CBEC issues clarification on applicability of Service Tax on freight-forwarders as intermediary

In terms of Rule 10 of the Place of Provision of Services Rules, 2012 ['PPS Rules'], place of provision of the services of transportation of goods, other than by way of mail or courier, is the destination of the goods. Thus, place of provision of the services of transportation of goods by air/ sea from a place in India to a place outside India would be outside India and thereby would not be subject to service tax. Further, Rule 9 of the PPS Rules provides that place of provision of intermediary services is the location of intermediary. The term intermediary is defined as a person who arranges or facilitates the provision of a service or supply of goods between two or more person, but does not include a person who provides the main service or supplies the good on his own account.  

In view of the above provisions, Central Board of Excise and Customs ['CBEC'] issues following clarifications on applicability of service tax on services provided by freight-forwarders in relation to transportation of goods by air/ sea from a place in India to a place outside India:

  • In case a freight-forwarder acts as an agent of airline/ carrier/ ocean-liner with no responsibility for actual transportation, freight forwarder may be considered to be an intermediary. Accordingly, in terms of Rule 9 of the PPS Rules, place of provision of services provided by the freight-forwarder would be India and thereby would be subject to service tax. However, service of actual transportation of goods by the airline/ carrier/ ocean-liner would not be subject to service tax in terms of Rule 10 of the Rules ibid.
  • In case the freight-forwarder acts as a principal for the transportation of goods and undertakes all the assessed risks and legal responsibilities associated with the transportation, freight forwarder would not be considered as an intermediary. Accordingly, services provided by the freight forwarder in such a scenario would not be subject to service tax in terms of Rule 10 of the Rules ibid.

Nangia's Take –

The Circular brings about clarity on freight-forwarder being an intermediary. It is clarified that a freight-forwarders acting as an agent would only be considered as an intermediary. Whereas a freight-forwarder acting as a principal for transportation of goods and undertaking the related risks and responsibilities, would not be covered under the definition of intermediary. 

[Source: Circular No. 197/7/2016-Service Tax dated 12 August 2016]

Assam and Bihar ratify the Goods and Services Tax ('GST') Constitution Amendment Bill

On 12 August 2016, Assam ratified the GST Constitution Amendment Bill. On 16 August 2016, Bihar ratified the GST Constitution Amendment Bill, thereby becoming the second state and first opposition-ruled state to ratify the GST Constitution Amendment Bill.

To become law of the land, the GST Constitution Amendment Bill needs to be ratified by more than half of the state legislatures.

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