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Prof Dippak /IDT Amendments/ST- Act, Rules, Exem, Circulars


 FA, 2010 not applicable. So, no discussion under this category.


 (M. Imp)

The Territorial Waters, Continental Shelf, Exclusive Economic Zone


and other Maritime Zones Act, 1976
Sec 3: Sovereignty over, and limits of TERRITORIAL WATERS…………………………………………
.(1) The sovereignty of India extends and has always extended to the Territorial Waters Of India
(TWI= Territorial Waters) and to the seabed and subsoil underlying, and the airspace over,
such waters.
(2) The limit of the territorial waters is 12 Nautical Miles from the baseline.

Sec 7: Exclusive Economic Zone (EEZ)…………………………………………………………………………


(1) The Exclusive Economic Zone of India (EEZ) is an area beyond and adjacent to the territorial
waters, and the limit of such zone is 200 nautical miles from the baseline.
(7) CG may, by notification in the official Gazette , -
(a) Extend, with such restrictions and modifications as it thinks fit, ANY ENACTMENT for the
time being in force in India or any part thereof to the EEZ or ANY PART THEREOF; and
(b) Make such provisions as it may consider necessary for facilitating the enforcement of
such enactment,
AND
Any enactment so extended shall have effect as if the EEZ or the part thereof to which it has
been extended is a part of the territory of India.
.

N/N 1/2002: In exercise of the powers conferred by Sec 7(7) of the Territorial Waters,
Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976,
 the CG hereby extends the provisions Chapter V of the FA, 1994 to the
DESIGNATED AREAS in Exclusive Economic Zone Of India as declared by the
Notifications of the Government of India.
Subsequently amended in 2009
In exercise of the powers conferred by Sec 7(7) of the Territorial Waters, Continental
Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976,
 the CG hereby extends the provisions Chapter V of the FA, 1994 to the
INSTALLATIONS, STRUCTURES AND VESSELS in the Exclusive Economic Zone Of
India.


In exercise of the powers conferred by Sec 7(7) of the Territorial Waters, Continental
Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976,
 the CG hereby extends the provisions Chapter V of the FA, 1994
to the areas specified in column (2) of the Table below, in the continental
shelf and exclusive economic zone of India
for the purposes as mentioned in column (3) of the said Table:-

Sl The areas in the Continental Purpose


No Shelf and the EEZ of India
(1) (2) (3)
i) Whole of Continental Shelf and Any service provided for all activities
EEZ pertaining to
-- CONSTRUCTION of Installations,
Structures and Vessels for the purposes
of prospecting or extraction or production
of mineral oil and Natural gas and
Prof Dippak /IDT Amendments/ST- Act, Rules, Exem, Circulars

supply thereof.

ii) The Installations, Structures Any service provided to or by such


And Vessels within the installations, structures and vessel
continental shelf and EEZ, and for supply of any goods connected
constructed for the purposes of with the said activity
prospecting or extraction or
production of mineral oil and
natural gas
Comment: This new notification (which has substituted the old notification) has restricted the scope of
applicability of Sr Tax provision as it limits the applicability only to those structures, installations and vessels
which are for purposes of prospecting or extraction of production of MINERAL OIL AND NATURAL GAS.

India TWI Continent Shelf & EEZ of India (200 NM) High
Seas
(Land Mass) (12 NM) (Beyond
Sr relating to any activity Sr relating to any activity
concerned with Construction of concerned with Construction
200 NM)
[Installations/ Structures/Vessel of [OTHER KIND OF
– for Exploration / Extraction/ STRUCTURES – e.g., Wind
All the
Supply of MINERAL OIL & Energy Structure] --- ST None of
“Taxable NATUAL GAS] --- ST leviable not leviable the
Services “Taxabl
” are e
chargeab Service
le to ST s” is
in this charge
area able to
ST in
this
area

After such structure has been After such structure has been
set up, following service has set up,
been rendered in such
All the “Taxable Services” are Installation/Sturcture/ vessel --- ANY SERVICE rendered in such
chargeable to ST in this area Installation/ Sturcture/ Vessel
[Except in J&K]
A) Sr of supply of any goods
---
connected with {Exploration
/ Extraction / Production of --- ST not leviable
Mineral oil / Natural Gas} ---
ST leviable
B) Other Services --- ST not
leviable

Consequent to issue of this New N/N 14/2010, consequential amendments have also been made in following set
of rules:
i) Taxation of Service (Provided from outside India and received in India) Rules, 2006
ii) Export of Service Rules, 2005
Under both set of rules, definition of India has been amended to include within India such Installations,
Structures and Vessels.
IMPACT OF THESE AMENDMENTS:
 Service provided in such Installations, Structures and vessels from OUTSIDE INDIA shall be
treated as “Service provided from outside India and Received in India” and thus, this will be a
case of “IMPORT OF SERVICE” attracting ST liability in terms of Sec 66-A of FA, 1994.

 Service provided in such Installations, Structures and vessels from INDIA shall be treated as
“Service provided in India” and thus, this will not be a case of “EXPORT OF SERVICE”. Thus, this service
will attract ST liability.
Prof Dippak /IDT Amendments/ST- Act, Rules, Exem, Circulars

.
Rule 6 : Manner Of Payment of ST
The assessee shall deposit ST liable to be paid by him with the bank designated by CBEC
for this purpose through Challan.
Provided that
where an assessee has paid -- he shall deposit the ST liable to be paid
by him electronically, through internet
 a TOTAL ST of Rs 50 lakhs or more
banking.
(including the amount paid by
utilisation of Cenvat credit),
 in the current or preceding Financial Year,
 a TOTAL ST of Rs 10 lakhs or more
(including the amount paid by
utilisation of Cenvat credit),
 in the preceding Financial Year,
Proviso to Rule 6 has been made amended changing the criteria of mandatory e-payment of
Service Tax. Earlier limit of 50 lakhs has been reduced to 10 lakhs.
[Corresponding amendment has been made in Rule 7 of STR, 1994 making „E-filing of Return‟ also mandatory
for such assesses].

.
Rule 7 : Filing of ST Return
(1) Every assessee shall submit
 a HALF-YEARLY RETURN
 in Form „ST-3‟ (3 copies), along with Challan Form GAR-7,
for the months/quarter covered therein
.
(2) The return shall be submitted by the 25th of the month following the particular half-year.
Provided that [inserted in 2010]
 where an assessee has paid a TOTAL ST -- he SHALL file the return electronically
of Rs 10 lakhs or more (including the
amount paid by utilisation of CENVAT
credit), in the preceding Financial Year,
Proviso to Rule 7 has been made inserted making e-filing of ST-return mandatory for those assesses
for whom e-payment of ST has been made mandatory.


.
Rule 6 : Inclusions or Exclusion from Taxable Value in certain cases
6(1): The value of taxable service shall include …..
6(2): The value of taxable service shall exclude …..
(1) .. (2) .. (3) .. (4)…
(5) Taxes levied by any Government on any passenger travelling by air,
Prof Dippak /IDT Amendments/ST- Act, Rules, Exem, Circulars

if shown separately on
 the ticket, or
 the invoice for such ticket, issued to the passenger.
[Inserted in Feb, 2010]
International Air Travel service was already subject to ST. FA, 2010 has amended the definition of
„Air Travel Service‟ to include domestic travel services also.
Following related amendments have been made in this regard:
i) : As per the provisions of Rule 4A of the Service Tax Rules, 1944, invoice/ bill/
challan is required to be issued by the provider of taxable service within 14 days of the provision of the
taxable service or the receipt of the consideration. In case of air-travel, the airlines or the agent may not
issue a separate invoice to the passenger but may issue the ticket showing the price of such ticket as well. In
such a case, the requirement of an invoice would cast an additional compliance burden on the service
provider. Hence the said rule is amended to provide that in case of this taxable service, the ticket (in any
form, including electronic form whatever may be the name) showing the name of the passenger, description
of the journey (details like place of embarking and disembarking, class of travel, flight number, etc.,) and
the amount of service tax collected would be deemed to be the invoice/ bill /challan for the purposes of the
rule (Refer Notification No.39 / 2010-Service Tax as corrected vide corrigendum dated 30 th July 2010).

ii) : It has been amended to provide for exclusion of statutory levies (taxes levied by
Govt) on air travel (international or domestic). Thus, at present, Gross amount charged for ticket (excluding
statutory levies/taxes (levied under a law for time being in force)], shall be the „taxable value‟. The exclusion
shall be admissible only if such taxes are shown separately in the ticket or invoice.

.
Rule 2 : Definitions
“India” includes the Installations, Structures And Vessels
 located in the Continental Shelf of India and EEZ of India,
 for the purposes of prospecting or extraction or production of
Mineral Oil And Natural Gas and supply thereof
This is a consequential amendment which has been made consequent to issuance of new
notification issued under Maritime Zones Act, 1976 making alterations as to applicability of ST provisions in sea
area. [Please refer discussion above – ‘APPLICABILITY OF SERVICE TAX’]

Shifting of certain services from one category to another category


Rule 3 has been amended in Feb, 2010 shifting certain services from one category to other
category and thereby, changing their criteria as to determination of their import into India. Since
amendments are important for examination, a question is likely on these services. Student shall keep
these services (and new criteria applicable to them) in mind.
Taxable Service Old Category New Category Impact of Shifting
1) CA Service 3(ii) – 3(iii) – Sr now will be treated as imported
into India only when it is for use in
Performance Residuary relation to business or commerce in
Based Category India by recipient located in India
2) CS Service 3(ii) – 3(iii) –
Performance Residuary
Based Category
3) CWA Service 3(ii) – 3(iii) –
Performance Residuary
Based Category
4) Mandap 3(ii) – 3(i) – Sr now will be treated as imported
into India only when Mandap is
Keeper Service Performance Immovable situated in India.
Based Property
Category
.
Prof Dippak /IDT Amendments/ST- Act, Rules, Exem, Circulars

.
Explanation to Rule 3 :
For the purpose of this rule,
“India” includes the Installations, Structures And Vessels
 located in the Continental Shelf of India and EEZ of India,
 for the purposes of prospecting or extraction or production of
Mineral Oil And Natural Gas and supply thereof
This is a consequential amendment which has been made consequent to issuance of new
notification issued under Maritime Zones Act, 1976 making alterations as to applicability of ST provisions in sea
area. [Please refer discussion above – ‘APPLICABILITY OF SERVICE TAX’]


Rule 3 has been amended in Feb, 2010 shifting certain services from one category to other
category and thereby, changing their criteria as to determination of their import into India. Since
amendments are important for examination, a question is likely on these services. Student shall keep
these services (and new criteria applicable to them) in mind.
Taxable Service Old Category New Category Impact of Shifting
1) CA Service 3(ii) – 3(iii) – Sr now will be treated as exported
only when recipient is located in
Performance Residuary India
Based Category
2) CS Service 3(ii) – 3(iii) –
Performance Residuary
Based Category
3) CWA Service 3(ii) – 3(iii) –
Performance Residuary
Based Category
4) Mandap 3(ii) – 3(i) – Sr now will be treated as exported
only when Mandap is situated
Keeper Service Performance Immovable outside India.
Based Property
Category
.


Rule 3 has been amended in Feb, 2010 deleting once of the condition which was earlier
necessary for holding export:

3(1): Criteria for determining export


3(1)(i) …… [ Immovable Property Category]
3(1)(ii) …… [ Performance Based Category]
3(1)(iii) …… [ Residuary Category]

3(2) The provision of any taxable service specified in sub-rule (1) shall be treated as
export of service when the following conditions are satisfied, namely:-
(a) Such service is provided from India and used outside India.
[Omitted from Feb, 2010]
(b) payment for such service is received by the service provider in convertible
foreign exchange.
Prof Dippak /IDT Amendments/ST- Act, Rules, Exem, Circulars

The additional condition (a) as mentioned in Rule 3(2) was difficult to comply with and was leading
to lots of disputes. Now this condition being deleted to avoid disputes.

.
Rule 5 : Refund of Cenvat Credit
Where any INPUT is providing output service which is
or INPUT SERVICE EXPORTED (in accordance with
Export Of Service Rules, 2005)
[substituted in 2010]

the Cenvat credit i.r.o. the input or input service so used shall be allowed to
be utilised by the output service provider towards payment of service tax on
output service
And where for any reason such adjustment is not possible,
 the output service provider shall be allowed refund of such
amount
 subject to such safeguards, conditions and limitations as may be specified by the CG
by notification in the Official Gazette.
.

Let us understand the reason of amendment with help of following case-study:


Special CASE-STUDY
Facts: Assessee is running a call centre or BPO for foreign client and he is exporting service [Business Auxiliary
Service] in terms of Export of Service Rules, 2005. He has availed credit of following services- Renting of
Immovable Property Service, IT Service (Right to use software service), Maintenance & Repair Service (for
equipments/computers), Telecommunication facilities, Outdoor catering services (provisioning of food),
Rent-A-Cab Service (pick & drop of employees), Manpower Recruitment Agency Service (hiring of
employees), Event Management Service (arrangement of picnics/tours/dinner), Mandap keeper Service
(booking of hotel rooms for holding official or business function).
Assessee has sought refund of aforesaid credit in terms of Rule 5 of CCR, 2004 (read with N/N 5/2006). CEO
has categorized the aforesaid services into following 2 categories and has allowed refund of credit only of
service falling in category (A):
Category (A) Category (B)
Service having a direct nexus with provisioning of Service not having a direct nexus with
output service provisioning of output service
 Renting of Immovable Property Service,  Event Management Service (arrangement
 IT Service (Right to use software service), of picnics/tours/dinner)
 Maintenance & Repair Service (for
 Mandap keeper Service (booking of hotel
equipments/computers),
rooms for holding official or business
 Telecommunication facilities
function).
 Outdoor catering services (provisioning of food)
 Rent-A-Cab Service (pick & drop of employees)
 Manpower Recruitment Agency Service (hiring
of employees),
As per CEO, services falling into category (A) can only be said to be USED IN providing service which is
exported. Services falling into category (B) cannot be said to be used in providing service which is exported.
On the other hand, assessee is contending that all of the services are „Input services‟ within the meaning
of Rule 2(l) of CCR, 2004. When all are eligible for taking credit, then credit shall be refunded for all the
services. There should not be different yardsticks for allowing the credit and refund of credit.
Whether assessee contention is right (i.e., whether credit of all the aforesaid services) is refundable?
 : The language of pre-amended Rule 5 permits refund only for such
services that are USED IN providing output services. In other words, he has taken the view being
taken is that to be eligible for refund, input services should be directly used in the output service
exported.
 Rule 5 of the CCR, 2004 has been recently amended to
provide that credit shall be refundable for input service USED FOR providing the output service
which is exported. Thus, post-amendment, scope of refund of credit of input service has been made
wider. Thus, exporter is entitled to refund of credit of all services..
Prof Dippak /IDT Amendments/ST- Act, Rules, Exem, Circulars

.
 „Transport of goods by road Service [GTA Service]‟
(1) : Service of transport of following in goods carriage (i.e., GTA Service) shall
be fully exempt
-- Fruits, Vegetables, Eggs, Milk, Food Grains or Pulses (*Newly added).
.

 Transport of goods by rail Service.


: Transport of all goods by rail (other than transport of goods in container by
a person other than Government Railway) shall be wholly exempt.
E/N 33/2209 exempted Govt railways service of transportation of goods (whether in container or in
loose condition). It also exempted Pvt Railway service of transportation of goods in loose form. In nutshell, what
it left within the domain of ST recovery was service of Pvt railway of transportation of goods in containers.
Now, this notification has been withdrawn, thus, making railway service (whether of Govt Railway or Private
Railway) subject to service tax, irrespective of whether goods are transported in containers or in loose form.
However, a new E/N has been issued for „Railway Sector‟ – in which transportation of certain specified goods has
been exempted.

.
 Transport of goods by rail Service.
(1) : ‘Transport of goods by rail service’ provided to any person in relation to
transport of SPECFIED GOODS shall be wholly exempt.
[Specified Goods:-
i) Defence/Military Equipments,
ii) Railway Equipments/materials,
iii) Postal mail bags,
iv) Relief materials meant for victims of natural or manmade disasters, calamaties, accidents
and mishaps,
v) Luggage of train passenger, whether carried as PERSONAL LUGGAGE in the train
compartments or booked separately in the luggage vain/ Household effects;
vi) Kerosene Oil, Petroleum Products (including LPG Cylinder – filled or empty) booked by
PUBLIC SECTOR OIL MARKETING COMPANIES and transported in INDIAN
RAILWAYS.
vii) Certain other goods]

 Technical Testing and Analysis Service


(2) : Technical testing and analysis services
 provided by --- Central or State SEED Testing Laboratory
 in relation to technical testing and analysis of SEEDS
shall be wholly exempt.
.
 Business Auxiliary Service
.

(3) : Business Auxiliary Service provided by any INDIAN NEWS AGENCY


shall be exempt if:-
a. If such news agency is notified as a news agency set up in India solely for collection
and distribution of news :
b. Such news agency is specified under Sec 10-(22B) of the Income Tax Act, 1961; and,
c. Such news agency applies its income or accumulates it for collection and
distribution of news and does not distribute its income in any manner to its members .
Prof Dippak /IDT Amendments/ST- Act, Rules, Exem, Circulars

(4) : Business Auxiliary service provided by any person in relation to


-- one or more of the SPECIFIED PROCESS [i.e., Electroplating, Zinc Plating, Anodizing,
Heat Treatment, Powder Coating, Painting Including Spray Painting Or Auto Black]
-- during the course of manufacture of Parts of CYCLES / SEWING MACHINES shall
be wholly exempt
subject to the following conditions, namely :-
(a) The aggregate value of taxable service in relation to one or more of the specified process
provided by a service provider, does not exceed Rs 150 lakhs during the PRECEDING
financial year;
(b) The exemption shall be restricted to the first clearances of aggregate value of 150 lakhs
only; and
(c) Where the service provider also undertakes one or more of the specified process in relation
to manufacture of parts or whole of goods leviable to Central Excise duty, such service
provider shall maintain separate accounts of receipt, production and clearance of exempted
and dutiable goods and services.
.
 Business Support Service.
(5) : Service of transmission of electricity shall be wholly exempt.

 (M.Imp & Expected)


 AVAILMENT of Credit On Input Services in case of service transaction between
ASSOCIATED ENTERPRISE?
Circular No. 122/03/2010 –dated 30th April, 2010
Relevant Rules / Provisions (Reproduced)
 Rule 4(7) of the CENVAT Credit Rules, 2004: The cenvat credit on input services is available only
on or after the day on which PAYMENT of “the VALUE of input service and SERVICE TAX” is
made.
 Section 67 of the Finance Act, 1994: “Gross Amount Charged” includes payment made by issue
of credit / debit notes or by entries in the books of account, where the transaction is with any
ASSOCIATED ENTERPRISE.
 Rule 6 of STR, 1994:
6(1): The service tax shall be paid to the credit of the CG by 5th of the month immediately
following the calendar MONTH in which payments are received, towards the value of
taxable services .
Explanation to Rule 6(1):
For the removal of doubts, it is hereby declared that
 where the transaction of taxable service is with any ASSOCIATED ENTERPRISE,
any payment received in such case any AMOUNT credited or DEBITED,
towards the value of shall include as the case may be, to any account,
taxable service, whether called „Suspense account‟
or by any other name, in the BOOKS
OF ACCOUNT of a person liable to
.
pay ST.
Issue. In case of service transaction between ASSOCIATED ENTERPRISES, debit entry made in the books
of account of Indian service recipient is treated as “deemed payment” in terms of Rule 6 of STR,
1994 and accordingly , Indian service recipient becomes liable to pay ST upon such book entry
itself (even if actual payment has not been made).
Now the related issue is, after making payment of ST, whether cenvat credit can also be
Prof Dippak /IDT Amendments/ST- Act, Rules, Exem, Circulars

booked (taken) immediately OR whether cenvat credit will be available only after the ACTUAL
PAYMENT of the value of input service has been made in money terms .
Clarification
When the substantive law i.e. Sec 67 of the Finance Act, 1994 treats such book adjustments
etc., as DEEMED PAYMENT, there is no reason for denying such extended meaning to the
word ‘payment’ for availment of credit.
 As far as the provisions of Rule 4(7) are concerned, it only provides that the cenvat credit
shall be allowed, on or after the date on which payment is made of the value of the input
service and of service tax. The form of payment is not indicated in the same and the rule does
not place restriction on payment through debit in the books of accounts. Therefore, if the
service charges as well as the ST have been paid in any prescribed manner which is entitled
to be called „gross amount charged‟ then credit should be allowed under said rule 4 (7).
Thus, in the case of “Associate Enterprises”, credit of service tax can be availed of when the
payment has been made to the service provider in terms of section 67 of Finance Act, 1994 and
the service tax has been paid to the Government Account.


 Leviability of service tax on tour operator service in connection with Haj & Umrah
Pilgrimage
CBEC Circular No. 117/11/2009
Issue: Whether tour operator service in connection with Haj & Umrah Pilgrimage shall be treated as
“Export of service” not liable to ST in India?

Clarification
The amount charged to the pilgrims in India undertaking Haj and Umrah pilgrimage, is for
services provided by the Government of Saudi Arabia and the tour takes place outside India. As
per Rule 3 (1) (ii) of the Export of Services Rules, 2005, the service in respect of tour operator
is export if such service is PERFORMED OUTSIDE India. It is also provided therein that
where such taxable service is partly performed outside India, it shall be treated as performed
outside India.
 Therefore, it is clarified that ST is not chargeable on the services provided in respect of
tour undertaken for carrying out Haj and Umrah Pilgrimage in Saudi Arabia by Indian
pilgrims considering these as export of service, provided they fulfill the other conditions of
export as provided in Export of Service Rules.
’ : The other condition to be fulfilled is that the payment for the said service shall be received in
convertible foreign exchange.

 (Imp)
 SHARING OF EXPENSES BY Insurance Company WITH Re-Insurance Co. – Not subj to ST

Circular No. 120/2/2010 –dated 16th April, 2010


Issue: Generally In terms of Section 101A (Part IV-A) of the Insurance Act, 1938, every INSURER dealing in
insurance business is required to RE-INSURE a specified percentage of sum assured with another
insurance company.
The insurance company pays premium to the reinsuring company for this service. However, a
part of such premium is deducted and kept by the insurance company for meeting the
administrative expenditure. In other words, the insurance company and the re-insurance
company jointly bear the expenses for running the insurance/reinsurance business. This
SHARED EXPENSE is commonly known as „commission‟ though strictly it is not in the nature of
a commission. It may be pertinent to mention that the customer/beneficiary deals only with the
insurance company and may not even be aware of the role of re-insurer and the backroom
operations between the insurance company and the reinsurer.
Prof Dippak /IDT Amendments/ST- Act, Rules, Exem, Circulars

As per the provision of the FA, 1994 (relating to INSURANCE SERVICE), insurance as well as
reinsurance are subject to service tax. The Board has received representations that notices have
been issued demanding service tax on the amounts deducted by the insurance company (in other
words paid by the reinsurance company) on the ground that it is the consideration for the
insurance company providing BUSINESS AUXILIARY SERVICE (BAS) to the re-insuring company.
The notices alleged that the insurance companies are promoting the business of re-insurers
thereby providing them the BAS?

Clarification
The issue has been examined. As explained above, the arrangement between the insurance
company and the reinsurer is only sharing of expenses and there is no service provided by
the insurance company to the re-insurer for a consideration. Since the policy holder may
not even be aware of the operations of the re-insurer, it cannot be said that the payment made
by the re-insurer to the insurance company is for its business promotion or a service on behalf
of the re-insuring company (i.e. Business Auxiliary Service). In fact, it is the reinsurer which
provides insurance service to the insurance company. As both the insurance company and
reinsurer pay service tax on the entire amount of premium charged by them, the question of
charging service tax under any other taxable service does not arise.

 CONTAINER DETENTION CHARGES – Not subject to ST


Circular No. 117/11/2009
Issue: Generally marine containers are temporarily brought into a customs territory and have to be re-
exported within a specified period. Normally, a Full Container Load is taken out of the port and
the activity of stuffing or de-stuffing takes place at the premises of the exporter/importer. The
shipping companies / steamer agent provide a pre-determined period within which the container
(that has gone out of the port) is to be returned. This is called as „pre-holding period‟ and the
duration of the same is mentioned in the contract. In case there is any delay on the part of the
customer in returning the container, the charges known as „detention charges‟ are collected over
and above the contracted amount by the shipping line.
Representations have been received in the Board that ST has been demanded on such
„detention charges‟ under the „Business Support Service (BSS)‟ or „Business Auxiliary Service
(BAS)‟?

Clarification
The issue has been examined. To retain the container beyond the pre-holding period is
neither a service provided on behalf of the client (BUSINESS AUXILIARY SERVICE) nor
is it an infrastructural support in the business of either the shipping lines or the customer
(BUSINESS SUPPORT SERVICE). Such charges can at best be called as „penal rent‟ for
retaining the containers beyond the pre-determined period.
 Therefore, the amount collected as ‘detention charges’ is not chargeable to ST..

 ST valuation issues in case of CHA


Circular No. 119/13/2009 –dated 21st Dec, 2010
While the principal job of a CHA is to get the import or export consignments cleared through
customs (intended – Customs Station),
 they, being the `persons on the spot’, also at times arrange service’s 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, 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.
Prof Dippak /IDT Amendments/ST- Act, Rules, Exem, Circulars

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% of the gross value only.
In 2006 (w.e.f. 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, on ground that charges on certain activities incurred by CHAs are not
covered under exclusions available to „pure agent‟. It has been reported that divergent practices as
regards the records & 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. 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;
Author’s Remarks: Activities shall be in addition to his basic job of customs clearance

(b) There should be arrangement between the customer & 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;
Author’s Remarks: Written agreement is preferable. Service contract shall detailed out such
additional services
(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;
Author’s Remarks: No „Attendance or Agency Charges‟ shall be claimed by CHA. Just cost shall be
recovered.

(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;
Author’s Remarks: For claiming exclusion of additional services, invoice of those services need not be
in name of client. It is sufficient if nexus of those services with the client [This is a major relief provided by
Circular].

(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;
Author’s Remarks: Invoice shall not be consolidated invoice. (i.e., CHA shall either do split-up
invoicing or separate invoicing for additional recoveries)].

(g) Any other miscellaneous or out of pocket expenses charged by the CHA would be includable in
the taxable value for the purposes of charging tax on CHA services.
Author’s Remarks: Recovery not meeting aforesaid criteria shall remain includible

The conditions mentioned at paragraph above 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 instructions prevailing at that point of time.
Prof Dippak /IDT Amendments/ST- Act, Rules, Exem, Circulars

Practical Problem (for practice)


Q-: M/s. Sameer Linkages Pvt Ltd, a CHA licensed under Customs Act, has cleared an import consignment of DG Ltd. It has
raised the following invoice on DG Ltd. Compute the taxable value on which it shall charge ST:
i) Basic Service Charges (charges for preparing and processing of Bill Of Entry) : Rs 20,000/-
ii) Re-imbursements:
a) Merchant Overtime Fees paid to the Customs Officer in terms of Sec 35 of Customs Act, 1962 (for supervising
unloading of consignment at late hours so that early clearance become possible) – Rs 25,000/- (recovered on
actual basis)
b) Statutory Duty – Customs Duties - 10,50,000/- (including interest amount of Rs 50,000)
c) Port Charges paid to Port Trust Authorities – Rs 50,000/- (recovered on actual basis)
d) Charges paid to GTA for transporting goods from Customs Station to Client‟s premises – Rs 50,000/-
(recovered on actual basis – but invoice of GTA is in name of CHA)

Taxable Value Remarks


a) Basic Service Charges 20,000/- (these shall definitely form part of
value of CHA Service)
b) Re-imbursements
a) Merchant Overtime Fees paid to Customs Officer Nil (shall not form part of TV as paid
b) Customs Duty (with interest) paid to Customs officer Nil and recovered in capacity of Pure
Agent)
c) Port Charges paid to PTA Nil
d) Transportation charges paid to GTA Nil
Taxable Value 20,000/-