The Hindu Business Line : Terminal handling charges

Exporters engage clearing and forwarding (C&F) agents. The agents, in turn, engage shipping lines. The shipping lines receive containers at the container yard (CY), transport to/from the vessel, load/discharge to/from the vessel, undertake ancillary functions such as survey, etc., for exporters, recovering these costs through terminal handling charges.

Shipping lines also undertake to transport containers inland, by arranging such transportation through service providers, recovering the costs from exporters through inland haulage. Shipping lines are of the opinion that such terminal handling charges and inland haulage would fall under the purview of business support services.

Section 65 can be invoked under the term `managing, distribution and logistics'. Accordingly, w.e.f. June 6, 2006, they are levying service tax @ 12.24 per cent on terminal handling charges and inland haulages. In turn, the C&F agents collect the said service tax from the exporters.

Exporters opine that these charges would fall under the purview of reimbursement of expenses and the cost incurred by the shipping line (service provider), the recipient of service (payment/exporter) as a pure agent of which is allowed to be excluded from value of taxable service provided since it satisfies the eight conditions. Please advice whether terminal handling charges and inland haulage attract service tax.

V. Sundararajan

Terminal handling charges will attract service tax under "cargo handling service". As per Finance Act, 1994, Clause (23) of Section 65 "cargo handling service" means loading, unloading, packing or unpacking of cargo and includes cargo handling services provided for freight in special containers or for non-containerised freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport, and any other service incidental to freight, but does not include handling of export cargo or passenger baggage or mere transportation of goods. Similarly, transport of the goods from the container yard, can be covered by "goods transport agency service" depending upon the type of transporter engaged and, thus, inland haulage charges also can attract service tax.

These services cannot be brought under business support service as "Support services of business or commerce" refer to services of a different type. The scope of several services may appear overlapping with each other. But in the case referred to by you, services rendered will be more appropriately covered by `cargo handling services' and `goods transport agency services'. The Central Board of Excise & Customs (CBEC) has issued a detailed Circular F.No.B/1/2002-TRU dated August 1, 2002, with regard to the issues concerning cargo-handling services.

Where the transport and cargo handling services are provided in a composite manner, then, as per the clarification contained in the circular, gross amount charged by the handling agency from the customer will be the basis for collecting service tax.

If separate charges are shown on actual basis, verifiable by documentary evidence, then, tax will be payable only on the cargo handling portion. It may be noted that the services utilised from the transporter also will attract service tax under a different category of service.

When a Custom House Agent (CHA) or a C&F agent undertakes the above work on behalf of an importer and recovers these charges from them, then these charges need not be included in the valuation of the service provided by such C&F agent. However, this is subject to the condition that such payments are only reimbursable payments and documentary evidence is produced in this connection.

In Circular F.No.B 43/1/97-TRU of June 6, 1997, the CBEC has clarified that for computing the value of the services provided by a CHA, payments made by the agent on behalf of the client such as statutory levies, that is, Customs duties, port dues, etc., and various other reimbursable expenses can be excluded.

Thus, while the C&F agent need not include these reimbursable expenses for charging service tax, the agencies, which provide or receive these services, will have to pay service tax depending upon the category of service. The only point to be noted is that these amounts will not be added and taxed again in the bill to be raised by the C&F agent.

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S. Murugappan

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