- Extracts From Instruction F.No. B43/1/97-TRU, dated 6-6-1997/Trade Notice No. 5/97-ST,dated 12-6-1997, Mumbai Commissionerate-I
- Circular No. 119/13/2009-ST, dated 21-12-2009
- Extracts From Instruction F. No. B43/1/97-TRU, dated 6-6-1997/Trade Notice No. 5/97-St, dated 12-6-1997, Mumbai Commissionerate -I
2.1 The expression ‘Custom House Agent’ has been defined to mean a person licensed, temporarily or otherwise, under the regulations made under sub-section (2) of section 146 of the Customs Act, 1962. A person is permitted to operate as a Custom House Agent, temporarily under regulation 8(1) and permanently under regulation 10, of the Customs House Agents Licensing Regulations, 1984.
2.2 As per the Finance Act, 1997, the taxable service rendered by a Custom House Agent means any service provided to a client by a Custom House Agent in relation to the entry or departure of conveyances or the import or export of goods. The value of taxable service in relation to the service provided by a Custom House Agent to a client has been defined to constitute the gross amount charged by such agent from the client for services rendered in any manner in relation to import or export of goods. The service tax is chargeable at the rate of 5% on the value of the taxable service.
2.3 The services rendered by the Custom House Agent are not merely limited to the clearing of the import and export consignment. The CHA also renders the service of loading/unloading of import or export goods from/at the premises of the exporter/importer, the packing, weighment, measurement of the export goods, the transportation of the export goods to the customs station or the import goods from the customs station to the importer’s premises, carrying out of various statutory and other formalities such as payment of expenses on account of octroi, destuffing pelletisation, terminal handling, fumigation, drawback/DEEC processing, survey/amendment fees, dock fees, repairing and examination charges, landing and container charges, statutory labour charges, testing fees, drug control formalities, sorting/marking/stamping/sealing on behalf of the exporter/importer. The Custom House Agent also incurs various other expenses such as crane/fork lift charges, taxi charges, photostat and fax charges, bank collection charges, courier service charges, and miscellaneous other expenses on account of the exporter/importer. For all the above charges, the CHA is ordinarily reimbursed by the importer/exporter for whom the above services are rendered. Apart from the above charges, the CHA also charges the client for his service under the head/nomenclature of ‘agency and attendance charges’ or similar kind of heads which is purported to be his service charge in respect of the services rendered in relation to the import/export of goods.
2.4 It is clarified that in relation to Custom House Agent, the service tax is to be computed only on the gross service charges by whatever head/nomenclature, billed by the Custom House Agent to the client. It is informed that the practice obtaining is to show the charges for service as ‘agency commission’, ‘charges’, ‘agency and attendance charges’, ‘agency charges’ and some similar descriptions. The service tax will be computed only with reference to such charges. In other words payments made by CHA on behalf of the client, such as statutory levies (cess, customs duties, port dues, etc.) and various other reimbursible expenses incurred are not to be included for computing the service tax.
2.5 In many cases, the Custom House Agent undertakes ‘turnkey’ imports and exports where a lump sum amount is charged from the client for undertaking various services. In these cases, the lump sum amount covers not only the ‘agency commission’ fee but also other expenses and no separate break-up is given in respect of these expenses. It has been decided that in such cases, the value of the taxable service shall be 15% of the lump sum amount charged to the client. The Custom House Agents are required to show the service charges as 15% of such lump sum amount of the bills and service tax of 5% will be chargeable on the above 15%.
2.6 Sometimes, CHAs sub-contract their work to CHAs located in other stations. In such cases, it is possible that the sub-contracting CHA raises the bill on the main CHA who in turn raises the bill to the client. It has been decided that in such cases, the sub-contracting CHA will not be required to pay service tax on the bills raised by him on the main CHA. The service tax will be payable by the CHA who provides the actual service to the client and raises the bill to the client.
2.7 A CHA may have various branch offices located at different stations but all these branch office do not raise the bills and only the main or central office will be raising the bills. In such cases, only the central office should be registered with the department.
2.8 Sometimes, the bills raised by the CHA are not entirely paid by the client and the CHA is forced to give discounts. In such cases where the final bill raised is lower than the initial bill, it may be mentioned that the law provides for claiming of refund of excess service tax paid within six months from the date of payment of tax. If the CHA can produce evidence of having charged less service fee, he may claim refund of excess service tax paid, if any, as per the provisions of law.
- Circular 119/13/2009-ST, dated 21-12-2009
Customs House Agent’s (CHA) Services are taxable since 15th June, 1997. As per the definition [section 65(105)(h) of the Finance Act, 1994] the ‘taxable service’ means any service provided or to be provided to any person, by a custom house agent in relation to the entry or departure of conveyance or the import or the export of goods and the term ‘service provider’ shall be construed accordingly. Further, as per definition appearing under section 65(35) of the aforesaid Act, a ‘custom house agent’ means a person licensed, temporarily or otherwise, under the regulations made under sub-section (2) of section 146 of the Customs Act, 1962. The Custom House Agents Licensing Regulations, 2004, made under the said section, prescribe the procedure for grant of license by the Customs Department. They (regulation No. 13) also place obligations on such license holders during their interface with Customs Department pertaining to customs formalities for conveyance or imported or export goods. In sum, the above provisions read in harmony, show that the activities of a CHA i.e., pertaining to customs formalities in relation to the entry or departure of conveyance or the import or the export of goods, is subjected to service tax under CHA services.
- While the principal job of a CHA is to get the import or export consignments cleared through customs, they, being the ‘persons on the spot’, also at times arrange services for packing, unpacking, loading, unloading, bringing or removing the goods to or from the customs area, vessels or aircrafts for their customers (i.e., importers or exporters). These services are provided by different agencies such as Port Trust, Steamer Agents, Cargo Handlers, Warehouse-keepers, Packers, Goods Transport Agents. Normally the CHAs initially pay the service charges to these agencies and later recover these charges from the customer along with their own charges CHAs. Similar arrangement can occur for payment of statutory levies like Custom Duties, Port charges, Cesses etc., leviable on the said goods.
- Issue was raised at the initial stage itself as to whether the charges, which are said to be paid by the CHAs and later recovered from the customers (i.e., reimbursable charges) should be added to the value for charging service tax from CHAs. Through the Circular F. No. B-43/1/97-TRU, dated 6-6-1997 the Board had clarified that the service tax would be charged on the ‘service charges only’ and statutory levy and other reimbursable charges would not be included in the taxable value. It was also provided that in case there are lump sum payments towards the reimbursable as well as service charges, service tax would be charged on 15 per cent of the gross value only.
- In 2006 (with effect from 19-4-2006) the Service Tax (Determination of Value) Rules were prescribed. Consequently all previous Circulars relating to valuation were withdrawn. The said rules brought in the concept of ‘pure agent’ and provided that expenditure or costs incurred by the service provider as pure agent alone will be eligible for exclusion from taxable value.
- It is reported that disputes have arisen on the issue of inclusion of such reimbursable charges, which are currently pending at various stages of dispute settlement mechanism. Certain field formations have also issued communications, directing that charges on certain activities incurred by CHAs are not covered under exclusions available to ‘pure agent’. It is also reported that divergent practices as regards the records and documentations, are being followed by the CHAs in relation to the charges for receiving services from other service providers as well as to their billings to their customers. This has added to the conflict and litigation.
- With a view to resolve the disputes and to bring it clarity, the issue has been examined. The divergent practices followed at different places and lack of consistency in the manner of maintaining records and issuance of documents by the CHAs, make it impossible to lay down any specific guidelines or issue any specific directions. In the circumstances, it is clarified that essentially, the exclusion should be allowed to such charges from the taxable value of CHA services, where all the following conditions are satisfied,—
(a) The activity/service for which a charge is made, should be in addition to provision of CHA service (as mentioned in paragraph 1);
(b) There should be arrangement between the customer and the CHA which authorizes or allows the CHA to
(i) arrange for such activities/services for the customer; and
(ii) make payments to other service providers on his behalf;
(c) The CHA does not use the activities/services for his own benefit or for the benefit of his other customers;
(d) The CHA recovers the reimbursements on ‘actual’ basis i.e., without any mark up or margin. In case of CHA includes any mark-up or profit margin on any service, then the entire charge (and not the mark-up alone) for that particular activity/service shall be included in the taxable value
(e) CHA should provide evidence to prove nexus between the other (than CHA) services provided and the reimbursable amounts. It is not necessary such evidence should bear the name or address of the customer. Any other evidence like BE No./Container No./BL No./packing lists is acceptable for the establishment of such nexus. Similar would be the case for statutory levies, charges by carriers and custodians, insurance agencies and the like;
(f) Each charge for separate activities/services is to be covered either by a separate invoice or by a separate entry in a common invoice (showing the charges against each entry separately) issued by the CHA to his customer. In the latter case, if certain entries do not satisfy the conditions mentioned herein, the charges against those entries alone should be added back to the taxable value;
(g) Any other miscellaneous or out of pocket expenses charged by the CHA would be includible in the taxable value for the purposes of charging tax on CHA services.
- The conditions mentioned at paragraph 6 would be applicable for services provided with effect from 19th April, 2006, i.e., after the introduction of the valuation rules. For the prior period, the taxable value should be determined in accordance with the prevailing instructions issued by the Board as referred to in foregoing paragraph 3 of this Circular. Any communication issued by any of the subordinate offices which are contrary to the conditions referred to in paragraph 6 of this Circular, or as the case may be, the prevailing Boards Circulars stands superseded to the extent of the contradiction.