The Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the activity of collecting documentation charges, cartage, break bulk charges, spread share charges, handling charges, handling charges, miscellaneous charges, etc. cannot be made liable to Service Tax under the Finance Act, 1994.
The bench further clarified that service tax is not leviable on the services provided by third parties to the client for which the Appellant makes payment and collects the amount from the client.
Appellants are engaged in providing Custom House Agents Services (CHA service). Apart from agency fee, they collect documentation charges, cartage, break bulk charges, spread share charges, handling charges, handling charges, miscellaneous charges, etc. They pay service tax only on the agency fee / management fee and other charges are claimed as reimbursement of expenses.
The department took a stand that the reimbursable expenses are not the actual cost of the said expenses but with substantial mark-up and as such an income for the Appellant. According to them, these expenses are in relation to CHA service and therefore, they have to be included in the taxable value under CHA service and Service Tax is payable on such charges.
As per Regulation 2(c) of the Customs House Agents Licensing Regulations, 2004, Customs House Agent means a person licensed to act as agent for the transaction of any business relating to the entry or departure of conveyances or the import or export of goods at any Customs Station.
After analyzing the above definition, the division bench noted that the activity of the CHA relates to the entry or departure of conveyances or import or export of goods at any Customs station. “Therefore the activity of the CHA is limited to the Customs Station. It cannot extend beyond it.”
In the instant case, the appellants collect air freight for export from the clients, but before collection they pays from his pocket to the Airliner.
The bench opined that ‘this activity relates to transportation from a port in India or from a place in India to any other place in a foreign country. These freight charges cannot be said to be related to the activity of the CHA. In any case, the air freight fee is for a passage beyond India. This service is also not rendered by the CHA. The freight charges collected is for the transportation of the goods and the transportation service is rendered actually by the Airliner and not the CHA.”
Also, considering the breakup of other services, they do not relate to CHA activity at all.
Read the full text of the Order below.
