Confusing Lines in Education Guide
FOR a smooth transition into the new Service Tax regime, Team Negative List, (read TRU) released an Education Guide on 20th June 2012. The then Chairman CBEC in his message remarked, "our sincere effort will help to narrow the areas of differences while providing the taxpayers a ready guide for reference". While the effort is laudable, considering the enormous changes made, the Education Guide, instead of narrowing the areas of differences, has added a little more confusion in some areas.
While explaining the Service tax on export/import shipments, vide para 5.9.6, an illustration has been provided as under:
Illustration
A freight forwarder arranges for export and import shipments. There could be two possible situations here - one when he acts on his own account, and the other, when he acts as an intermediary.
When the freight forwarder acts on his own account (say, for an export shipment)
A freight forwarder provides domestic transportation within taxable territory (say, from the exporter's factory located in Pune to Mumbai port) as well as international freight service (say, from Mumbai port to the international destination), under a single contract, on his own account (i.e. he buys-in and sells freight transport as a principal), and charges a consolidated amount to the exporter. This is a service of transportation of goods for which the place of supply is the destination of goods. Since the destination of goods is outside taxable territory, this service will not attract service tax. Here, it is presumed that ancillary freight services (i.e. services ancillary to transportation- loading, unloading, handling etc) are "bundled" with the principal service owing to a single contract or a single price (consideration).
On an import shipment with similar conditions, the place of supply will be in the taxable territory, and so the service tax will be attracted.
It is the above sentence is creating confusion among the trade and industry. While it is true that for import shipments, the place of supply will be in the taxable territory, as per Section 66D(p), the following services are covered under negative list:
services by way of transportation of goods-
(i) by road except the services of-
(A) a goods transportation agency; or
(B) a courier agency;
(ii) by an aircraft or a vessel from a place outside India to the customs station of clearance in India;
When the transportation of goods by an aircraft or a vessel from a place outside India to the Customs station of clearance in India is under negative list, the question of payment of service tax on such import shipments, by applying place of provision of service does not arise (save transportation by Road which is governed by a different set of provisions). Perhaps this negative list entry was not considered while drafting the above Illustration resulting in contradiction between the statutory provisions and the Education Guide. One can only hope that the issue will be examined by the Team Negative list again.