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2016 (4) TMI 332 - AAR - Service TaxService tax obligation on which portion under reverse charge mechanism - While discharging foreign C & F Agent raised composite bill / invoice liability - Foreign C & F Agent would be incurring the expenses which is to be included in the valuation of goods as per Section 14 of the Customs Act 1962 for the purpose of charging Customs duty on behalf of the applicant with respect to freight insurance loading unloading and handling charges of goods etc. proposed to be imported. Therefore charging Service Tax on said component would tantamount to double taxation. Held that - 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. Therefore 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 ibid are met. - Decided against the appellant
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Authority for Advance Rulings (AAR) are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Service Tax liability on composite bill/invoice raised by foreign C & F Agent under reverse charge mechanism Legal Framework and Precedents: The Finance Act, 1994, and related Service Tax notifications govern the levy of Service Tax. Notification No. 30/2012-ST mandates that taxable services provided by persons located in non-taxable territories (outside India) and received by persons in taxable territories (India) are liable to Service Tax under reverse charge, payable by the recipient. The Tribunal judgments referenced include United Shippers Ltd. vs. Commissioner of Central Excise and Shri Atul Kaushik & others vs. Commissioner of Customs, which provide contrasting views on whether Service Tax is chargeable on components already subject to customs duty. Court's Interpretation and Reasoning: The AAR observed that the foreign C & F Agent is located outside India (a non-taxable territory), and the applicant (recipient) is located in India (taxable territory). Hence, under Notification No. 30/2012-ST, the applicant is liable to pay Service Tax on the services received from the foreign C & F Agent under the reverse charge mechanism. The Authority rejected the applicant's contention that Service Tax should not be charged on components on which customs duty is paid, noting the absence of any statutory provision exempting such components from Service Tax and highlighting inconsistent Tribunal decisions. The Authority held that charging Service Tax on the gross value billed by the C & F Agent, excluding pure agent costs, is consistent with the law. Key Evidence and Findings: The applicant's submission that the foreign C & F Agent's composite bill/invoice includes freight, insurance, loading, unloading, and handling charges, which are part of the customs valuation under Section 14 of the Customs Act, 1962, was considered. The Tribunal's prior rulings were analyzed, but the Authority emphasized that no statute excludes Service Tax liability on these components merely because customs duty is paid. Application of Law to Facts: The Authority applied Notification No. 30/2012-ST and the Service Tax (Determination of Value) Rules, 2006, to conclude that Service Tax is payable by the applicant on the services rendered by the foreign C & F Agent under reverse charge, except for costs incurred as a pure agent. Treatment of Competing Arguments: The applicant argued against double taxation and relied on notifications related to packages and canned software, which the Authority found inapplicable. The applicant also cited the negative list exemption for transportation services under Section 66D(p)(ii), which the Authority distinguished as applicable only to transportation by vessel or aircraft up to the customs station, not to ancillary services provided by the C & F Agent. Conclusion: Service Tax is chargeable under reverse charge on the composite bill/invoice raised by the foreign C & F Agent, excluding expenditures incurred as a pure agent. Issue 2: Exclusion of 'pure agent' expenditure from taxable value under Rule 5 of Service Tax (Determination of Value) Rules, 2006 Legal Framework and Precedents: Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, requires inclusion of all expenditure or costs incurred by the service provider in the value of taxable service. Rule 5(2) provides for exclusion of expenditure or costs incurred as a 'pure agent' of the recipient, subject to eight specific conditions. Court's Interpretation and Reasoning: The Authority carefully examined the conditions under Rule 5(2), which include that the service provider acts on behalf of the recipient, the recipient authorizes payment to third parties, the payment is separately indicated in the invoice, and the service provider recovers only the amount paid to third parties. The Authority held that if the foreign C & F Agent's expenditures such as freight, insurance, loading, unloading, and handling charges satisfy these conditions, these costs should be excluded from the taxable value for Service Tax purposes. Key Evidence and Findings: The applicant's assertion that the foreign C & F Agent incurs these expenses on the applicant's behalf was accepted, provided the conditions of Rule 5(2) are met. The Authority emphasized the necessity of strict compliance with all conditions to qualify as a pure agent. Application of Law to Facts: The Authority ruled that the pure agent expenditure incurred by the foreign C & F Agent would be excluded from the composite invoice value for Service Tax calculation if all Rule 5(2) conditions are fulfilled. Treatment of Competing Arguments: No significant competing arguments were raised against the applicability of Rule 5(2). The Authority's ruling aligns with the statutory framework. Conclusion: Expenditure incurred by the foreign C & F Agent as a pure agent, meeting the conditions of Rule 5(2), shall be excluded from the value of taxable service for Service Tax purposes. Issue 3: Applicability of negative list exemption on transportation services under Section 66D(p)(ii) of the Finance Act, 1994 Legal Framework and Precedents: Section 66D(p)(ii) exempts services by way of transportation of goods by an aircraft or vessel from a place outside India up to the customs station of clearance in India from Service Tax. Court's Interpretation and Reasoning: The Authority acknowledged this exemption but clarified that it applies only to the transportation service itself and not to ancillary services such as freight handling, insurance, loading, unloading, and other services provided by the C & F Agent. Therefore, while transportation by vessel or aircraft up to customs clearance is exempt, the composite services of the foreign C & F Agent are liable to Service Tax, subject to the pure agent exclusion. Key Evidence and Findings: The applicant's reliance on the negative list exemption was considered but found inapplicable to the entire composite bill/invoice raised by the C & F Agent. Application of Law to Facts: The exemption under Section 66D(p)(ii) was held to apply only to the transportation component, not to the full range of services rendered by the foreign C & F Agent. Treatment of Competing Arguments: The Authority distinguished the exemption from the broader scope of services provided by the foreign C & F Agent. Conclusion: Transportation of goods by vessel or aircraft up to customs clearance is exempt from Service Tax, but other services provided by the foreign C & F Agent are taxable under reverse charge. Issue 4: Applicability of Notifications No. 34/2012-ST and No. 31/2010-Cus Legal Framework: Notification No. 34/2012-ST and Notification No. 31/2010-Cus pertain to specific categories such as packages or canned software. Court's Interpretation and Reasoning: The Authority found these notifications irrelevant to the issue at hand, which concerns import-related services and the composite bill of a foreign C & F Agent. Conclusion: These notifications do not apply to the present case and issue. 3. SIGNIFICANT HOLDINGS The Authority for Advance Rulings held:
Core principles established include:
Final determinations:
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