1.1 The Querist is a company registered in India offering freight, forwarding and transportation services.

1.2 The Querist has received order from GT GmbH.

Germany (GT) for providing following services in relation to supply of electrical equipment to an Indian company:

• Rail Transport of the Equipment Unit from Factory in Germany to Port of Export in Europe.

• Road Transport of accessories from Factory in Germany to Port of Export in Europe.

• Customs Clearance from EU territory.

• Handling at Port of Export in EU.

• Arrange shipping of all the material from Port of Export in Europe to Indian Port.

1.3 ABCL will appoint sub-contractors to handle the work in foreign territories and make payment for the services received.

1.4 GT will pay ABCL for the entire service on a fixed rate basis per Equipment Set.

1.5 ABCL will invoice GT in EURO Currency and will receive payment in EURO Currency, through bank transfers.

2.1 Is ABCL liable to charge GT Service Tax?

2.2 Is ABCL liable to service tax for import of services, when it uses services of foreign vendors abroad? If yes to above, at what rate and which services?

3.1 From the given facts it appears that ABCL is undertaking multi-model transportation job along with custom clearance and other activities in and outside Indian and Foreign Ports for single consignment. The activities in Foreign Territory will be outsourced to the sub-agent and ABCL will pay for the services provided by them. ABCL will charge to the client on a composite basis for the entire set of services in and outside India. The issues therefore arise as follows:

• Whether the composite job of multi-model transportation, clearing agency, etc. is liable to service tax. If yes, the category of taxable service under which the service provided by ABCL will be covered.

• Whether services provided by ABCL will qualify for export of services and thus exempt from service tax.

• Whether service received from sub-agent will be regarded as import of service and service tax will be payable by ABCL on Reverse Charge basis.

3.2 For applicability of service tax, one has to see if a particular service is covered in any of the category of taxable services (at present 107 services, which will be increased to 115 services after the new services introduced by the Finance Act, 2010 comes into effect). The service tax under Chapter V of The Finance Act, 1994 as amended from time to time (the Act), is a selective levy in India. We therefore need to examine if the nature of service envisaged in the given job fits into any of the criteria of taxable service defined under the Act. For this purpose, we can think of the following categories of taxable services:

• Custom House Agency’s Services (CHA).

• Port Service (including other ports).

• Goods Transport on Road.

• Goods Transport by Rail.

• Business Support Service.

3.3 Each of the above categories touches some component of the composite service envisaged in the question. No separate consideration is provided for any of the component. We may examine the category of CHA service as the Govt. has expressed its views way back in 1997 that the CHA service encompasses all kinds of service envisaged in the query.

3.4 “Custom House Agency’s Services (CHA)”:

The taxable service is defined under section 65(105)(h) of the Act. The definition read as follows,

“Taxable service” means any service provided or to be provided to a client, by a Custom House Agent (CHA) in relation to entry or departure of conveyances or the import or export of goods.

The “Custom House Agent” is defined u/s 65(35) as follows:

“Custom House Agent” means a person licensed, temporarily or otherwise under the regulations made under sub-section (2) of section 146 of the Custom Act, 1962 (52 of 1962).

The CBEC circular clarifies that, “………………… 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 services of loading/unloading of import or export goods from / at the premises of exporter/ importer. The packing weighment, measurement of export of goods, the transportation of export of goods to custom station or the import goods from the custom 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, draw back/DEEC processing, survey/amendment fees, dock fees, repairing and examination charges, landing and container charges, statutory and labour charges, testing fees, drug control formalities, sorting/ making/ stamping on behalf of exporter/importer……………..”.

The said circular goes on to state that, “…………..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………………...”

From the clarification provided by the above stated circular it appears that a composite service of picking up of cargo from the exporter’s premises, loading it in the foreign port by using various modes of transport and shipment, clearing the same at Indian Custom station is covered under CHA’s service.

However, the definition referred to above covers only the services in relation to entry or departure of conveyances or import or export of goods. As per the definition such services therefore should be only undertaken within the Indian ports or Customs Territory. To that extent the CBEC circular may be conflicting with the definition provided in the law and hence, may be regarded as not having force of the Law.

Further, service provided to GT is in the nature of export of service but we may have to examine the Export of Service Rules, 2005 to find whether the impugned service qualifies as export of service under these rules.

3.5 The CHA service is covered in clause (2) of Rule 3 of the Export of Service Rules, 2005. This rule provides that if such service is partly performed outside India and the payment of such service is received by the service provider in convertible foreign exchange, the same is regarded export of service. The controversial condition as to service provided from India and used outside India is done away with from 27-2-2010. In view of this, we have no hesitation in concluding that, if at all the service is regarded as taxable service, under Custom House Agency’s Service, the same is exempt under The Export of Service Rules, 2005.

3.6 O ther Categories

In respect of, other categories of taxable services referred to herein above namely, Port Service [S. (65)(105)(zn)], Transport of Goods by Road (GTA) Service [S. (65)(105)(zzp)] and Transport of Goods by Rail Service [S. (65) (105)(zzzp)], it is clear from the definition of the respective taxable services that they are India centric which means they are provided by Indian Ports or Transport of Goods in a goods carriage covered under Indian Motor Vehicles Act, or by Government Railway or other rail in India, are only covered. The services provided outside India under these categories are outside the scope of the levy.

3.7 Business Support Service

Being a multi-model logistic kind of service we may also consider Business Support Service [S.(65)(105)(zzzq). The definition of Support Service of Business or Commerce runs as follows:

“S. 65(104c) “support services of business or commerce” means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing”.

Explanation.—For the purposes of this clause, the expression “infrastructural support services” includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security;

From the above definition, it appears that the words, “managing distribution and logistics” may be capable to cover the services envisaged in the contract. However, this service is covered in Clause (iii) of Rule (3) of Export of Service Rules, 2005.

From 27-2-2010 rule provides that service in relation to business or commerce if provided to a recipient located outside India and the payment of such service is received in convertible foreign exchange, the same would be regarded as export of service. In  view of this, the impugned service to be provided by the querist would qualify for export of service and thus exempt from service tax.

4. The next question is that whether the service provided by the sub-agencies outside India, namely of rail transport, road transport, custom clearance, port, loading and shipment in foreign port will be regarded as import of service and liable to be taxed in the hands of the recipient (ABCL) under the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 in accordance with 66A of the Finance Act, 1994.

4.1 The aforementioned services are provided only outside India. Firstly, the individual services like CHA Service, Rail and Road Transport Service and Port Service are not covered as they are India centric. Secondly, these services are covered in Cl. (ii) of Rule (3) of Taxation of Services (Provided from Outside India and Received in India), Rules, 2006. As per this rule a service if partly performed in India is to be regarded as import of service. Since, none of the service is performed in India by the sub -agent, the querist would not be liable to tax under these categories.

4.2 In respect of Business Support Service the issue may arise as the same covered under Cl. (iii) of Rule (3) of The Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. As per this rule, the services received by a recipient located in India for use in relation to business or commerce would be regarded as import of service u/s 66A of the Act, and  the recipient would be liable to be taxed under reverse charge mechanism.

5. The querist attention is drawn to the amendment by the Finance Act, 2010 wherein, all taxable services rendered within a port will be liable to tax under port service. This amendment will negate the distinction between CHA and other services provided in port. However, the port service is also covered under sub-rule (ii) of Rule (3) of Export of Service Rules, 2005 and Taxation of Services (Provided from Outside India and Received in India), Rules, 2006. Hence, in our view the amendment will not make any difference in the opinion expressed above.

6. Conclusion: In view of above discussion, we are of the opinion as follows:

6.1 The composite contract of multi-model transportation, shipment and clearing agency to be undertaken by the querist would not be liable to service tax as services to be provided by ABCL would be exempt from service tax under any of the taxable categories as export of service.

6.2 Contract for availing composite service from outside India may be a categorized under Business Support Service and it that case ABCL will be liable to pay service tax under reverse charge mechanism. However, if it is split under different categories of taxable services and the querist can get out of the virus of Rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules 2006, Sec. 66A will have no application.