Freight Forwarders are persons who are expert in logistic arrangement and are engaged in the business of arranging transportation of goods from one place to another as required by the contractee. Freight forwarders usually contract with one or multiple carriers to undertake such transportation and such carriers can be shipping lines, airlines, GTAs etc. Freight forwarders can provides their services for domestic as well as international shipments.
However, since the Freight forwarders were not themselves undertaking the carriage of goods, often, question was raised whether such freight forwarders were to be considered as principals enagaged to undertake carriage of goods or mere agents of carriers who would undertake actual carriage. In case they undertake their activity as agents, only their commission would be subjected to Service tax in their hands, however, in case they undertake risk and responsibility as carrier, then the entire consideration would be subjected to Service tax.
Vide Circular No. 197/7/2016 – Service Tax dated August 12, 2016, it has been clarified that freight forwarder who merely acts as an agent and bears no ownership towards transportation of goods would be called intermediary and their place of provision shall be determined by Rule 9 of Place of Provision Rules, 2012 as its location. However, if the freight forwarder acts as a principal and undertakes risk for transportation of goods and also raises invoice for such transportation, they are not acting as agent but engage themselves for transportation of goods and shall be covered under Rule 10 of Place of Provision Rules, 2012.
Similar decision was upheld in the case of Greenwich Meridian Logistics (India) (P.) Ltd. [ 69 taxmann.com 100 (Mumbai – CESTAT)], wherein Hon’ble Tribunal held as follows:
12. The appellant takes responsibility for safety of goods and issues a document of title which is a multi-modal bill of lading and commits to delivery at the consignee’s end. To ensure such safe delivery, appellant contracts with carriers, by land, sea or air, without diluting its contractual responsibility to the consignor. Such contracting does not involve a transaction between the shipper and the carrier and the shipper is not privy to the minutiae of such contract for carriage. The appellant often, even in the absence of shippers, contract for space or slots in vessels in anticipation of demand and as a distinct business activity. Such a contract forecloses the allotment of such space by the shipping line or steamer agent with the risk of non-usage of the procured space devolving on the appellant. By no stretch is this assumption of risk within the scope of agency function. Ergo, it is nothing but a principal-to-principal transaction and the freight charges are consideration for space procured from shipping line. Correspondingly, allotment of procured space to shippers at negotiated rates within the total consideration in a multi-modal transportation contract with a consignor is another distinct principal-to-principal transaction. We, therefore, find that freight is paid to the shipping line and freight is collected from client-shippers in two independent transactions.
Having discussed the latest clarification and case, it is pertinent to mention that a straight application of the above discussion without examining in depth the nature of business of freight forwarder can be terminal. Before establishing him as an agent or principal, the services provided by him must be examined in terms of their engagement with customers, shipping lines, nature of invoices issued by them etc.