Service Tax on Air Cargo Agents under “Business Auxiliary Service” — Scope of
F. No. V / DGST / 21-30 / Legal 04/2004, Dated:- 31-12-2005 Order-Instruction
Service Tax
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
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, 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 pe
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e 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 logicall
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rs 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
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allurgical (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 submiss
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ax 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.
Aircra
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s 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,
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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, m
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neral 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 c
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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
Circular, Trade Notice, Public Notice, Instructionsor
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