipts of such sum, which would bear the character of remuneration or
commission, in that, the said sum is brought under the head
"receipts".
9. As far as the
present CASE is concerned, when the Revenue's CASE does not rest on a
contention that the expenditure incurred has the character to fall under the
expression "remuneration or commission", we have no hesitation in
rejecting the Revenue's contention. Accordingly, the Civil Miscellaneous Appeal
is dismissed. No costs.
*In favour of assessee.
†Arising out of order of
Tribunal inSangamitraservices Agency v. CCE [2008] 12 STT 103
(Chennai - Cestat).
This
is beneficial for company not charge service tax on value of service as decided
in above CASE to reduce unnecessary burden of tax.
NOTIFICATION
FOR CUSTOM HOUSING service
As
per INSTRUCTION F. NO. B 43/1/97-TRU,
DATED 6-6-1997/TRADE NOTICE NO. 5/97-ST, DATED 12-6-1997, MUMBAI
COMMISSIONERATE-I, in CASE of import & export of goods, service of custom house agent is taxable on
service which is performed by CHA. It is clarified that in relation to Custom
House Agent, the service Tax is to be computed only on Gross service charges by
whatever head/nomenclature, billed by the Custom House Agent to the client. It
is informed that the practice obtaining is to show the charges for services as
‘agency commission’, ‘charges’, ‘agency
and attendance charges’ and some similar descriptions. The service tax will
be computed only with reference to such charges. In other words payment made by
CHA on behalf of client, such as statutory
levies (CESS, Custom Duties, Port
Dues, etc.) and various other
reimbursable expenses incurred are not
to be included for computing the service Tax.
So as per bundled service provision all
provision of freight forwarding apply with notification and circular as
notified by central board of excise and custom.
Hence, it may be advisable to split up the
contract into three
i.
Outside India (as an intermediary)
ii.
Ocean freight (actual basis) and
iii.
Services within India
If the contract is split up, as given
blow than taxable part will be only service performed in taxable territory.
|
Reno.
|
Nature
of services
|
Taxability
|
|
1.
|
Commission
received from foreign freight forwarder
|
Taxable
|
|
2.
|
Services provided in
India.
|
Taxable
|
|
3.
|
Ocean
freight (actual basis)
|
Non-Taxable
|
|
4.
|
Outside India (as an
intermediary)
|
Non-Taxable
|
·
Commission
received from foreign freight forwarder-for e.g. Profit share received from
foreign agent or amount received any other nomenclature.
·
Services
provided in India :
Destination
charge in case imports .e.g. delivery order fee, custom
clearance fee, inland haulage charges,Terminal Handling Charges etc.
Origin charges incaseexport
e.g. delivery order fee, custom clearance fee, inland haulage charges, Terminal
Handling Charges etc.
·
Ocean
freight (actual basis)- This should be only actual amount
on which custom duty has been charged by costume authority at the time of
valuation of goods as per valuation rule of Costume Act,1962
·
Outside
India (as an intermediary)-in CASE import ex-work charges
at origin (collect shipment) e.g. Pick up charge at
origin, Ex-Work Charges at origin, Custom Clearance charges at origin, Terminal
Charges at Origin, Seal fees at origin, Booking fees at origin, Warehouse
Charges at Origin
REVERSES CHARGE MECHANISM:
- Governed by Notification No. 30/2012-ST dated 20.06.2012 W.e.f. 1.7.2012
- Liabilities of both the service provider and service receiver are statutory and independent of each other
- Liability cannot be shifted by mutual agreement
- Reverse charge will not apply where the service receiver is located in non-taxable territory
- Reverse charge shall not be applicable if provider of service was liable before 1.7.2012
- service Tax will not be payable by service receiver under reverse charge, if service was provided prior to 1.7.2012, even if payment is made after 30.06.2012
- Credit of tax paid can be availed by service recipient if it is input servicefor him
- The credit of tax paid by the service recipient under partial reverse charge would be available on the basis on the tax payment challan (but invoice required)
- Service provider under RCM may claim refund of tax paid under rule 5(b) of CCR, 2004
NOTIFICATION NO 30/2012
Service where partial reverse charge applicable
·
Manpower
supply
·
Works
contract services
·
Renting
of motor vehicles to carry passenger,
Reverse charge shall be applicable only when following two
Conditions are satisfied –
i.
service receiver is a business entity registered as a
body corporate, and
ii.
service
provider
is any one of the following entities –
a. Individual
b. Hindu undivided family (HUF)
c. Firm (including limited liability
partnerships)
d. Association of persons
If both the above conditions are not satisfied in respect of
these three services, service Tax shall be payable by the service provider in
ordinary course of business.
·
Insurance
business services by agents
·
Goods
transportation by road
·
Legal
services to any business entity located in the taxable territory;
·
Service
provided by non-executive director of company
to company
·
Services
provided by Government/local authority excluding specified services, i.e.,
renting of Immovable property &Service specified in Section 66D of Finance
Act, 1994: -
i.
Service
by the department of post by way of speed post, express parcel post, life
insurance and agency service provided to a person other than a government.
ii. Service in relation to an aircraft or
a vessel inside or outside the port
iii. Transportation of goods or passenger
·
Services
provided by persons located in non-taxable territory to persons located in
taxable in
Territory (Import of Service)
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ReplyDeleteCustoms clearance services in Bangalore | Contract logistics company
The freight forwarder acts as an intermediary between a shipper and various transportation services.
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