- Trade notice no. 59/99, dated 4-10-1999, Mumbai Commissionerate
- CBEC section no. 37b order no. 2/1/2002-ST, dated 20-4-2002
- Service tax Circular no. 39/2/2002, dated 20-2-2002
- Circular no. 48/10/2002-ST, dated 13-9-2002
- Circular no. 73/3/2004-ST, dated 5-1-2004
- CBEC Letter F. No. 159/1/2003-CX.4, dated 10-12-2003
- Circular F.No.V/DGST/21(9)/C&F/2/99/10683 dated 6-6-2000
- Trade Notice No. 59/99, dated 4-10-1999, Mumbai Commissionerate-I
Attention of the trade is invited to Trade Notice 2/99/(ST), dated 27-8-1999 of this Commissionerate.
In the case of Laghu Udyog Bharati.Union of India  4 STT 322, the Hon’ble Supreme Court has held that sub-clauses (xii) and (xvii) of rule 2(1)(d) in so far it makes persons other than Clearing and Forwarding agents or person other than Goods Transport Operators as being responsible for collecting Service Tax are ultra vires to Finance Act, 1994.
The Hon’ble Supreme Court has struck down these Rules. It may be noted that sub-clause (xii) relating to service provided by Clearing and Forwarding agent was continued as sub-clause (iii) (in amended form) of rule 2(1)(d) of Service Tax Rules, 1994 vide Notification No. 54/98 ST, dated 7-10-1998 which came into effect from 16-10-1998.
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 and Forwarding agents, in the Budget 1997. However, the said levy was transferred to users, after introduction of sub-clause (xii) under Notification No. 27/97-ST, dated 11-7-1997 effective from 16-7-1997 for Clearing and Forwarding agents, and sub-clause (xvii) of rule 2(1)(d) of Service Tax Rules, under Notification No. 42/97-ST, dated 5-11-1997 with effect from 16-11-1997, in respect of Goods Transport Operators. The effect of these two Notifications making the receivers of Service as being liable to pay the tax has been set at naught by the Hon’ble Supreme Court who have held that the levy of tax from the receiver was illegal.
Consequent upon the above referred judgment, by issuing Notification No. 7/99-ST, dated 23-8-1999 sub-clause (iii) of rule 2(1)(d) of Service Tax Rules, 1994 has been omitted. The new change has to come into force with effect from 1-9-1999.
As per this Notification, Service Tax will be paid by the Clearing and Forwarding agents rendering such services and not by the person engaging such agents i.e., to say that the method of payment of Service Tax by an alternate person other than the person providing the taxable service in respect of Clearing and Forwarding agent has been discontinued w.e.f. 1-9-1999.
It may be noted that the value of taxable service rendered by Clearing and Forwarding agents continues to remain as the gross amount or remuneration or commission (by whatever name called) paid to such agent by the principal or client engaging such agent as provided under sub-rule (8) of rule 6 of the Service Tax Rules, 1994.
The provisions relating to registration, furnishing of returns and assessment as in existence will continue to apply on Clearing and Forwarding agents who will now be liable to pay Service Tax as per section 68(1) of Finance Act, 1994.
Clearing and Forwarding agent has been defined as any person who is engaged in providing any service, either directly or indirectly connected with Clearing and Forwarding operations in any manner to any other person and includes a consigning agent. The taxable service has been defined as any service provided to a client, by Clearing and Forwarding agent in relation to clearing and forwarding operations in any manner. The clearing and forwarding agents are engaged/appointed by manufacturer of goods (both excisable and non-excisable goods) producers and distributors of goods and shall also include such agents appointed for agricultural and mineral goods.
Normally, there is a contract between the principal and the clearing and forwarding agent detailing the terms and conditions and also indicating the commission or remuneration to which the Clearing and Forwarding agent is entitled. A Clearing and Forwarding agent normally undertakes the following activities :
(a) Receiving the goods from the factories or premises of the principal or his agents.
(b) Warehousing these goods.
(c) Receiving despatch orders from the principal.
(d) Arranging despatch of goods as per the directions of the principal by engaging transport on his own or through the authorised transporters of the principal.
(e) Maintaining records of the receipt and despatch of goods and the stock available at the warehouse.
(f) Preparing invoices on behalf of the principal.
Further under the Finance Act, 1997 the value of taxable service rendered by a clearing and forwarding agent has been defined as the gross amount charged by such agent from the client for the services of clearing and forwarding operations in any manner. However, under Service Tax Rules it has been provided that the value of taxable service in relation to services rendered by clearing and forwarding agents to a client shall be deemed to be the gross amount of remuneration or commission (by whatever name called) paid to such agent by the client engaging such agent (Notification No. 27/97-ST refers).
For the services rendered, the Clearing and Forwarding agent receives commission or remuneration which usually consists of two components.—
(i) Minimum commission on a flat rate or turnover basis depending on the packages/consignments handled.
(ii) A variable commission based on performance which is computed on the performance indicators agreed upon between the agent and the principal. This is usually given as a percentage of the turnover.
The above two constitute the remuneration or commission paid to the Clearing and Forwarding agent by the principal.
Where a Clearing and Forwarding agent is providing taxable service from more than one premises or offices and has a centralised accounting system in respect of such service rendered to clients from each such premises or office at any one premise or office, the Commissioner of Central Excise, Mumbai-I may be approached to permit such assessee to register only the premises or office from where such centralised accounting is done. Thus, the Commissioner of Central Excise, Mumbai-I may be approached by such assessee, whose centralized accounting system falls within the jurisdiction of Central Excise, Mumbai-I for registration. The Commissioner, Central Excise, Mumbai-I on being satisfied that such registration shall not be detrimental to the interest of revenue, will grant centralised registration.
- CBEC Section No. 37B Order No. 2/1/2002-ST, dated 20-4-2002
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 and 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 and 2994/2001. The petitions were disposed of by Hon’ble Court with directions to the Central Board of Excise and 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 storage of liquid cargo deposited with them.
- It is observed that, as per section 65 of Finance Act, 1994, ‘Clearing and 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/service of providing storage facility and charging rent, for storage of liquid cargo in tanks, can fall under the category of ‘Clearing and Forwarding’ operations as defined under section 65 of Finance 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 category of clearing 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 premises of the 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 behalf of the Principal. For this service, the C&F agents receives commissions on the basis of agreed terms. Therefore, an essential characteristic of any services, to fall in the category of C&F agent, is that the relationship between the service provider and receiver should be in the nature of principal (owner) and agent. The C&F agent carries out all activities in respect of goodsright from stage of their clearances from the premises of the 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 storage of liquid 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 form of commission. The transactions between the parties are not transactions between principal and an agent but between principal and principal. These agencies are neither receiving any dispatch order from the owners of the goods, nor are they arranging for the despatch of goods 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 rendered by such agencies, in relation to storage of cargo, cannot be considered to be in the nature of “clearing and forwarding” and such agencies cannot be considered as “clearing and forwarding agents”.
- However, under the Finance Act, 2002, “storage and warehousing services for goods including liquids and gases” is proposed to be made to liable to service tax. Section 65(87) of the 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 storage of agricultural produce or any services provided by cold storage. Therefore, as and when these provisions of the Finance Bill come into effect the above types of cases shall be liable to service tax under the head “storage and warehousing”.
- Service Tax Circular No. 39/2/2002, dated 20-2-2002
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.
- 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 and 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 in any manner.
- Normally C&F agents do the job of clearing and forwarding. In a typical situation clearing and 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.
- There is a contract between the principal (owner) and C&F agent detailing the terms and conditions and also indicting the commission or remuneration to which the C&F agent is entitled. Therefore, ICDs/CFS cannot 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 Government of India and not for any principal or owner (importer/exporter).
- 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 11-7-1997, they will also not be considered as C&F Agents.
- Circular No. 48/10/2002-ST, dated 13-9-2002
I am directed to say that doubts have been raised as to whether food grain 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.
- In some cases it has been reported that a food grain agent purchase the grains outright from farmers in auctions. After purchasing the food grains 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.
- 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 F.No. B. 43/7/97-TRU, dated 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.
- In other types 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 food grain and not from the farmer. As per section 75 of the Rajasthan Agricultural Marketing Products Act, 1954the agents or adhatiyas are barred from charging any commission from the farmers.
- 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).
- 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 dated 11-7-1997, they would be considered as Clearing and Forwarding agents and be liable to service tax on their commission.
- Circular No. 73/3/2004-ST, dated 5-1-2004
I am directed to say that under section 65 of Finance Act, 1994 and as brought out by Board’s letter No. F.B.43/7/97-TRU, dated 11-7-1997 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. 48/10/2002-ST, dated 13-9-2002, it has been clarified that Arhatiya’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 Arhatiyas. 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.
- 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 2003and are exempt from Service Tax.
- B.E.&C. Letter F. No. 159/1/2003-CX.4, dated 10-12-2003
Your kind attention is invited towards your representation received by the Board on above cited subject, inquiring as to 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 respective consumers/buyers.
The issue has been examined by the Board and in this regard I am directed to say that of the basis of mode of functioning of Coal Merchants, it has been observed that in terms of definition of Clearing and Forwarding Agents under 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.