TIOL-DDT 287 · the untouched capture
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399" size="3">TIOL-DDT
287</font><br>
20 01 2006<br>
Friday</b></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Air
Cargo agents are covered under Business Auxiliary service - DGST</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">For
once, the DGST, famous for his clarifications, was not giving one; he was passing
a speaking order on the directions of the Bombay High Court. The question for
determination by the DGST was<br>
<br>
<i>“whether services such as billing, collection or recovery of payments,
issuing airway bills, marketing or canvassing of cargo, managing distributions
and logistic etc rendered by Air Cargo Agency Agreement are liable to
service tax and if so, whether these are covered within the definition of the
"Business Auxiliary Services"</i><br>
<br>
The association submitted before the DG that the department had asked the agents
in different parts of the country to register under various categories as<br>
<br>
1. Cargo handling services<br>
2. Clearing and Forwarding agents services<br>
3. Air Craft Operators services<br>
4. Business Auxiliary Services<br>
5. Transport of goods by air services<br>
6. Transport of goods by Road<br>
<br>
<b>The counsels for the Association argued that</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
Since there is no uniform classification for this central statute, no tax can
be levied.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
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</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
This would lead to chaos</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
Until such time the uniform of classification is arrived, they cannot be called
upon to pay service tax under any heading.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
Airlines are exempted from payment of service tax under any heading when they
transport goods in relation to export cargo</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
that any person who provides secondary services in respect of the same activity
is also automatically exempted from service tax</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
agents do not perform service activity which can fall under the "Business
Auxiliary Services</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
they do not promote any airline or Airlines to the customer</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
they do not market anything on behalf of any airline and they do not sell any
thing on behalf of any airline</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
The only service that they perform is to book cargo space on any airline at
random depending on the best rates offered, best time table offered and the
quickest route offered as per customers' directions.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
The airline 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</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
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</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
Air Agents and rail Booking Agents also book space for passengers for which
they receive identical uniform commission from the Airlines under IATA.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
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.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
Merely because there is no specific heading for Air Cargo Agents, they cannot
be confined to the orphanage of "Business Auxiliary Services”</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
Therefore, If "Business Auxiliary Service" is still the service in
the mind of the department, the department will have to show with evidence why
Air Cargo Agents fall under the heading "Business Auxiliary Services".</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
it may kindly be clarified as to from whom the Air Cargo Agents may claim reimbursement
of the service tax paid by them this is because airlines are refusing to reimburse
service tax taking the ground that for passengers 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.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++
The activities of the agents was summarized as<br>
<br>
(a) Accept goods from the shippers on behalf of the member Airlines for
international transportation.<br>
<br>
(b) Prepare the Airway bill on behalf of the member Airlines to the shipper.
They 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.<br>
<br>
(c) Book the space for transport of cargo after due permission from the member
airlines.<br>
<br>
(d) Collect and Accept payments of prepaid transportation and other charges
on behalf of the airlines and remits the same on due dates to the airlines irrespective
of the fact whether the amount is collected from the shipper or not.<br>
<br>
(e) The Agents i.e. the members of the Association can represent itself on letterhead,
telephone listings etc. as agents representing the carrier and,<br>
<br>
(f) For the aforesaid functions the Agents get the commission, which is fixed
by the IATA as per the agreement.<br>
<br>
The DG in his findings first found out the various services under which the
agents were sought to be taxed, in the law and drew up the following chart.</font></p>
<div align=center>
<table border=1 cellspacing=0 cellpadding=0 width=450>
<tr >
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b >Sl.
No.</b></font></p></td>
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b >Service</b></font></p></td>
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b >Sections
defining a service Under the Finance act, 1994</b></font></p></td>
</tr>
<tr style='mso-yfti-irow:1'>
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1.</font></p></td>
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Cargo
handling services</font></p></td>
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65(23)</font></p></td>
</tr>
<tr >
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2.</font></p></td>
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Clearing
and forwarding agents services</font></p></td>
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65(25)</font></p></td>
</tr>
<tr >
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b >3.</b></font></p></td>
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b >Air
craft operators services</b></font></p></td>
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b >No
such service defined under Finance Act, 1994</b></font></p></td>
</tr>
<tr >
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4.</font></p></td>
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Business
auxiliary services</font></p></td>
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65(3b)</font></p></td>
</tr>
<tr >
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5.</font></p></td>
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Transport
of goods by air services</font></p></td>
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65(19)</font></p></td>
</tr>
<tr >
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6.</font></p></td>
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Transport
of goods by road</font></p></td>
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65(50b)</font></p></td>
</tr>
</table>
</div>
<p align="center"><b ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">STOP
STOP STOP --- The DG has got his facts wrong</font></b></p>
<div align=center>
<table border=1 cellspacing=0 cellpadding=0 width=450>
<tr >
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b >Sl.
No.</b></font></p></td>
<td width=298 > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b >Service</b></font></p></td>
<td width=184 > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b >Sections
defining a service Under the Finance Act, 1994</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b >ACCORDING
TO THE DG</b></font></p></td>
<td width=156 valign=top > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b >ACTUAL
SECTIONS AS PER THE ACT</b></font></p></td>
</tr>
<tr style='mso-yfti-irow:1'>
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1.</font></p></td>
<td width=298 > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Cargo
handling services</font></p></td>
<td width=184 > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65(23)</font></p></td>
<td width=156 valign=top > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65(23)</font></p></td>
</tr>
<tr >
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2.</font></p></td>
<td width=298 > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Clearing
and forwarding agents services</font></p></td>
<td width=184 > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65(25)</font></p></td>
<td width=156 valign=top > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65(25)</font></p></td>
</tr>
<tr >
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b >3.</b></font></p></td>
<td width=298 > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b >Air
craft operators services</b></font></p></td>
<td width=184 > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b >No
such service defined under Finance Act, 1994</b></font></p></td>
<td width=156 valign=top > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b >65(3b)
– The transport of goods by air is taxed only when provided by
an aircraft operator.</b></font></p></td>
</tr>
<tr >
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4.</font></p></td>
<td width=298 > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Business
auxiliary services</font></p></td>
<td width=184 > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65(3b)</font></p></td>
<td width=156 valign=top > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65(19)</font></p></td>
</tr>
<tr >
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5.</font></p></td>
<td width=298 > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Transport
of goods by air services</font></p></td>
<td width=184 > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65(19)</font></p></td>
<td width=156 valign=top > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65(3b)</font></p></td>
</tr>
<tr >
<td > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6.</font></p></td>
<td width=298 > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Transport
of goods by road</font></p></td>
<td width=184 > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65(50b)</font></p></td>
<td width=156 valign=top > <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">65(50b)</font></p></td>
</tr>
</table>
</div>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>This,
of course, is only a minor typing mistake.<br>
<br>
The DG’s findings:</b><br>
<br>
++ 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.<br>
<br>
++ "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”<br>
<br>
++ 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<br>
<br>
++ For rendering such services to the airlines the Agents get payments/remuneration
from the concerned airlines<br>
<br>
++ 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.<br>
<br>
++ 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<br>
<br>
++ 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<br>
<br>
++ 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.<br>
<br>
++ "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.<br>
<br>
++ <b>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.</b><br>
<br>
<b>DDT</b> 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.<br>
<br>
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?<br>
<br>
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 <b>“<a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=3186">Breaking
News</a>”</b>.<br>
<br>
You can <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/misc/cargo_agent_order.htm">click
here to see the DG’s order in 'Legal Corner'</a></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">
<b>Vishesh Krishi Upaj Yojana benefits for export of Cashew</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">DGFT
had earlier clarified that export of Cashew shall be entitled for Vishesh Krishi
Upaj Yojana benefits in respect of such exports made between 4.1.2005 and 26.4.2005
only. Based on representations from the trade, the DGFT now clarifies that the
benefit shall be allowed in respect of exports made between 01.09.2004 and 26.4.2005<br>
<br>
<a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=46&filename=notification/dgft/2005/dgft05cir046.htm">POLICY
CIRCULAR NO. 46 (RE-2005)/2004-2009, Date: January 19, 2006</a></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">
<b>Greek and Latin – DDT’s new feature</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As
such the laws made by our babus are Greek and Latin not only to the victims
of the laws but to the babus themselves who make those laws. But what do those
original Latin phrases which our Lordships use regularly and which our babus
are also fond of using once in a while. A judgement or order, a circular or
even an article for us is not authentic unless there are a couple of Latin phrases
strewn in. Obviously the language is rich in Legal theories and all students
of Law are required to know a few of them. Starting today <b>DDT</b> will try
to bring you some of these phrases and explain them in English. We hope our
new feature will be of some use to our esteemed netizens.<br>
<br>
Today’s phrase: <font color="#663399"><b>sub silentio</b></font>.<br>
<br>
This phrase has been used in a High Court order carried by us today. This basically
means a point not fully argued and so cannot be taken as a precedent. Extracts
from <b>Salmond on Jurisprudence</b> will perhaps best explain the concept:<br>
<br>
“A decision passes sub silentio, in the technical sense that has come
to be attached to that phrase, when the particular point of law involved in
the decision is not perceived by the court or present to its mind. The court
may consciously decide in favour of any party because of point A, which it considers
and pronounces upon. It may be shown, however, that logically the court should
not have decided in favour of the particular party unless it also decided point
B in his favour; but point B was not argued or considered by the court. In such
circumstances, although point B was logically involved in the facts and although
the case had a specific outcome, the decision is not an authority on point B.
Point B is said to pass sub silentio.<br>
<br>
A good illustration is Gerard v. Worth of Paris Ltd. There, a discharged employee
of a company, who had obtained damages against the company for wrongful dismissal,
applied for a <b>garnishee</b> order on a bank account standing in the name
of the liquidator of the company. The only point argued was on the question
of the priority of the claimant’s debt, and, on this argument being heard;
the Court of Appeal granted the order. No consideration was given to the question
whether a garnishee order could properly be made on an account standing in the
name of the liquidator. When, therefore, this very point was argued in a subsequent
case before the Court of Appeal, the court held itself not bound by its previous
decision. Sir Wilfrid Greene, M.R. said that he could not help thinking that
the point now raised had been deliberately passed sub silentio by Counsel in
order that the point of substance might be decided. He went on to say that the
point had to be decided by the earlier court before it could make the order
which it did; nevertheless, since it was decided “without argument, without
reference to the crucial words of the Rule, and without any citation of authority”,
it was not binding and would not be followed.<br>
<br>
In the case of Arnit Das v. State of Bihar, 2000 (5) SCC 488 it was observed,
“A decision not expressed, not accompanied by reasons and not proceeding
on a conscious consideration of an issue cannot be deemed to be a law declared
to have a binding effect as is contemplated by Article 141. That which has escaped
in the judgment is not the ratio decidendi. This is the rule of sub silentio,
in the technical sense when a particular point of law was not consciously determined.”<br>
<br>
Nearly every decision sub silentio can be regarded, from another point of view,
as a decision per incuriam, because the failure of Counsel to argue the point
will generally mean that relevant cases or statutes are not brought to the attention
of the court. The concept of sub silentio is not complete without the other
concept of per incuriam and for this, please wait till Monday.<br>
<br>
Incidentally what is a <b>garnishee</b> order? It is a kind of attachment. If
(Defendant) A owes (Plaintiff) B a certain sum of money as a judgment in a lawsuit
against A that B won, and A does not pay it to B, and (Garnishee) C owes A some
money, B may have a court issue a garnishee order to C, and then C has to pay
the money directly to B. (C is often A's employer but could be anyone who owes
A money, including someone who had borrowed from A.)<br>
<br>
<b>Law is really intriguing if not interesting and what is really surprising
is “how could lawyers come up with such brilliant ideas?”</b><br>
<br>
<b><font color="#FF6666">Until Monday with more DDT<br>
<br>
Have a nice Weekend.<br>
<br>
Mail your comments to</font></b> <a href="vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p>
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