By TIOL News Service:

NEW DELHI, APRIL 08, 2016: BERCO Undercarriages (India) Pvt. Ltd., the applicant intends to import raw material under International Commercial Terms i.e. Free Carrier (FCA);

1.the applicant proposes to appoint a foreign C & F Agent for necessary support in case of material handling, arranging shipping liners, ocean freight, material clearance both at origin and destination port and other related local transportation etc.;

2. foreign C & F Agent would issue a composite bill / invoice in his respective currency. Applicant states that on said composite bill / invoice, all duties of Customs would be paid.

The question raised by the applicant before the Authority for Advance Ruling is;

While discharging the foreign C & F Agent raised composite bill / invoice liability, which portion of amount will attract Service Tax obligation under reverse charge mechanism?

Revenue has submitted that as far as value of taxable service under C & F Agent for charging Service Tax on importation of service under reverse charge mechanism is concerned, the applicant has to pay Service Tax on the gross value billed by C & F Agent, excluding the expenditure incurred by C & F Agent as ‘pure agent', as defined in Rule 5 (2) of Service Tax (Determination of Value) Rules, 2006.

The applicant submitted that a foreign C & F Agent would be incurring the expenses on behalf of the applicant with respect to freight, insurance, loading, unloading and handling charges of goods, etc. proposed to be imported. Further, all these expenses incurred are included in the valuation of goods as per Section 14 of the Customs Act, 1962 for the purpose of charging Customs duty. Therefore, charging Service Tax on said component would tantamount to double taxation.

Applicant relied upon the judgment of Tribunal in United Shippers Ltd. vs. Commissioner of Central Excise, Thane-II - 2014-TIOL-2500-CESTAT-MUM wherein it was inter alia observed that when the goods are being transported by the barges from the mother vessel to the jetty onshore, that activity is part of the import transaction of bringing the goods into India from a place outside India; that question of rendering any service in respect of such goods by way of cargo handling or otherwise can take place only after the customs transaction is completed; that therefore the levy to Service Tax the transportation by barges from the mother vessel to the jetty on-shore, would not arise at all since the activity is part of the import transaction leviable to import duty. Therefore, this issue was mainly to decide where the customs transaction ends and service transaction begins and was peculiar to circumstances of that case.

However, Tribunal in Shri Atul Kaushik & others vs. Commissioner of Customs (Export), New Delhi - 2015-TIOL-1766-CESTAT-DEL inter alia held that there is no provision warranting exclusion from the assessable value for customs purposes, on the ground that service tax has become chargeable on such license fee under a different statute.

The AAR noted:

The Tribunal has not been consistent on the issue whether Service Tax is chargeable on the component, on which customs duty has been levied.

The Advocate of the applicant candidly admittedly that there is no statute to indicate that if customs duty is chargeable, Service Tax is not leviable on the same component.

Therefore, we do not agree with the applicant on said aspect of double taxation.

The AAR further observed,

As per Notification No. 30/2012-ST dated 20.06.2012, the taxable services provided or agreed to be provided by any person which is located in a non-taxable territory and received by any person located in the taxable territory, is liable to Service Tax and payable 100% by the person receiving the service. In the case before us, foreign C&F Agent would be located outside India and the applicant, who is recipient of service, located in India. The service to be provided is in respect of freight, insurance, loading, unloading and handling charges of goods etc. Therefore, as per Notification No. 30/2012-ST dated 20.06.2012, Service Tax would be payable by the applicant i.e., recipient of service.

As per Rule 5(1) of Service Tax (Determination of Value) Rules, 2006, where any expenditure or costs are incurred by the Service provider in the course of providing service, all such expenditure or costs shall be included in the value for the purpose of charging Service Tax on said service. Further, Rule 5(2) ibid inter alia envisages that the expenditure or costs incurred by the service provider as a pure agent of recipient of service shall be excluded from the value of taxable service, if all the following conditions, are satisfied, namely;

The service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or service procured;

The recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;

The recipient of service is liable to make payment to the third party;

The recipient of service authorizes the service provider to make payment on his behalf;

The recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;

The payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;

The service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and

The goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

Ruling: While discharging foreign C & F Agent raised composite bill / invoice liability under reverse charge, Service Tax is chargeable on said bill / invoice excluding expenditure or costs incurred by C & F Agent as a pure agent, if conditions enumerated in Rule 5 of Service Tax (Determination of Value) Rules, 2006 are met.

(See 2016-TIOL-11-ARA-ST)