2016 (4) TMI 332 - AAR - Service Tax

Service tax obligation on which portion under reverse charge mechanism - While discharging foreign C & F Agent raised composite bill / invoice liability - Foreign C & F Agent would be incurring the expenses which is to be included in the valuation of goods as per Section 14 of the Customs Act, 1962 for the purpose of charging Customs duty on behalf of the applicant with respect to freight, insurance, loading, unloading and handling charges of goods, etc. proposed to be imported. Therefore, charging Service Tax on said component would tantamount to double taxation. Held that - as per Rule 5(1) of Service Tax (Determination of Value) Rules, 2006, where any expenditure or costs are incurred by the Service provider in the course of providing service, all such expenditure or costs shall be included in the value for the purpose of charging Service Tax on said service. Further, Rule 5(2) ibid inter alia envisages that the expenditure or costs incurred by the service provider as a pure agent of recipient of service shall be excluded from the value of taxable service, if all the following conditions, are satisfied. Therefore, while discharging foreign C & F Agent raised composite bill / invoice liability under reverse charge, Service Tax is chargeable on said bill / invoice excluding expenditure or costs incurred by C & F Agent as a pure agent, if conditions enumerated in Rule 5 ibid are met. - Decided against the appellant

Summary

Issues:
Determining Service Tax liability on a composite bill raised by a foreign C & F Agent under reverse charge mechanism.

Analysis:
The applicant, intending to import raw material under International Commercial Terms FCA, seeks clarification on the Service Tax obligation while discharging the foreign C & F Agent raised composite bill. The Revenue contends that Service Tax is payable on the gross value billed by the Agent, excluding expenses incurred as a 'pure agent'. The applicant argues against double taxation, citing a Tribunal judgment. However, inconsistency in Tribunal rulings on this matter is noted, and the absence of a statute exempting Service Tax when customs duty is levied is highlighted.

The applicant further relies on Notifications and statutory provisions to support their stance. They argue that transportation of goods by vessel from outside India to the Customs station in India falls under the Negative list of services, exempting it from Service Tax. However, Notification No. 30/2012-ST establishes the liability for Service Tax on services provided by a person in a non-taxable territory to a recipient in a taxable territory, which applies to the foreign C & F Agent in this case.

The ruling emphasizes Rule 5 of the Service Tax (Determination of Value) Rules, 2006, which states that costs incurred by the service provider should be included in the taxable service value, except when the provider acts as a 'pure agent'. The conditions for excluding expenditure from the taxable value are detailed. Therefore, the expenditure incurred by the C & F Agent, such as freight and handling charges, would be excluded from the composite bill if it meets the conditions specified in Rule 5.

In conclusion, the ruling states that Service Tax is chargeable on the foreign C & F Agent's composite bill, excluding costs incurred as a 'pure agent', provided the conditions in Rule 5 of the Service Tax (Determination of Value) Rules, 2006 are satisfied. This decision clarifies the Service Tax liability in such scenarios involving foreign agents and import transactions, ensuring compliance with relevant regulations and avoiding double taxation issues.