St Anuprungta C&f
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V inay Kumar Shr af f FCA, AICWA, ACS, DISA(ICAI), Adv. Dip. in Mgt. Acctg. (CIMA- London) 52 Weston Street 5th Floor KOLKATA – 700 012 PHONE: 22259194 (O), 98300 61359 (M) e-mail: [email protected]
Querist : New Mount Trading & Investment Co. Ltd. Query : Querist has been appointed as Carrying and Forwarding Agents for packed lubricants of Indian Oil Corporation Ltd. with all infrastructure facilities, statutory/safety requirements, handling, storage, documentation, communication system, TDM software etc. For the above services querist will be paid charges under following three different categories:a) Charges for infrastructure facilities including land, warehouse, storage system, handling equipments, statutory approvals etc. b) Service Charges including handling ,documentation, transportation c) Service charges excluding transportation but including handling, documentation etc. where product upliftment is by IOCL customers directly ex CFA warehouse The issue is whether service tax is leviable on the above charges? Opinion: In order to analyze the applicability of service tax on above charges, we need to understand the scope of service tax under the head Clearing and Forwarding agent services and whether any of the above charges can be excluded from the taxable value of services. Further we need to analyze that even if any of the above charges are not includible in the taxable value of services for the purpose of clearing and forwarding services than whether such charges can attract service tax under any other head. First let us analyze the scope and value of taxable services under the head Clearing and Forwarding services. As per section 65(25) of the Finance Act, 1994 “Clearing and Forwarding Agent” means any person who is engaged in providing any service, either directly or indirectly, connected with the clearing and forwarding operations in any manner to any other person and includes a consignment agent. As per Rule 6(8) of the Service Tax Rules, 1994 The value of the taxable service in relation to the services provided by a clearing and forwarding agent to a 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.] The Tribunal in the case of M/s. Prabhat Zarda Factory (India) Ltd. v. Commissioner of Central Excise, Patna, 2002 (145) E.L.T. 222, considered the definition of clearing and forwarding agent and has held that such definition was very wide and includes any services, even provided indirectly. The Tribunal under the said judgment has observed that as per definition of clearing and forwarding agent, he is a person who is engaged for providing any service, either directly or indirectly connected with clearing and forwarding operations in any manner to any other person and includes a commission agent. The use of the expression “any” and “indirectly” in the said definition of clearing and forwarding agent, is indicative of the fact that the scope of the services to be
V inay Kumar Shr af f FCA, AICWA, ACS, DISA(ICAI), Adv. Dip. in Mgt. Acctg. (CIMA- London) 52 Weston Street 5th Floor KOLKATA – 700 012 PHONE: 22259194 (O), 98300 61359 (M) e-mail: [email protected]
provided by clearing and forwarding agent is quite wide. He is not only the person who is actually dealing with the goods, which has to be termed as clearing and forwarding agent, but even if the services are indirect and if the same are connected with the clearing and forwarding operations in any manner of the other persons, he would be covered within the scope of the said definition. Similar view regarding the scope of services was taken in the case of Coal Handlers Pvt. Ltd. Vs. Commissioner Of Central Excise, Kolkata-I -2004 (171) E.L.T. 191 (Tri. Kolkata). In light of the above judgments clarifying the scope of services, all the services provided relating to infrastructure facilities, statutory/safety requirements, handling, storage, documentation, communication system, TDM software etc. are directly or indirectly in relation to clearing and forwarding operations. Hence all the above charges should be considered as gross remuneration for the purpose of valuation of service tax. However it should be noted that it was decided in case of E.V. Mathai & Co. – 2003(157) E.L.T. 101 9Tri-Bang.) that in case separate contracts are entered for services rendered as C&F agents and that in respect of transportation charges and separate bills are raised than service tax is leviable only on remuneration for services provided as C&F Agents and not on transportation charges. Hence in light of the above judgment it should be examined whether it is possible to bifurcate the contract for services rendered as C&F agents and that in respect of transportation charges and separate bills are raised. Even though I have opined that service tax is leviable on all the above charges but for argument sake, a view is taken that service tax should not be leviable on charges for infrastructure facilities including land, warehouse, storage system, handling equipments, as the these charges are not commission or remunerarion for clearing and forwarding services and are merely in the nature of rent than whether service tax can be made leviable under any other head. Storage and warehouse services provided by a storage and warehouse keeper in relation to storage of goods has been subjected to service tax with effect from 16-8-2002. It was clarified by CBEC vide circular no M.F. (D.R.) F.No. B11/1/2002-TRU, dated 1-8-2002 that mere renting of space cannot be said to be in the nature of service provided for storage and warehousing of goods. However it will be covered if the storage keeper provides for security of goods, stacking, loading/unloading of goods in the storage area. Hence even if we exclude charges for infrastructure facilities from the scope of services under the head clearing and forwarding services, it will be covered under the head Storage and warehouse services. Now even though issue has not been raised in the query but I consider it necessary to clarify that person making payment towards freight would be liable to pay service tax in
V inay Kumar Shr af f FCA, AICWA, ACS, DISA(ICAI), Adv. Dip. in Mgt. Acctg. (CIMA- London) 52 Weston Street 5th Floor KOLKATA – 700 012 PHONE: 22259194 (O), 98300 61359 (M) e-mail: [email protected]
respect of transport of goods by road on 25% of the value of amount charged by Goods Transport Agency. Hence querist will be required to pay service tax on freight paid for transportation of goods to the customer on 25% of the value of amount charged by Goods Transport Agency in addition to the service tax paid as clearing and forwarding agents on all the charges recovered from IOCL. To clarify further querist will be required to take registration for clearing and forwarding services and also for transportation of goods. It is also necessary to clarify that service tax paid on 25% of the value of amount charged by Goods Transport Agency will allowed as cenvat credit, as per Cenvat Credit Rules, 2004, in respect of liability to pay tax on clearing and forwarding service. Further service tax paid on any other services used for providing service of clearing and forwarding operations will be allowed as cenvat credit as per Cenvat Credit Rules, 2004. To illustrate it further querist may be using the services of courier, telephone, insurance, security agency, chartered accountant, Banking, Maintenance and Repair, Travel Agent etc. in relation to providing the services of clearing and forwarding operations. The service tax charged by such service provider in their bill will be utilised for payment of liability on clearing and forwarding service. For e.g. in a particular month Rs. 50000/- is the liability for payment of service tax on clearing and forwarding service. Rs. 5000/- is paid towards the liability for freight paid on transport of goods. Rs. 5000/- is charged by courier, telephone, insurance, security agency, chartered accountant, Banking, Maintenance and Repair, Travel Agent etc. in relation to providing the services of clearing and forwarding operations in that particular month. The querist will be required to pay only Rs. 40000/- to treasury of the Government of India for their liability towards payment of service tax on clearing and forwarding service.
Querist : New Mount Trading & Investment Co. Ltd. Query : Querist has been appointed as Carrying and Forwarding Agents for packed lubricants of Indian Oil Corporation Ltd. with all infrastructure facilities, statutory/safety requirements, handling, storage, documentation, communication system, TDM software etc. For the above services querist will be paid charges under following three different categories:a) Charges for infrastructure facilities including land, warehouse, storage system, handling equipments, statutory approvals etc. b) Service Charges including handling ,documentation, transportation c) Service charges excluding transportation but including handling, documentation etc. where product upliftment is by IOCL customers directly ex CFA warehouse The issue is whether service tax is leviable on the above charges? Opinion: In order to analyze the applicability of service tax on above charges, we need to understand the scope of service tax under the head Clearing and Forwarding agent services and whether any of the above charges can be excluded from the taxable value of services. Further we need to analyze that even if any of the above charges are not includible in the taxable value of services for the purpose of clearing and forwarding services than whether such charges can attract service tax under any other head. First let us analyze the scope and value of taxable services under the head Clearing and Forwarding services. As per section 65(25) of the Finance Act, 1994 “Clearing and Forwarding Agent” means any person who is engaged in providing any service, either directly or indirectly, connected with the clearing and forwarding operations in any manner to any other person and includes a consignment agent. As per Rule 6(8) of the Service Tax Rules, 1994 The value of the taxable service in relation to the services provided by a clearing and forwarding agent to a 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.] The Tribunal in the case of M/s. Prabhat Zarda Factory (India) Ltd. v. Commissioner of Central Excise, Patna, 2002 (145) E.L.T. 222, considered the definition of clearing and forwarding agent and has held that such definition was very wide and includes any services, even provided indirectly. The Tribunal under the said judgment has observed that as per definition of clearing and forwarding agent, he is a person who is engaged for providing any service, either directly or indirectly connected with clearing and forwarding operations in any manner to any other person and includes a commission agent. The use of the expression “any” and “indirectly” in the said definition of clearing and forwarding agent, is indicative of the fact that the scope of the services to be
V inay Kumar Shr af f FCA, AICWA, ACS, DISA(ICAI), Adv. Dip. in Mgt. Acctg. (CIMA- London) 52 Weston Street 5th Floor KOLKATA – 700 012 PHONE: 22259194 (O), 98300 61359 (M) e-mail: [email protected]
provided by clearing and forwarding agent is quite wide. He is not only the person who is actually dealing with the goods, which has to be termed as clearing and forwarding agent, but even if the services are indirect and if the same are connected with the clearing and forwarding operations in any manner of the other persons, he would be covered within the scope of the said definition. Similar view regarding the scope of services was taken in the case of Coal Handlers Pvt. Ltd. Vs. Commissioner Of Central Excise, Kolkata-I -2004 (171) E.L.T. 191 (Tri. Kolkata). In light of the above judgments clarifying the scope of services, all the services provided relating to infrastructure facilities, statutory/safety requirements, handling, storage, documentation, communication system, TDM software etc. are directly or indirectly in relation to clearing and forwarding operations. Hence all the above charges should be considered as gross remuneration for the purpose of valuation of service tax. However it should be noted that it was decided in case of E.V. Mathai & Co. – 2003(157) E.L.T. 101 9Tri-Bang.) that in case separate contracts are entered for services rendered as C&F agents and that in respect of transportation charges and separate bills are raised than service tax is leviable only on remuneration for services provided as C&F Agents and not on transportation charges. Hence in light of the above judgment it should be examined whether it is possible to bifurcate the contract for services rendered as C&F agents and that in respect of transportation charges and separate bills are raised. Even though I have opined that service tax is leviable on all the above charges but for argument sake, a view is taken that service tax should not be leviable on charges for infrastructure facilities including land, warehouse, storage system, handling equipments, as the these charges are not commission or remunerarion for clearing and forwarding services and are merely in the nature of rent than whether service tax can be made leviable under any other head. Storage and warehouse services provided by a storage and warehouse keeper in relation to storage of goods has been subjected to service tax with effect from 16-8-2002. It was clarified by CBEC vide circular no M.F. (D.R.) F.No. B11/1/2002-TRU, dated 1-8-2002 that mere renting of space cannot be said to be in the nature of service provided for storage and warehousing of goods. However it will be covered if the storage keeper provides for security of goods, stacking, loading/unloading of goods in the storage area. Hence even if we exclude charges for infrastructure facilities from the scope of services under the head clearing and forwarding services, it will be covered under the head Storage and warehouse services. Now even though issue has not been raised in the query but I consider it necessary to clarify that person making payment towards freight would be liable to pay service tax in
V inay Kumar Shr af f FCA, AICWA, ACS, DISA(ICAI), Adv. Dip. in Mgt. Acctg. (CIMA- London) 52 Weston Street 5th Floor KOLKATA – 700 012 PHONE: 22259194 (O), 98300 61359 (M) e-mail: [email protected]
respect of transport of goods by road on 25% of the value of amount charged by Goods Transport Agency. Hence querist will be required to pay service tax on freight paid for transportation of goods to the customer on 25% of the value of amount charged by Goods Transport Agency in addition to the service tax paid as clearing and forwarding agents on all the charges recovered from IOCL. To clarify further querist will be required to take registration for clearing and forwarding services and also for transportation of goods. It is also necessary to clarify that service tax paid on 25% of the value of amount charged by Goods Transport Agency will allowed as cenvat credit, as per Cenvat Credit Rules, 2004, in respect of liability to pay tax on clearing and forwarding service. Further service tax paid on any other services used for providing service of clearing and forwarding operations will be allowed as cenvat credit as per Cenvat Credit Rules, 2004. To illustrate it further querist may be using the services of courier, telephone, insurance, security agency, chartered accountant, Banking, Maintenance and Repair, Travel Agent etc. in relation to providing the services of clearing and forwarding operations. The service tax charged by such service provider in their bill will be utilised for payment of liability on clearing and forwarding service. For e.g. in a particular month Rs. 50000/- is the liability for payment of service tax on clearing and forwarding service. Rs. 5000/- is paid towards the liability for freight paid on transport of goods. Rs. 5000/- is charged by courier, telephone, insurance, security agency, chartered accountant, Banking, Maintenance and Repair, Travel Agent etc. in relation to providing the services of clearing and forwarding operations in that particular month. The querist will be required to pay only Rs. 40000/- to treasury of the Government of India for their liability towards payment of service tax on clearing and forwarding service.
