Service Tax on Air Cargo Agents under "Business Auxiliary Service" — Scope of - Service Tax - F. No. V / DGST / 21-30 / Legal 04/2004,

D.G.S.T Order F. No. V / DGST / 21-30 / Legal 04/2004, Mumbai Dated 13-12-2005 Service Tax on Air Cargo Agents under "Business Auxiliary Service" Scope of This order is in pursuance of the order of Hon'b High Court of the Bombay Judicature in Writ Petition No. 3169/2004. The petition was disposed off by Hon'ble Court with directions to the Director General of Service Tax Mumbai, to pass a reasoned order after hearing the Associations. Background: 2. The matter has arisen on account of the doubt raised by the Air Cargo Agents Association of India whether services such as billing, collection or recovery of payments, issuing airway bills, marketing or canvassing of cargo, managing distributions and logistics etc. rendered by Air Cargo Agency Agreement (herein after referred to as 'agreement') are liable to service tax and if so, whether these are covered within the definition of the "Business Auxiliary Services" provided under the Finance Act, 1994 and the rules made thereunder? Hearing submissions: 3. The Air Cargo Agents Association of India was given hearing to explain their case to the undersigned on 9th June, 2005. 3.1 Mr. J.F. Pochkhanawalla, Senior Advocate and Mr. D. Arvind, Director of Deloitte Haskins Sells appeared on behalf of Air Cargo Agents Association of India on 9th June, 2005. The record of submissions on the question of leviability of service tax during the hearing is reproduced below: "The Counsel urged that all over India, various Air Cargo Agents have been called upon to register for service tax under six different headings so far. These are - 1. Cargo handling services 2. Clearing and Forwarding agents services 3. Aircraft Operators services 4. Business Auxiliary Services 5. Transport of goods by air services 6. Transport of goods by Road Therefore, it was urged since in a central fiscal statute, there is no uniform of classification, no tax under service tax is payable by any Air Cargo Agent. It cannot be correct that in different parts of the country, different agents performing the same services are required to pay service tax under different headings. This would lead to chaos. Hence there must be uniform of classification. Therefore, the Counsel urged that until such time the uniform of classification is arrived, they cannot be called upon to pay service tax under any heading. It was urged by the Counsel that regardless, of any heading under which they may be made liable for registration for service tax in any office, no service tax can. be recovered from them whatsoever. This is because by Circular No. 56/5/2003, dated 25-4-2003 [ (154) E.L.T. T25}, Airlines are exempted from payment of service tax under any heading when they transport goods in relation to export cargo. Under the same circular, it is clarified that any person who provides secondary services in respect of the same activity is also automatically exempted from service tax. It was urged that this circular is binding both on the department and on the party. It was next urged that the agents do not perform service activity which can fall under the "Business Auxiliary Services". It was emphasized that this is the one service which is being highlighted because many notices have been received for this heading. Therefore, without prejudice of other submissions, the Counsel urged that they are not liable under "Business Auxiliary Services" at all. It was argued that they do not promote any airline or Airlines to the customer, they do not market anything on behalf of any airline and they do not sell anything on behalf of any airline. The only service that they perform is to book cargo space on any airline at random depending on the best rates offered, best time table offered and the quickest route offered as per customers' directions. The airline is not the client of the Air Cargo Agent at any time either under Business Auxiliary Services or even under IATA which regulates the business of the airlines as well as the agents and to which IATA is a signatory and active member. It was next urged that the commission received for blocking cargo space on any airline is uniform under IATA notwithstanding any other consideration. Therefore, there is no promotion of any individual airline. Thus, there is no question of business Auxiliary Services being made applicable. The counsel respectfully urged that the Board must consider the vital point that Air Agents and rail Booking Agents also book space for passengers for which they receive identical uniform commission from the Airlines under IATA. It was urged that it is inconsiderable that for passenger's space, the service is provided to the passenger but for Cargo space, the service is provided to the airline. This can never be so. Therefore, Business Auxiliary Service cannot logically be made applicable to Air Cargo Agents. The above supportive not only ban entries under service tax it is also supported by the decision of the Madras High Court directly on the buyers of air tickets and the classification issued by the Board itself in this behalf as far as passengers are concerned in the case of Air Travel Agent. Therefore, merely because there is no specific heading for Air Cargo Agents, they cannot be confined to the orphanage of "Business Auxiliary Services". If "Business Auxiliary Service" is still the service in the mind of the department, the department will have to show with evidence why Air Cargo Agents fall under the heading "Business Auxiliary Services". So far no evidence has been forthcoming. It was lastly requested that in such an event, it may kindly be clarified as to from whom the Air Cargo Agents may claim reimbursement of the service tax paid by them this is because airlines are refusing to reimburse service tax taking the ground that for passengers services, the amount is recovered from the passengers. Therefore, for cargo services,there can be no discrimination and they are not the clients of the airlines. 4. They also submitted their points of view and contentions in writing vide their letter No. nil dated 14-6-2005 on 14th June, 2005 and received copy of the record of hearing on the same day. 4.1 The Association, in nut shell, states that its members who are IATA agents carry out following functions, as set out in the agreement. (a) Accept goods from the shippers on behalf of the member Airlines for international transportation. (b) Prepare the Airway bill on behalf of the member Airlines to the shipper. The Airway bills are issued on behalf of the Airlines, the charges of which are fixed by the member airlines and are not in control of the members of the Associations. (c) Book the space for transport of cargo after due permission from the member airlines. (d) Collect and Accept payments of prepaid transportation and other charges on behalf of the airlines and remits the same on due dates to the airlines irrespective of the fact whether the amount is collected from the shipper or not. (e) The Agents i.e. the members of the Association can represent itself on letterhead, telephone listings etc. as agents representing the carrier and, (f) For the aforesaid functions the Agents get the commission, which is fixed by the IATA as per the agreement. 4.2 They have contended that in fiscal classification the onus lies on the department and the department has to prove on the basis of cogent evidence on records. They have cited following case laws in support of their contentions: 1. M Sainet Private Ltd Others v. UOI - 1984 (18) E.L.T. 141 (Bom. HC) 2. CCE Nagpur v. Vicco Laboratories - 2005 (179) E.L.T. 17 (S.C.) 3. CCE Calcutta v. Sharma Chemical Works - 2003 (154) E.L.T. 328 (S.C.) 4. M/s. Hindustan Ferodo Ltd v. CCE, Bombay - 1997 (89) E.L.T. 16 in (S.C.) 5. CCE, Bangalore v. Kashyap Engg. Metallurgical (P) Ltd. - 1994 (71) E.L.T. 530 (Tribunal). 6. UOI v. Garware Nylon Ltd. - 1996 (87) E.L.T. 12 (S.C.). An analogy of their services with that of Air Travel Agent Rail Travel Agent has been used. They therefore contended that unless a specific heading is created for covering the activity of cargo agents, tax cannot be demanded merely on assumption and ad hoc basis under the category of Business Auxiliary Services. They have relied on the decision of High Court of Rajasthan in the case of UOI v. Maharaja Shri Umed Mills Ltd. - 2000 (123) E.L.T. 348 wherein it is held that no tax can be collected without the authority of law. Findings: 5. Before I dwell on whether the above said activities are covered under the category "Business Auxiliary services", I consider it proper to discuss each of the issues raised by the Association. 5.1 The representatives of the Air Cargo Association of India in its oral submission dated 9-6-2005 which was reiterated under the written submissions dated 14-6-2005 have urged that the Air Cargo agents have been called upon from time to time to get themselves registered under six different headings, as follows: (a) Cargo handling services (b) Clearing and forwarding agents services (c) Air craft operators services (d) Business auxiliary services (e) Transport of goods by air services (f) Transport of goods by road 5.2 It Is observed that the classification of a service depends on the nature of service rendered by the service provider. If an agent provides six different services, each of the services is required to be classified separately and such per son's registration certificate should contain the details of all such services. The Association has also submitted that since the classification is doubtful, there can not be any service tax. I find that merely because there is any dispute/doubt about classification, the taxability of a service cannot be vitiated altogether. A person can register himself and pay service tax for any one or more services rendered by him. The judgments cited by the Association are not applicable to the present case, in as much as in the said cases cited in its pleading/representation by the Air Cargo Agents Association, relate to dispute of classification of the goods under Central Excise Tariff Act, 1985. Whereas the dispute dealt herewith relate to classification of the services rendered by the Air Cargo Agents under chapter V of the Finance Act, 1994 as amended. Regarding the plea of the said agents that they have called upon by various authorities to get themselves registered under various categories listed in para 5.1 above, I must say that all aforesaid services, except Aircraft operator's services, are defined under the various Sections of the Finance Act, 1994, which are detailed as under: Sl. No. Services Sections defining a service Under the Finance act, 1994 1. Cargo handling services 65(23) 2. Clearing and Forwarding agents services 65(25) 3. Aircraft operators services No such service defined under Finance Act, 1994 4. Business auxiliary services 65(3b) 5. Transport of goods by air services 65(19) 6. Transport of goods by road 65(50b) 5.3 Reference to Board's Circular No. 56/5/2003, dated 25-4-03 is totally out of context. The claim of the Air Cargo Agents that service rendered by them is exported out of India is technically misconceived. Since the airlines receive the services of the Air Cargo Agents in India itself, there is no export of service. 6. Now coming to the issue in dispute whether the above said services rendered by the Air Cargo Agents, are taxable or not, I have analysed in subsequent paragraphs considering the various submissions (written as well as oral) made by the Association. 7. The Association has contended that they are neither employed by the airlines nor do they give any professional service to the airlines and in fact it is the shipper/consigners who are their clients and not the airlines, as alleged in the show cause notices. It is further contended by the Associations that the Air Cargo Agents do not promote any particular airlines to the exclusion of others and that Air Cargo Agents are not providing any customer care service to any airlines nor do they provide any incidental auxiliary support services and therefore, they do not perform any business auxiliary services. 8. The "Business Auxiliary Service" was brought under the Service Tax net w.e.f. 1-7-2003 by the Finance Act, 2003, vide Notification No. 7/2003-ST., dated 20-6-2003. As per Clause (19) of Section 65 of the Finance Act, 1994, as amended, "Business Auxiliary Services" means any services in relation to: (i) promotion or marketing or sales of goods produced or provided by or belonging to the client, or (iii promotion or marketing of services provided by the client; or (iii) any customer care service provided on behalf of the client; or (iv) any incidental or auxiliary support service, such as billing, collection or recovery of cheques, accounts and remittance, evaluation of prospective customer and public relation services and includes services as a commission agent but does not include any information technology services." 9. As per Sub-clause (zzb) of Clause 105 of Section 65 of the Finance Act, 1994, "Taxable Service" means "any service provided to a client by a commercial concern in relation to Business Auxiliary services." 10. "Business Auxiliary Services" thus include the services provided by a commercial concern in relation not only promotion, marketing of services, provided by the client, but any incidental or auxiliary support services such as billing, collection or recovery of cheques, accounts and remittance, evaluation of prospective customer and public relation services are also covered within the scope of "Business Auxiliary Services'. It is seen that the members of the Associations are acting as Air Cargo booking agents for the Airlines and marketing and canvassing for the cargo space available for various airline. For rendering such services to the airlines the Agents get payments/remuneration from the concerned airlines, is clearly brought out in Para 12 of Cargo Agency Agreement dated 16th May, 1999 executed between the Director General of International Air Transport Association (IATA) acting as agent for the carrier and M/s Eastern Cargo Carriers (India) Pvt Ltd., Mumbai, one of the Cargo Agent Members of the association which reads "the carriers shall remunerate the agents for services rendered under .." 11. The respective cargo agents of the airlines are duly selected/ approved by the respective airlines itself before commencing the agreed activities/services subsequent to which blank Airway Bill Books are supplied to the Air Cargo Agents. The nature of work performed by these Air Cargo Agents, inter alia, include purely incidental or auxiliary support services to the Airlines such as billing, collection or recovery of payments, managing distribution and logistic etc. for the individual airlines. Thus, the members of the Associations are having a 'service provider - client relationship with the respective airlines'. 12. It can be seen that all three prerequisite for coverage under service tax, namely, event of provision of taxable service, presence of taxable service provider and service receiver and the act of rendering taxable serviceagainst consideration/ charge/commission/ remuneration/value, are present in the instant case. The service tax is leviable as per law. 13. The contention of the Association that they are not rendering any services to any particular airline and that airlines are not their clients is incorrect. On examination of the "affidavit-in-reply" filed by Assistant Commissioner, Central Excise, Service Tax, Mumbai-IV, in Writ Petition Long No. 989 of 2004 at Bombay High Court, it is clearly stipulated in Para 7 of the Cargo Agency Agreement dated 16th May, 1999 executed between Director General of International Air Transport Association (IATA) acting as agent for the carriers and M/s Eastern Cargo Carriers ( Pvt. Ltd. Mumbai, one of the cargo agents and member of the Association, the "the Agent shall make known and shall promote the services of the Carrier in every way reasonably practicable including the use of display, promotional and publicity material that such Carrier may supply, provided that any such material of a permanent or valuable nature and so designated by the Carrier shall remain the property of such Carrier". Also at Para 12 of the same agreement it is stated that "the carriers shall remunerate the agent for services rendered under this agreement, in an manner and amount as stated from time to time and communicated to the agent by the carrier, Para 8.1 to 8.5 of the said agreement elaborates the system of custody and execution of Airway bill of the carriers by the agents. Thus it is seen that the members of the Association are rendering services to the carriers i.e. Airlines for which they receive remuneration as agreed upon and thus there is a Service Provider-client (service receiver) relationship between the Air Cargo Agents and the respective Airlines. 14. The contention of the Association that the airlines are not their clients, as they are not rendering any professional services to them is also incorrect. The word 'client' has not been defined under the Act. Hence the dictionary meaning of the word is to be taken. The word "Client" as defined in Black's Law Dictionary, Eighth Edition reads as follows: "Client means a person or entity that employs a professional for advice or help in that professional line of work." In the present case, Airlines (entity) have employed Air Cargo Agents. (Professional) for supporting in their professional line of work (service) relating to booking and transportation of cargo, preparing bills, collecting them, realizing payment etc., which otherwise would have to be carriered out by the airlines concerned and the agents get paid for such services, thus establishing service provider-client relationship with the airlines. The said activity, carried out by the Air Cargo Agents, thus, squarely fall within the ambit of Section 65(19) of the Finance Act, 1994. 15. In view of the above, I conclude that the aforesaid services rendered, under the IATA Cargo Agency Agreement by the members of the Association (The Air Cargo Agents), are covered within the scope of "Business Auxiliary Services" and the Air Cargo Agents are liable to pay service tax on the remuneration/consideration received by the agents for such activities, since 1-7-2003 under Section 68 of the Finance Act, 1994. All such service providers must discharge the service tax liability forthwith. They shall also be liable to pay interest, if any, for their past liabilities under section 75 of the Finance Act, 1994. Passed By: - Shri K. P. Singh IRS, DGST, Mumbai