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M/s Global Transportation Services Private Limited Versus Commissioner of Service Tax, Mumbai

2016 (9) TMI 291 - AUTHORITY FOR ADVANCE RULINGS

Taxability of services provided in relation to outbound shipment and inbound shipment – freight margin - Rule 2(f), Rule 9(c), Rule 10 of Place of Provision (POP) Rules, 2012 - scope of the term Intermediary – M/S Global Transportation Services Private Limited (hereinafter also referred to as applicant seeks to provide logistics solutions to its customers, comprising of number of services, which are mutually exclusive and can be provided on a standalone basis. - Held that: - In the case before u .....

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vision of said service will not be location of service provider. - Place of provision of service of transportation of goods shall be the place of destination of the goods, as per Rule 10 of POP Rules. In the case of outbound shipment destination of goods shall be outside India. Therefore, place of provision of service of outbound shipment shall be outside India - no Service Tax on freight margin recovered by the applicant from the customer. - Inbound shipment – Held that: - upto 31-5-201 .....

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activities of the applicant are mutually exclusive and can be provided on standalone basis – service provided does not come under bundled service. - Transportation of goods by aircraft and vessel - Section 66D of the Act – Held that: - section 66D negative list existed prior to 1-6-2016. From 1-6-2016 negative list entry withdrawn. - CENVAT credit – input services – Held that – no service tax leviable on applicant – no question of CENVAT credit. - Ruling No. AAR/ST-1/ 23 /2016, Appli .....

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ndalone basis. The applicant will sell and bill the customer separately for each of the service availed. For rendition of such services, applicant seeks to enter into service agreements with various service providers on a principal to principal basis and not as an agent of its customer. Applicant submits that in his proposed business model, the various stages of consignment shall be distributed inter-se services providers in the following manner. Outbound Shipments Stage Service Provider engaged .....

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ad Freight Partner Air/Ocean Freight Freight Partner Loading/Unloading in India Applicant Customs Clearance in India Customs House Agent Local Transportation in India by road Goods Transport Agency 2. Applicant shall contract with an IATA member airline for transportation of consignment; the airline shall issue an Airway Bill (Awb) to the applicant. Awb shall govern the terms of contract for transportation of cargo between the airline and the applicant on a principal to principal basis. Further, .....

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use Airways Bill ( House Awb ) upon its customer, i.e. the original consignor, as the shipper. The applicant s customer shall have independent access to contractual remedies and rights available under the Carriage Act and the Montreal Convention against the applicant. 3. Applicant shall also, inter-alia enter into reciprocal freight business arrangements with freight forwarders in other jurisdictions to conduct loading, unloading, customers clearance, local transportation at designation ( Freigh .....

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on principal to principal basis and service rates shall be determined on arm s length basis; Iv The applicant shall invoice Freight Partner for delivery of consignment in India and vice-versa; v Applicant shall intimate the Freight Partner of the port of delivery and the delivery address and the Freight Partner shall undertake to effectuate actual delivery, including complying with custom and statutory formalities in the particular jurisdiction for clearance of the consignment and vice-versa; vi .....

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otiate their charges for the consignment proposed to be undertaken. Applicant shall then communicate the fee quote to its customer, with charges for each and every activity undertaken by the applicant specifically bifurcated. Further, the applicant s customer shall have no right over the disposition of the right to avail service procured by the applicant from the particular service provider. Applicant shall be separately and legally bound to conduct the carriage of the customer s cargo in terms .....

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ase of international freight, the differential amount being the freight margin. Therefore, there may be situations wherein the applicant ends up making a loss to retain a customer when the cost of execution of the shipment through the carrier has escalated more than the fee charged form the customer. 5. During the personal hearing on 01.07.2016, applicant made an oral plea that there was an unintended error in question B raised by them and transportation of goods by air be read as transportation .....

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Partner in an inbound shipment exempt from levy of service tax under the Act in light of the exemption provided to transportation of goods by aircraft and vessel under Section 66 D of the Act as same is service by way of transportation of goods by air or sea from a place outside India into Indian Customs area. C. Without prejudice, whether the applicant is liable to discharge service tax liability on or only on the amount of differential freight margin retained by the applicant in case of both .....

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the gross amount received. It is further submitted that the main service of transportation of goods is provided by the Airlines/Shipping Agency and not by the applicant; that applicant at most can said to be the person, who arranges or facilitates a provision of service which is the main service of transportation of goods. Further, applicant said to recover only the freight margin from the customers as provider of intermediary service as defined under Rule 2(f) of POP Rules and the POP is deter .....

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al freight in respect of export of goods is exempted from levy of Service Tax; that if any margin is earned by the applicant by providing services as intermediary, Service Tax is leviable on the amount earned as commission or margin. In short, Revenue has raised 2 issues in respect of subject application, both in respect of inbound shipment and outbound shipment. First is that freight margin recovered by the applicant from the customers is in respect of intermediary service in terms of Rule 9 (c .....

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) of POP Rules. Rules 9 (c) of said Rules inter-alia states that the place of provision of intermediary services shall be the location of the service provider. Intermediary is defined in terms of Rule 2(f) ibid and means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of a service (called main service) or supply of goods, between two or more person, but does not include a person who provides the main service or supplies the goods on his ac .....

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r, it does not imply that the applicant contracts with the airline on behalf of its customer as an intermediary. In the present case, the airline issues the Awb upon the applicant who adorns the role of a consignor . In case of damage or destruction of cargo, the applicant shall have an independent right of recover of damages against the airline. Similarly, the customer shall also have a right to recover damages from the applicant in such a scenario. Therefore, agreement between applicant and ai .....

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l relations with the others. In this case the forwarder is under the usual duties of an agent, unless they are modified by his contract with the customer. In particular, he is accountable to him, but, as will be seen, this duty is usually qualified by the trading conditions of the forwarder. If the forwarder acts as a principal, he enters into a contract of services with the customer. He is the only person with whom the customer is in contractual relations, even though the actual services which .....

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e exclusion clause i.e. provides the main service- inbound and outbound shipment on his own account in terms of Rule 2(f) of POP Rules and thus not covered under Rule 9 ( c) ibid as intermediary service. Therefore, place of provision of said service will not be location of service provider. 10. Revenue submits that the main service of transportation of goods is provided by the Airlines /Shipping Agency and not by the applicant. Therefore, Rule 10 of POP Rules will not be applicable in respect of .....

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nce of specific exclusion, services provided by the applicant cannot be excluded from the scope of Rule 10 of POP Rules. 11. Second issue raised by the Revenue is that the service provided by the applicant is single indivisible bundled service in terms of Section 66 F of the Finance Act, 1994. Explanation to Section 66 F inter-alia states that the expression bundled service means a bundle of provision of various services wherein an element of provision of one service is combined with an element .....

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in; international air / ocean freight; loading, unloading and handling services at destination and customs clearance at destination. On the other hand, Revenue has not given any reason as to how these services are single indivisible bundled service, especially when the applicant is discharging liability towards Service Tax on each and every above referred service except international air / ocean freight. In the absence of any tangible ground, it is incorrect on the part of Revenue to state that .....

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eight margin recovered by the applicant from the customer. 13. As far as inbound shipment is concerned, it is noticed that Section 66 D (p) (ii) of Finance Act, 1994, as it existed prior to 01/06/2016 read as under: 66 D Negative list of services The negative list shall comprise of the following services, namely:- (p) services by way of transportation of goods - (ii) by an aircraft or a vessel from a place outside India to the customs station of clearance in India; 14. In view of said Section 66 .....

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