"Commissioning and Installation Agency"means any agency providing service in relation to commissioning or installation, [Section 65(29)]

Indian Service Tax

Commissioning of Installation Service

Effective date: 1/7/2003

Authority: Notification No. 7/2003-ST, dt. 20/6/2003 (For full text see under "Business Auxiliary Service").

Rate of Service Tax: 8% upto 9/9/2004. 10% from 10/9/2004 - Cess 2% of 10% = 0.2. Total ST = 10.2%."

Definitions

"Commissioning and Installation Agency"means any agency providing service in relation to commissioning or installation, [Section 65(29)]

"Erection, Commissioning or Installation" means any service provided by a commissioning and installation agency in relation to erection, commissioning or installation of plant, machinery or equipment, [Section 65 (39a)]

Taxable Service: Any service provided by commissioning or installation service agency.

Value of Taxable Service: Gross amount charged to a customer. Cost of parts or materials, if any, is excludable.

Exemptions

• See Chapter on "General Exemptions"

• Specific exemptions

• Cost of parts or other materials sold to customers

• Putting up a water tank, piping, electric wiring

• Repairs & maintenance

Person liable to pay: Person/Agency providing services of commissioning or installation.

Head of A/C: Tax Collection 00440233, Other Receipts 00440234, Deduct Refunds 00440235

Question & Answer

Q. Whether commissioning or installation services provided by an individual would be taxable?

Ans. Exemption from payment of Service Tax has been provided for commissioning or installation services provided by a commissioning or installation agency other than a commercial concern. Accordingly, the commissioning or installation services provided by an individual will be exempt from Service Tax.

[Source: Directorate of Publicity and Public Relations, Customs & Central Excise, New Delhi,October, 2003.]

Changes from 10/9/2004

F.No. B2/8/2004-TRU, Date: 10/9/2004

14. Extension of service tax on installation and commissioning, to erection services:

Service tax was levied on commissioning and installation of plant, machinery and equipment w.e.f. 1/7/2003. The general practice is that 'erection, commissioning and installation' are contracted as a composite package. There have been a number of doubts and queries regarding the distinction between erection and commissioning/installation. Erection would refer to the civil works to installation/commissioning of a plant or machinery. In this year's budget, the scope of service tax under installation and commissioning is being extended to include erection also. Erection involves civil works, which would otherwise fall under the category of construction. services. However, in case of a composite contract for erection, commissioning and installation, the erection charges would be taxed as part of this category of service.

Main text of Department Circular/Trade Notice

To be issued [Para 2.6 of Cir.No. 59/8/2003-ST, dated 20/6/2003]

2.6 Commissioning and Installation Services:

Certain doubts have been raised in case of commercial coaching and training. In this regard, the following is clarified -

• In case of commissioning and installation it has been pointed out that in case of turnkey project, the contract may be indivisible and no separate value could be assigned to commissioning or installation of goods. Doubts have also been raised as to what would be the value of taxable service. It is submitted that it has been provided in law that service tax is leviable on erection and commissioning charges only and not on the material and goods supplied. However, it is upto the service provider to show the break-up of commissioning or installation charges. In case service provider shows consolidated charges, service tax would be leviable on such consolidated amount.

• A doubt has been raised as to whether charges for erection of plant are covered under the service tax or only commissioning and installation charges. It is clarified that the law specifically provides for taxation of commissioning and installation of plant, machinery or equipment. Thus all activities other than the commissioning and installation of the plant/machinery/equipmentper se will not be chargeable to service tax.

• Exemption 1 - Clause 151 (c) of Finance Bill, 2003 seeks to amend Section 67 of the said Act so as to clarify that the cost of parts or other materials, if any, sold to the customer during the course of providing maintenance or repair service or the cost of parts or other materials, if any, sold to the customer during the course of providing commissioning or installation services shall not be included while computing the service tax payable.

• Exemption 2 - (Para 2.9.1 of Cir.No. 59/812003-ST, dt. 20/6/2003): In case of authorized service stations, maintenance or repair services, commissioning and installation services and photography services it has been provided in the law that the cost of goods and material shall not form part of the value to be subjected to service tax, if evidence (like sale invoice/bill) shows that these goods were sold. Such dispensation has, however, not been provided for other services like commercial coaching and training centers, telecom services. In this regard, a general exemption under Notification No. 12/2003-service Tax, dated 20th June, 2003 has been issued exempting that part of the value of all taxable services from service tax, which represents the cost of goods or material sold by the service provider to the receiver of such services during the course of provision of the taxable services. This exemption would be available only in cases where the sale of such goods is evidenced and the sale value is quantified and shown separately in the invoice. It is also clarified that in case of commercial training and coaching institutes, the exclusion shall apply only to the sale value of standard textbooks, which are priced. Any study material or written text provided by such institute as a part of service which does not satisfy the above criteria will be subjected to service tax.

Erection, Installation & Commissioning

Cir.No. 79/9/2004-ST, Date: 13/5/2004

Sub: Application of service Tax on activities of Erection and Commissioning

I am directed to draw attention to the Circular No. 49/11/2002 –S.T., dated 18/12/2002, whereby it is clarified that the work of Erection and Commissioning is in the nature of services provided by a “Consulting Engineer” and hance taxable under Service Tax. Also in the year 2003 dated 20^thJune 2003, issued from File No. B-3/7/2003-tru, IT Was clarified that charges for erection of plant would not be covered under the Commissioning and Installation services.

In the light of above conflicting views, several representation have been received in the Board for clarification as to whether

• the charges for erection would be covered under Services Tax or not?

• the Commissioning or Installation services would be covered under Service Tax under Consulting Engineer service effective from 7/7/1997?

• The issue has been examined by the Board in consultation with the Ministryn of Law and Justice and in this regard I am directed to say that charges for erection installation & commissioning are not covered under the category of Consulting Engineer Services. Commissioning or Installation service will be separately taxable under relevant entry and are not chargeable under Consulting Engineer Services. Accordingly, the clarification issued vide the Circular No. 49/11/2002-S.T. dated 18/12/2002 stands modified to this extent.

[Para No.1 of Cir.No. 62/11/2003-ST, dt. 21/8/2003]

Cir.No. 62/11/2003-ST, Date: 21/8/2003

Sub:- Miscellaneous issues relating to the services on which service tax has been imposed with effect from 1/7/2003.

1. Commissioning or installation: 1 Commissioning or installation of plant, ipment or machinery by a commissioning or installation agency, is chargeable to service tax. A doubt has been raised as to whether the services like a plumber putting up a water tank, fitting pipes and tubing, an electrician putting up electric wire and fittings, installation of booster motors, air conditioners, water filt~rs, hand-pumps, water heaters etc. will be chargeable to service tax.

1.2 As commonly understood, the activity of installation means the act of putting an equipment, machinery or plant into its place and making it ready for use. The activity of installation will start after erection which would refer to putting up civil structures. Commissioning of a plant would mean operationalising an installed plant/equipment/machinery. In this backdrop it is clarified that putting up a water tank, piping, electric wiring, in a residential premises etc. would notbe covered in the defination of taxable service and thus would not be taxable. However, installing a booster pump, air-conditioner, water filter, water heater etc. would be covered in the definition and be taxable, as all these things are machinery or equipment.

1.3 Notification No.18/2003-Service Tax dated 21/8/03 has been issued which exempts commission or installation services provided by a commissioning or installation agency other than a commercial concern. Accordingly the commissioning or installation services provided by an individual will be exempt from service tax.

1.4 Notification No. 19/2003-Service Tax dated 21/8/03 has been issued which provides that in case of a contract which involves the commissioning or services alongwith supply of plant, machinery or equpiment, service tax will be payable only on 33% of the gross amount charge for commissioning or installation and supply of plant, machinery or equipment. Service. It is optional for the assessee to avail of this notification. It is emphasized under this notification that the gross amount (33% of which is chargeable to service tax) shall include the value of the plant, machinery, equipment, parts and any other material sold by the service provider alongwith the commission or installation service. The benefit of this notification can be availed for a contract only if the exemption under notification 12/2003 – service Tax dated 20/6/2003 is not availed for that contract.

1.5 Corrigendum to Circular No. 59/8/2003: In Service Tax Circular No.59/8/2003, dated 20th June 2003, in paragraph 2.6

• in the first sentence the words "Commercial Coaching and Training" may be read as "Commissioning or Installation"

• in the first bullet the sentence "It is submitted that it has been provided in law that service tax is leviable on erection and commissioning charges only and not on the material and goods supplied." may be read as "It is clarified that it has been provided in law that service tax is leviable on commissioning or installation charges only and not on the material and goods supplied.

"Vocational Training Institute" means a commercial training or coaching centre

Indian Service Tax

Notifications

Exemption to Commercial Training or Coaching Centre

[Notification No.1 0/2003-ST, dt. 20/6/2003]

In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services provided by a commercial training or coaching centre, in relation to commercial training or coaching, which form an essential part of a course or curriculum of any other institute or establishment, leading to is: uance of any certificate or diploma or degree or educational qualification recognised by law for the time being in force, to any person, from the whole of the service tax leviable thereon under sub-section (2) of section 66 of the said Act:

Provided that this exemption shall not be applicable if the charges for such services are paid by the person undergoing such course or curriculum directly to the commercial training or coaching centre.

2. This notification shall come into force on the 1st day of July, 2003.

Exemption to Vocational & Recreational Training Centre

[Notification No. 24/2004-ST, dt. 10/9/2004]

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services provided in relation to commercial training or coaching, by ­

• a vocational training institute or

• a recreational training institute

to any person, from the whole of the service tax inviable thereon under section 66 of the said Act.

Explanation: For the purposes of this notification,

(i) "Vocational Training Institute" means a commercial training or coaching centre which provides vocational training or coaching that impart skills to enable the trainee to seek employment or undertake self-employment, directly after such training or coaching,

(ii) "Recreational Training Institute" means a commercial training or coaching centre which provides training or coaching relating to recreational activities such as dance, singing, martial arts or hobbies.

"Commercial Training or Coaching" means any training or coaching provided by a commercial training or coaching centre;

Indian Service Tax

Commercial Traininig or Coaching Centre

Effective date: 1/7/2003

Authority: Notification No. 7/2003-ST, dt. 20/6/2003 (For full text see under "Business Auxiliary Service").

Rate of Service Tax: 8% upto 9-92004. 10% from 10/9/2004 - Cess 2% of 10% = 0.2. Total ST = 10.2%.

Definitions

"Commercial Training or Coaching" means any training or coaching provided by a commercial training or coaching centre; [Section 65 (26)]

"Commercial Training or Coaching Centre" means any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field .other than the sports, with or without issuance of a certificate and includes coaching or tutorial classes but does not include preschool coaching and training centre or any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognised by law for the time being in force; [Section 65 (27)]

Taxable Service: Services rendered by a commercial training or coaching centre to any person

Value of Taxable Service: Gross amount charged for providing such taxable service

Exemptions

• See Chapter on "General Exemptions"

• Specific exemptions

• Centre/establishment/institute which issues a certificate/degree/diploma recognised by law even if coaching is provided for competitive examinations

• Pre-schooling upto 9th standard

• Sports

• Individuals going to houses to import coaching/tuition

• Free in housing training provided by employer

Person liable to pay: Commercial training or coaching centre

Head of A/c: Tax collection - 00440229, Other Receipts - 00440230, Deduct Refunds - 00440231.

Questions & Answers

Q. Whether intensive tuition/coaching institutes/group of individuals for various competitive exams/correspondence and foreign degree courses/ spoken language course liable for Service Tax?

Ans. Commercial coaching and training services provided by institutes that prepare applicants for Board examinations and competitive exams, like entrance examinations for IIT, Joint Entrance Exams/Pre-medical Tests, Civil Services Exam, etc. are chargeable to service tax.

However, services in relation to Commercial Coaching and training, provided by:

• Vocational Training Institute

• Computer Training Institute and

• Recreational Training Institute

have been exempted from service tax w.e.f. 1st July, 2003 vide Notification No. 9/2003 Service Tax. Therefore, vocational coaching and training services provided by typing and shorthand institutes, TV/Vehicle repairs training institutes, tailoring institutes, industrial training institutes, foreign language institutes, computer training centres, hobby classes, institutes teaching martial arts, painting, dancing etc., would not be chargeable to Service Tax. This exemption Notification 9/2003-S.T. is effective only up to 29th February 2004.

Q.Whether service tax is leviable on postal/correspondence coaching?

Ans. Service Tax is leviable on any coaching or training provided by an institution on commercial basis. Therefore, the coaching provided by postal means would also be covered under the service tax.

Q. Whether individuals going to houses to impart tuition/coaching would be chargeable to service tax?

Ans. Service tax is on institutions/establishments. Only those service providers are covered under service tax who have some establishment for providing commercial coaching or training.

Thus, individuals providing services at the premises of a service receiver would not be covered under service tax. However, if coaching or training center provides commercial coaching by sending individuals to the premises of service receivers, such services would be chargeable to service tax.

Q. Whether commercial coaching imparted to students of standards 1 to 9 is taxable?

Ans. The coaching imparted to students of standard 1 to 9 is taxable as service tax is applicable on commercial coaching provided by institutes that prepare applicants for Board examination and competitive exams.

Whether commercial coaching provided by institute to the students of degree exams held by universities are chargeable to service tax?

Ans. Yes. The commercial coaching given to t}: students to prepare them to prepare for university degree exam is liable for service tax.

[Source: Directorate of Publicity and Public Relations, Customs & Central Excise, New Delhi, October, 2003].

Changes from 10/9/2004

F.No. B2/8/2004-TRU, Date: 10/9/2004

22. Vocational and Recreational Coaching Institute:

Vocational and recreational training institute have been exempted from service tax. (Refer Notification No. 24/2004-S.T., dated 10/9/2004).

Main text of Department Circular/Trade Notice

[Paras 2.2.1 to 2.2.3 of Circular No. 59/8/2003, dt. 20/6/2003] 2.2 Vocational Training and Coaching Centres:

2.2.1 Commercial coaching and training services provided by institutes that prepare applicants for Board examinations and competitive exams like entrance examinations for Indian Institute of Technology-Joint Entrance Examinations/Pre Medical Tests, Civil Services exams etc. are chargeable to service tax. However, services in relation to commercial coaching and training, provided by ­

• Vocational training institute

• Computer training institute and

• Recreational training institute

have been exempted from service tax w.e.f. 1st July, 2003 vide Notification No.912003-Servtice Tax dated 20th June 2003. Therefore, vocational coaching and training services provided by typing and shorthand institutes, TV/Vehicle repair training institutes, tailoring institutes, industrial training institutes, foreign language institutes, computer-training centers, hobby classes, institutes teaching martial arts, painting, dancing etc would not be chargeable to service tax. This exemption would remain in force upto 29th February 2004.

2.2.2 Institutes like the Institute of Chartered Accountants of India some time hire the services of other institutes to impart some part of training (like language or computer training) to the students undertaking courses for obtaining recognized degrees/diplomas (like Chartered Accountancy) from their institute.

Whereas institutes like the Institute of Chartered Accountants of India will not be chargeable to service tax because they confer qualifications recognized by law, the institutes or centers providing such part of training may be, otherwise under service tax net. Vide notification No. 1O/2003-Service tax dated. 20th June, 2003, exemption has been provided w.e.f. 1st July, 2003 to such services rendered by commercial training or coaching centers from service tax which form an essential part of the course or curriculum leading to issuance of recognized certificate, diploma, degree or any other educational qualification. The exemption is subject to the condition that the receiver of such service (for example, student) makes payment for the entire course or curriculum to the institute or establishment issuing such certificate, diploma etc. and not to the commercial coaching or training center.

2.2.3 Certain doubts have been raised in case of commercial coaching and training. In this regard, the following is clarified ­

• Whether service tax is leviable on postal coaching: It is clarified that service tax is leviable on any coaching or training provided by an institution on commercial basis. Therefore, the coaching provided by postal means would also be covered under the service tax and the charges, including the postal charges collected for rendering this service would be subjected to service tax.

• Whether service tax is leviable on institutes providing commercial coaching in addition to recognized degree courses: Some institutes like colleges, apart from imparting education for obtaining recognized degrees/diploma/certificates, also impart training for competitive examinations, various entrance tests etc. It is clarified that by definition, such institutes or establishments, which issue a certificate, diploma or degree recognized by law, are outside the purview of "commercial training or coaching institute". Thus, even if such institutes or establishments provide training for competitive examinations etc., such services rendered would be outside the scope of service tax.

• Whether individuals going to houses to impart tuition/coaching would be chargeable to service tax: It is clarified that service tax is on institutions/establishments. Therefore, only those service providers are covered under the service tax who have some establishment for providing commercial coaching or training i.e. institutional coaching or training. Thus, individuals providing services at the .premises of a service receiver would not be covered under service tax. However, if coaching or training center provides commercial coaching by sending individuals to the premises of service receivers, such services would be chargeable to tax, as in this case, the individuals are rendering services On behalf of an institution.

• Whether free summer training! in house training provided by employers to their employees are covered under service tax net: It is clarified that in case employers provide any free training themselves, no service tax is chargeable. However if an employer hires an outside commercial coaching or training center for imparting some training to its employees, then the payment made by the said employer to such coaching center will be chargeable to service tax.

Services rendered indirectly connected with clearing and forwarding operations

Indian Service Tax

Notification

Effective date

[Notification No. 26/97-ST, dated 11/07/1997]

In exerciseofthe powers conferred by Section 88ofthe Finance Act, 1997 (26of1997), the Central Government hereby appoints the 16th dayofJuly, 1997, as the date on which the service -tax on taxable service specified in sub-clause (j) and(r) ofclause (41)ofSection 65ofthe Finance Act, 1994 (32 of 1994) shall come into force.

Case Law

Services rendered indirectly connected with clearing and forwarding operations are also covered under the definition - 2002 (145) ELT 222 (Kolkatta - Cegat).

The levy of Service Tax on Goods Transport Operators

Indian Service Tax

Clarifications

Sub:- Service Tax - Clearing & Forwarding Agents and Goods Transport Operators - Supreme Court Judgment in W.P. No. 53/98 in case of M/s. Laghu Udyog Bharati v. U.O.I.

[TN No. 93/99, dated 10/9/1999 of the Madurai Commissionerate)

Further to this office Trade Notice No. 85/99 (4/Service Tax/99), dated 27/8/1999, the following information/guidelines are issued for the convenience of the assessees concerned and the general Trade as well in respect of the above said two services.

• The levy of Service Tax on Goods Transport Operators and Clearing and Forwarding Agents was initially imposed on the Service providers, i.e. Goods Transport Operator and Clearing & Forwarding Agents, in the Budget 1997. However, the said levy was transferred to user, after introduction of sub­rule (xii) under Notification No. 27/97, dated 16/7/1997 for Clearing and Forwarding Agents, and Sub-rule (xvii) of Rule 2( d) of Service Tax Rules under Notification No. 42/97, dated 5/11/1997 in respect of Goods Transport Operators. (Notification Nos. 27/97 and 42/97 were communicated vide this office Trade Notice No. 8, 7/97 (10/Service Tax/97), dated 14/7/1997 and Trade Notice No. 144/97 (18/SerVice Tax/97), dated 11/11/1997 respectively]. The effect of these two notifications making the receivers of Service as being liable to pay the tax has been set at bought by the Hon'ble Supreme Court who have held that the levy of tax from the receiver was illegal. Hence the refund.

• The provisions of Section 11B of the Central Excise Act, 1944 will regulate all the refund claims arising in relation to the Service Tax matters. Therefore, all the assessees Or the persons who intend to file the refund claim In view of the captioned judgment of the Hon'ble Supreme Court are required to file a regular refund claim in Prescribed Form "R". Such refund claims should be filed within 6 months from the date of judgment of Supreme Court which is 27th July, 1999 which would be the relevant date for the purpose.

• All such refund claims, if filed within time, are required to be finalised within 12 weeks from the date of filing and the amount duly worked out and verified should be effectively refunded to the claimant or the consumer welfare fund, as the case may be, within such 12 weeks.

• The Government of India under Notification No. 49/98, dated 2/6/1998 had exempted the levy of Service Tax on Goods Transport Operators, among other enumerated services. Therefore, the refund claims shall not arise in respect of the services received with effect from 2/6/1998, so far ,as, Goods Transport Operators are concerned.

• However, since the said exemption notification does not encompass the services provided by the Clearing & Forwarding Agents, the users of this service have been paying Service Tax, till date. In view of the above judgment of Hon'ble Supreme Court, refund claims ma)f be filed by those who had availed themselves of Clearing and Agents and Goods Transport Operators to be illegal. The Court has only struck down those provisions in the Service Tax Rules, 1994 which had shifted in 1997 the burden of levy and collection of tax from the Service Provider to Service Receiver.

In case of any difficulty or for any clarification you are requested to contact the jurisdictional Superintendent of Central Excise or the Deputy/Assistant Commissioner of Central Excise in charge of Central Excise Divisions or the Service Tax Unit of this office or the undersigned.

Coal Merchants

F.No. 159/1/2003-CX. 4, Date: 10/12/2003

Your kind attention is invited towards your representation received by the Board on above cited subject, inquiring as t6 whether the services of Coal Merchants would be covered under the category of Clearing and Forwarding Agents for applicability of Service Tax? Also it has been informed vide above representation that the Coal Merchants primarily act as buyer's agents and carry out such jobs/assignments as asked for by the respe8tive consumers/buyers.

The issue has been examined by the Board and 1h this regard I am directed to say that on the basis of mode of functioning of coal Merchants, it has been observed that in terms of definition of Clearing and forwarding Agents under the Section 65(25) of Finance Act, 1994 (as amended), functions of Coal Merchants are fully covered and accordingly their services are liable to Service Tax under the category of Clearing and Forwarding Agents. Also in this case it is immaterial as to whether they are working as agents of buyers or sellers, in terms of definition of Clearing and Forwarding Agents as referred.

Foodgrain Agents

Cir.No. 73/3/2004-ST, Date: 5/1/2004

Sub:- Levy of Service Tax under category of Clearing & Forwarding Agents in respect of Adhatiyas.

I am directed to say that under Section 65 of Finance Act, 1994 and as brought out by Board's letter no. EB.43/7/97-TRU. dated 11/7/97 there must exist a relationship of principal and an agent for bringing grain agent in the .ambit of C & F agent of the farmer and in CBEC Circular no. 48/1 O/2002-ST, dated 13/9/2002, it has been clarified that Adhatiya's (Food grain agents) activity do not fall under the scope of Clearing and Forwarding Agents services and hence would not be liable for Service Tax under this category. The circular issued is a general circular and is not with reference to any state or class of Adhatiyas. Even though a bunch of representations received from various trade associations in Maharashtra specifically have misinterpreted the circular to apply only to the State of Rajasthan. In fact reference to. Rajasthan and Section 75 of the Rajasthan Agricultural Marketing Products Act, 1954 is only to explain the situation.

2. Incidentally the activity of grain agent is covered under the 'Commission Agent' falling under the purview of 'Business Auxiliary Services', which has come into force from 1st July, 2003. Commission Agents as per the definition are covered under the Notification No 13/2003- ST dated 20th June 2003 and are exempt from Service Tax.

Foodgrain Commission Agent

Cir. No. 48/10/2002-ST, Date: 13/9/2002

Sub:- Levy of Service Tax on Food Grain Commission Agents under the category of 'Clearing and Forwarding Agents'.

I am directed to say that doubts have been raised as to whether foodgrain Commission Agents would be liable to pay Service tax or not under the category of Clearing and Forwarding Agents (C&F Agents). In some States such agents are also referred to as Adhat Vyaparies or as Adhatiyas.

2. In some cases it has been reported that a foodgrain agent purchase the grains outright from farmers in auctions. After purchasing the foodgrains he carries out certain physical processing such as sieving, winding (cleaning) and blending etc. The grains are then graded according to the quality and sold to retailers against orders.

3. The matter has been examined in the Board. As per the definition of Clearing and Forwarding Agents under Section 65 of the Finance Act, 1994, and as brought out in Board's letter E No. B. 43/7/97-TRU, dt. 11/7/1997, there must exist a relationship of a principal and an agent. In this case since the grain agents actually purchases the goods from the farmer he does not function as an agent of the farmer. He is therefore not a C&F Agent.

4. In other type of cases, particularly relating to Rajasthan, it has been reported that the Grain Agents collect grain from the farmers and sell it to a buyer on terms and conditions dictated by the farmer . The agent collects a Commission (presently 2%) from the buyer of the foodgrain and not from the farmer . As per Section 75 of the Rajasthan Agricultural Marketing Products Act, 1954 the agents or adhatiyas are barred from charging any commission from the farmers.

5. Since in such cases no commission is payable by the farmer to the adhatiyas it cannot be said that the adhatiya is a C&F Agent of the farmer. As per Board's letter dated 11/7/1997 a C&F Agent collects his commission from his principal and in the absence of such a feature he cannot be called a C&F agent of the principal (In some cases it has been reported that the adhatiyas illegally take a cut from the amount payable to the farmer though they are barred from doing so. This cannot be a basis for considering them to be C&F Agents of the farmers. In fact such cases should be reported to the State Govts. for appropriate action).

6. However, in respect of cases where the grain agents legally receive commission from the farmers and satisfy the other conditions mentioned in Board's letter dt. 11/7/97, they would be considered as Clearing and Forwarding agents and be liable to pay service tax on their commission

ICDs/CFs

Cir.No. 39/2/2002-ST, Date: 20/02/2002

Sub:- Service Tax on Clearing & Forwarding Agents ­ Clarification reg.

It has been brought to the notice of the Board, that certain doubts have emerged, whether, Service Tax is leviable on ICDs/CFs dealing with import! export cargo as "C & F agents". In this regard, the matter is clarified as under.

2. As defined under Section 65 (16) of the Finance Act, 1994 "C&F agent" means any person who is engaged in providing any service, either directly or indirectly, connected with the clearing & forwarding operations in any manner to any other person and includes a consignment agent. As per clause (j) to Section 65 (72), taxable service means, any service provided to a client by a clearing and forwarding agent in relation to clearing and forwarding operations III any manner.

3. Normally C & F agents do the job of clearing and forwarding. In a typical situation clearing & forwarding agents are appointed in outstation location by manufacturers or wholesale distributors so that they may clear the goods, store them and then forward the goods according to the instructions of the Principal owner. Thus the person concerned is an agent and an agent is an authorised representative of a named principal owner.

4. There is a contract between the principal (owner) and C&F agent detailing the terms and conditions and also indicating the commission or remuneration to which the C&F agent is entitled. Therefore, ICDs/CFS can not be considered as C&F agents on the following grounds:

(i) There is no agreement or contract between service Provider (ICD/CFS) and Service receiver (importer/exporter);

(ii) ICDs/CFS are functioning under authority of Govt. of India and not for any principal or owner (importer/exporter).

5. It is also clarified that, so far as domestic handling of cargo by the container Depots is concerned, (like CONCOR), their case may be examined separately. If they do not meet the parameters mentioned in Board's letter F.No.B/43/7/97-TRU dated 11/7/97, they will also not be considered as C & F Agents.

Storage of Liquid Cargo

Order No. 2/1/2002-ST, Date: 24/04/2002

Sub:- Providing service of storage facility and charging rent for storage of liquid cargo in tanks - whether liable to service tax as C & F Agents - Regarding.

• In exercise of the powers conferred under Section 37B of the Central Excise Act, 1994 (as made applicable to Service Tax by Section 83 of the Finance Act, 1994), the Central Board of Excise & Customs considers it necessary; for the purposes of uniformity in connection with classification of services, to issue the following instructions.

• Doubts have been raised as to whether service of storage facility and charging rent for storage of liquid cargo in tanks, provided by certain agencies, can be considered as a service provided by 'clearing and forwarding agents' or not.

• This matter was raised by four such agencies before the Mumbai High Court in Writ Petition Nos. 170/2002, 171/2002, 2962/2001 & 2994/2001. The petitions were disposed of by Hon'ble Court with directions to the Central Board of Excise & Customs to pass appropriate speaking clarification/and/or orders after hearing the petitioners.

• The agencies were accordingly heard in the matter on 19th March, 2002 and on 3rd April.

• Views of DGST and concerned Commissioners of Central Excise have also been obtained.

• It is observed that the above agencies are engaged in the activity of providing storage (tanks) facility for liquid cargo which has been imported or is intended for export. They charge rent for storageofliquid cargo deposited with them.

• It is observed that, as per Section 65ofFinance Act, 1994, 'Clearing & 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 persons and includes a consignment Agent". Further, 'taxable service' with respect to C & F Agents means, any service provided to a client by a clearing and forwarding agent in relation to clearing and forwarding operations, in any manner.

• The issue is whether the activity/serviceofproviding storage facility and charging rent, for storageofliquid cargo in tanks, can fall under the categoryof'Clearing and Forwarding' operations as defined under Section 65ofFinance Act, 1994.

• The main point raised by the agencies is that they are not at all rendering any clearing and forwarding services and hence they do not come under the categoryofclearing and forwarding agents. They simply issue Invoices /Bills to their customers' towards storage charges only and for no other charges.

• The matter has been examined. Normally, a C & F agent receives goods from the factories or premisesofthe Principal or his agents, stores these goods, despatches these goods as per orders received from the Principal or owner, arranges transport, etc. for the purpose and prepares invoices on behalfofthe Principal. For this service, the C & F agents receives commissions on the basisofagreed terms. Therefore, an essential characteristicofany services, to fall in the categoryofC & F agent, is that the relationship between the service provider and receiver should be in the natureofprincipal (owner) and agent. The C & F agent carries out all activities in respectofgoods right from stageoftheir clearances from the premisesofthe principal to its storage and delivery to the customers.

• However, in the cases under consideration, the agencies are providing only storage facility for liquid cargo which has been imported or is intended for export. They charge rent for storageofliquid cargo deposited with them. They are not connected with the vessel bringing the goods and are not concerned with customs formalities. They issue invoices to customers towards storage charges and for no other charges. These agencies are not receiving any commission from the principal but only rental for storage facility, whereas a C & F agent's remunerations is in the formofcommission. The transactions between the parties are not transactions between principal and an agent but between principal and principal. These agencies are neither receiving any despatch orders from the ownersofthe goods, nor are they arranging for the despatchofgoods as per their directions by engaging transport, as is done normally by C & F agents. They are also not carrying out any service directly or indirectly in connection with clearing and forwarding operations. Therefore, services renderedbysuch agencies, in relation to storageofcargo, cannot be considered to be in the natureof'clearing and forwarding' and such agencies cannot be considered as "Clearing and Forwarding Agents".

• However, under the Finance Bill,. 2002, "storage and warehousing services for goods including liquids and gases" is proposed to be made to liable to service tax. Section 65(87)ofthe proposed amended Finance Act, 1994, defines "storage and warehousing" to include storage and warehousing services for goods including liquids and gases but does not include any service provided for storageofagricultural produce' or any services provided by cold storage. Therefore, as and when these provisionsofthe Finance Bill come into effect the above typesofcases shall be liable to service tax under the head "storage and warehousing".

Value of taxable service: Gross amount charged by clearing and forwarding agent

Indian Service Tax

Clearing & Forwarding Agent*

Effective Date: 16/07/1997

Authority: Notification No. 26/97-ST, dt. 11/07/1997 (See at the end of this Chapter).

Rate of Service Tax: 8% from 14/5/2003 (5% upto 13/5/2003). 10% from 10/9/2004 - Cess 2% of 10% = 0.2. Total ST = 10.2%.

Definition

"Clearing and Fforwarding 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, [Section 65(25)].

Taxable service: Clearing and forwarding service by a clearing and forwarding agent in relation to clearing and forwarding operations, in any manner.

Value of taxable service: Gross amount charged by clearing and forwarding agent from the client for services of clearing or forwarding operations in any manner.

Exemptions

• See Chapter on "General Exemptions"

• Specific exemptions

• Foodgrain Agent

• ICDs/CFSs

• Separate contract for transportation charges

• Storage of liquid cargo and charging rent

• Wholesalers, distributors

Person liable to pay: Clearing & Forwarding Agent.

Head of Account

SI. Code SCCD Minor-head 004400111 Clearing &Forwarding Agent Services Sub-head 00440011101 Tax Collection 00440045 113 Sub-head 00440011102 Other Receipts 00440046 116 Sub-head 00440011103 Deduct Refunds 00440047 115

Clause 150 of Finance Bill, 2003 seeks to amend restrospectively Section 68 and to insert a new Section 71A in the Finance Act, 1994 from 16/07/1997 to 16/10/1998 to validate the collection of Service Tax from the customer in case of services provided by goods transport operators and Clearing & Forwarding Agents.

Questions & Answers

Q. Who are clearing and forwarding agents?

Ans. Clearing and forwarding agents are those who provide services relating to the clearing and forwarding operations and are engaged/appointed by manufacturer of goods (both excisable and non-excisable), producers and distributors of goods and also include such agents appointed for agricultural and mineral goods.

Q. Who is the person responsible for payment of Service Tax in case of a clearing and forwarding agent?

Ans. As in the case of all other services, the service providers are responsible for payment of Service Tax in respect of clearing and forwarding agents also.

Earlier, it was directed that receivers of the service would be responsible for paying the Service Tax. The same has been held to be invalid by the Hon'ble Supreme Court of India in the case of Mis. Laghu Udyog Bharati and Another Vs. Union of India {1999 (89) ELT.247 (SC)}. Finance Bill 2000 has sought to revalidate earlier position for limited period from 16/07/1997 to 01/08/1998.

Q. What are the types of services provided by clearing and forwarding agents which attract Service Tax?

Ans. The levy of Service Tax will applies to services rendered by clearing and forwarding agents, who undertake, among other things, services of receipt, warehousing, despatch, record maintenance and account of goods on behalf of the principal who appoint or engage such agents.

Normally, there would be a contract between the principal and the clearing and forwarding agent detailing the terms and conditions and also indicating the commission or remuneration to which the C&F agent is entitled. A clearing and forwarding agent normally undertakes the following activities on behalf of a principal:

• Receiving the goods from the factories or premises of the principal or his agents;

• Warehousing these goods

• Receiving despatch orders from the principal

• Arranging despatch of goods as per the directions of the principal by engaging transport on his own or through the authorised transporters of the principal

• maintaining records of the receipt and despatch of goods and the stock available at the warehouse,

Service Tax is payable in respect of the above services.

Q. What is the taxable value of services provides by the clearing and forwarding agents?

Ans: The Service Tax is computed on the gross amount of remuneration or commission paid to the clearing and forwarding agent by the principal engaging such agent.

Under Service Tax Rules, it has been provided that the value of taxable service in relation to services rendered by clearing and forwarding agents to a client shall deemed to be the gross amount of remuneration or commission (by whatever name called) paid to such agent by the client engaging such agent:

For the services rendered, the C&F agent receives commission or remuneration, which usually consists of two components:

(1) Minimum commission on a flat rate or turnover basis depending on the packages/consignments handled, and

(2) A variable commission based on performance which is computed on the performance indicators agreed upon between the agent and the principal.

The above two constitute the remuneration or commission paid to the C & F agent by the principal.

Q. Is the facility of Centralised registration available to company having C&F services in various towns, states, or areas?

Ans: Yes. In cases where C&F agents engaged for various towns, states or areas are paid only by the regional or the head office of the company appointing such agents, for service Tax purposes it would suffice to register only such regional or head offices. In such cases the regional office or the head office, as the case may be, should also be required to give an undertaking to discharge the Service Tax liability.

Q. Whether brokers, through whom factories/persons send their goods direct to the customers, could be covered under the expression C&F agents?

Ans. Yes, If factories or persons are engaging brokers for sending their good engaged in providing any service, either directly or indirectly, connected with directly to their customers, on the basis of orders procured by them, clearing and forwarding operations in any manner to any other person and services rendered by brokers would amount to services provided by a Clearing & Forwarding Agents and would be liable for payment of Service Tax.

Q. Is the tax on service of C & F agents abolished.

Ans. No, the service tax. on C & F agents is not abolished but the manner of collection of the tax has changed, With effect from 1.9.99, the C & F agents themselves have to apply for registration and pay the Service Tax to the Govt. for services rendered to their clients.

Q. What is the value of taxable services in case of 'turn-key' contracts handled by the C & F agents?

Ans. The value of taxable services rendered by a C & F agent is the gross amount charged by such agent from the clients for the services of Clearing & Forwarding operations in any manner, Further, the gross amount means the amount of commission or remuneration received for such services. Therefore, the remuneration received towards 'turn-key' contracts would be chargeable on gross basis.

Q. (a) Whether the "Arhatiya" (commission agent) working in the mandies (such as vegetable mandi, food grain mandi and fruit mandi) who are providing the service with regard to selling the goods on behalf of agriculture producers and getting commission for the same will be covered under the definition of consignment agents or not?

Q. (b) Whether consignment agents are included under the category of clearing & forwarding agents?

Ans: Yes, consignment agents are included under the category of clearing & forwarding agent. The clearing & forwarding agent means any person who is engaged in providing any services either directly or indirectly, connected with the clearing and forwarding operation in any manner to any other persons and includes a consignment agent. Since the consignment agents provide service in respect of clearing & forwarding of a consignment, the services provided by them are chargeable to service tax as C & F agents.

(Authority : S. 65(12) OF Finance Act, 1994) [Source CBEC Website]

Main text of Departmental Circular/TN

F.No. B. 43/7/97-TRU, Date : 11/07/1997

2.1 "Clearing and Forwarding agent" has been defined as "any person who is engaged in providing any service, either directly or indirectly, connected with clearing and forwarding operations in any manner to any other person and includes a consigning agent". The taxable service has been defined as "any service provided to a client, by C&F agent in relation to clearing and forwarding agents are engaged/appointed by manufacturer of goods (both excisable and non-excisable goods).

2.2 Normally, there is a contract between the principal and the clearing and forwarding agent detailing the terms and conditions and also indicating the commission or remuneration to which the C&F agent is entitled. A clearing and Forwarding agent normally undertakes the following activities -

• Receiving the goods from the factories or premises of the principal or his agents,

• Warehousing these goods,

• Receiving despatch orders from the principal,

• Arranging despatch of goods as per the directions of the principal by engaging transport on his own or through the authorised transporters of the principal,

• Maintaining records of the receipt and despatch of goods and the stock available at the warehouse,

• Preparing invoices on behalf of the principal

2.3 It has been decided that the person responsible for collecting the service tax in the case of services rendered by a clearing and forwarding agent shall be the person engaging/appointing a clearing and forwarding agent (Notification No. 26/97-service tax refers). It may be noted that unlike in the case of other service tax levies where the service provider is the person responsible for collecting the service tax, in the case of services rendered by the clearing and forwarding agents the service tax liability shall be discharged by the person availing the service so rendered. In order words, the principal who engages a clearing and forwarding agent is the person responsible for collecting and paying the service tax to the exchequer, Commissioners of Central Excise may therefore take necessary action accordingly and also make this position clear by issue of suitable trade notice.

2.4 Further under the Finance Act, 1997 the value of taxable service rendered by a clearing and forwarding agent has been defined as the gross amount charged by such agents from the client for the services of clearing and forwarding operations in any manner. However, under service Tax rules it has been provided that the value of taxable service in relation to services rendered by clearing and forwarding agents to a client shall deemed to be the gross amount of remuneration or commision (by whatever name called) paid to such agent by the client engaging such agent (Notification No. 27/97-ST refers).

2.5 For their services rendered, the C&F agent receives commission or remuneration which usually consists of two components:

• Minimum commission on a flat rate or turnover basis depending on the packages/consignments handled;

• A variable commission based on performance which is computed on the performance indicators agreed upon between the agent and the principal. This is usually given as a percentage of the turnover.

The above two constitute the remuneration or commission paid to the C&F agent by the principal

2.6 In cases where C&F agents engaged for various towns, states or areas are paid only by the regional or the head office of the company appointing such agents, for service tax purposes it would suffice to register only such regional or head office. In such cases the regional office or the head office, as the case may be, should also be required to give an undertaking to discharge the service tax liability.

taxable services provided. by a practising chartered accountant

Indian Service Tax

Notificatons

Effective date­

[Notification No. 57/98-ST, dated 07/10/1998]

In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services other than of auditing and accounting, provided by a practising chartered accountant, in his professional capacity to a client from the whole of service tax leviable thereon.

2. This notification shall come into force on the 16th day of October, 1998.

Taxable Services

[*Notification No. 59/98-ST, dated 16/10/1998 Amended by Noti. 15/2002-ST, dt. 1/8/2002, 6/2003-ST, dated 14/5/2003J

In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), and in suppression of the notification of Government of India in the Ministry of Finance (Department of Revenue) No. 57/98-Service Tax, dated the 7th October, 1998, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services provided. by a practising chartered accountant, a practising company secretary or a practising cost accountant, in his professional capacity to a client, other than the taxable services relating to

• Accounting and auditing or

• Cost accounting and cost auditing or

• Secretarial auditing or

• Verification of declarations in prescribed forms of compliance's for obtaining a certificate of commencement of business or commencement of other business under Section 149 of the Companies Act, 1956 (1 of 1956) or

• Signing of the annual return of listed companies under Section 161 of the Companies Act, 1956 (1 of 1956) or

• Certification that requirements of Schedule XIII to the Companies Act, 1956 (1 of 1956) have been complied with as regards statutory guidelines for appointment of managerial personnel and payment of managerial remuneration to them without the approval of the Central Government under Section 269 and Schedule XIII, of the Companies Act, 1956 (1 of 1956) or

• Certification of documents to be filed by companies with the Registrar of Companies under the Companies Act, 1956 (1 of 1956) or

• Certification in Form 1 that the whole of the amount remaining unpaid or unclaimed for a period of three years from the date of transfer to the special account under sub-section (1) and sub-section (2) of Section 205A of the Companies Act, 1956 (1 of 1956) has been transferred to the General Revenue' Account of the Central Government under the Companies Unpaid Dividend (Transfer to General Revenue Account of the Central Government) Rules, 1978 or

• Certification of documents under the Exports and Imports Policy (1997 ­ 2002) of the Government of India or

• Certification for exchange control purposes which a practicing chartered accountant can issue as documentary evidence in support pf certain applications under the Foreign Exchange Regular Act, 1973 (46 of 1973) or

• Certification in respect of valuation of instruments or assets as per rule 8A(7) of the Wealth Tax Rules, 1957,

from whole of service tax leviable thereon.

¹[Explanation: Nothing contained in this notification shall apply to the services provided by a practising chartered accountant, a practising company

Ins. by Noti. No. 15 of 2002-S.T, dt. 01.08.2002, w.e.f. 01.08.2002.

secretary or a practising cost accountant which may fall in any other taxable services as defined in clause (105) of Section 65 of the said Act.

Illustration: The service provided by a practising chartered accountant, a practising company secretary or a practising cost accountant in connection with the management of' any organization in any manner or recruitment of manpower in any manner shall be deemed to be the taxable service provided under the category of management consultant or manpower recruitment agency, as the case may be. Therefore no exemption under this notification shall be applicable to such practising chartered accountant, a practising company secretary or a practising cost accountant.]

Case Law

Constitutional validity of service tax on chartered accountants was upheld - 2002 (139) ELT 245 (Mad.).