CHA - Customs Speed Money attracts service tax?
THIS Circular has thrown up several other issues:
When we were discussing the latest Board Circular in our Edit team, several questions propped up including the question as to why the circular had to be issued at all. We understand that the Chennai Commissioner's letter referred to above simply opened a Pandora's box and CHAs were stuck with huge demands running into Crores while the actual service charges were not even in lakhs! Some worried CHA Associations took up the matter with the Board as early as in November 2008 and finally towards the end of 2009, they got a clarification – maybe a good Xmas gift!
One of my colleagues sent me a note, “But, please see the amount of time spent and the effort made by these CHAs to sort out a simple issue. They could get it as they perhaps have money and manpower. What about a small time service provider? Shouldn't the Commissioner ST Chennai be taken to task for acting in his own way without making any reference to Board?”
The CHAs also engages services of rent-a-cab operator for use in providing their services and also for catering to the needs of Customs officers. They make lump sum payments to Rent-a-cab operator on monthly basis, which are recovered from their clients under miscellaneous expenses in the invoice. The Board's circular requires CHA to collect such expenses on actual basis only and the circular also requires that the CHA does not use such services for his own benefit or for the benefit of other customers. It will be a Herculean task for CHAs to satisfy this condition. Now they have to distribute the expenditure incurred towards rent-a-cab and other such services BE/shipping bill wise in each invoice instead of showing under miscellaneous head in order to meet the condition specified in Para (f) of Circular.
Another important component of miscellaneous charges collected by CHA is of course, the speed money paid to customs officers. Often the CHA collects from his clients this speed money on mark up basis - over and above the actual amount they pay. It is obvious that CHA cannot produce any bills for this speed money and hence ends up in paying service tax. Though, CHA is acting as “pure agent” when it comes to speed money, but he cannot avail the benefits of pure agent when it comes to service tax in this regard.
Another colleague asked me, “What about CENVAT credit; is CHA eligible to take CENVAT credit on all such services , whose value has been included in the value of services or the department wants to prove ‘nexus' with output services. The Circular should have clarified this aspect also”.
A CHA explained that this is not a workable solution as they would be left with huge amounts of un-adjustable credits.
Now what about Steamer Agents?
Should there be another similar clarification on that service?
Anyway Board has given a clarification – let's hope the field will follow it without further troubling the poor assessees.