STOP STOP STOP --- The DG has got his facts wrong
Sl. No. | Service | Sections defining a service Under the Finance Act, 1994 ACCORDING TO THE DG | ACTUAL SECTIONS AS PER THE ACT |
1. | Cargo handling services | 65(23) | 65(23) |
2. | Clearing and forwarding agents services | 65(25) | 65(25) |
3. | Air craft operators services | No such service defined under Finance Act, 1994 | 65(3b) – The transport of goods by air is taxed only when provided by an aircraft operator. |
4. | Business auxiliary services | 65(3b) | 65(19) |
5. | Transport of goods by air services | 65(19) | 65(3b) |
6. | Transport of goods by road | 65(50b) | 65(50b) |
This, of course, is only a minor typing mistake.
The DG’s findings:
++ 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.
++ "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
++ 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.
++ 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 service against consideration/ charge/commission/remuneration/value, are present in the instant case
++ 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
++ The agreement states 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.
++ "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 carrier 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.
DDT understands that the air cargo agents operate under peculiar conditions. They get a commission of 15% from the airlines on the charges they get from the cargo customers. All the customers are aware of this 15% commission. So they bargain with the agents and these agents pass on a major part of their commission sometime even up to 13% to the customers. So they operate on a margin of that 2% and out of this, if they have to pay Service Tax they are doomed. That perhaps is the reason why they oppose this levy strongly. And they cannot pass on the tax to any one. The customer will not pay as he wants even a share in that 15% and airlines will not even talk about it. There is another angle to it. The customers want these agents to bargain the best price with the airlines. So when the agents bargain with the airlines, every rupee saved for the customer means fifteen paise lost for the agent. And the airlines are supposed to be clients of the agent!. Will any professional work to get less money for his client? Of course revenue men need not understand facts of business.
This raises another issue. Obviously the agents will be aggrieved by the order of the DG, Service Tax and would like to go in appeal. Where will they go in appeal? The Tribunal or High Court?
As per section 86 of the Finance Act, 1994, an appeal to the Tribunal lies against an order of the Commissioner passed under Section 73, 83A or 84 or an order passed by the Commissioner (Appeals) . The order passed by the DG does not fall under any of these categories. So the Tribunal is out. Is writ petition in the High Court the only solution? If so which High Court? Today we are carrying a judgement of the Delhi High Court on the jurisdiction of High Courts to hear excise matters. Please see our “Breaking News”.