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".