Service Tax – freight charges paid by Postal department – clarification
The Postal Department asked the DGST for a clarification as follows:-
It is to intimate that this office has engaged several shipping companies for conveyance of outward surface India Postal Mails to the various ports of foreign countries.
Recently some shipping companies are charging service tax @ 12.24% in their freight bills for following services –
1. Delivery charges
2. Terminal handling charges
Kindly intimate whether Indian Postal outward surface mail bags are subject to levy of Service Tax or otherwise. Further, it is to add that these shipping companies are liable to pay Service Tax @ Rs. 12.24% of the amount payable to them as mail conveyance charges.
No, the Postal authorities were not confused about the rate of Service Tax – when they wrote this letter in January 2007, it was 12.24%.
The Directorate forwarded this letter to the Board in March 2007. The Board clarified the matter to the DGST in December 2007. And the DGST has sent the Board clarification to the field on 14 January 2008, with a direction to issue a trade notice.
And this is the clarification given by the Board.
As stated, Postal Department has engaged shipping companies for conveyance of outward surface Indian Postal Mails to various ports of foreign countries and handling of export cargo or passenger baggage etc. From the facts mentioned it appears that the service provided by shipping companies is in the nature of 'distribution, management and logistics' and delivery order charges and inland haulage charges collected by shipping companies are for such 'distribution, management and logistics' service. Such service is specifically covered under 'business support services' and is liable to service tax. However, in case there are facts which indicate that the appropriate classification of the service provided is 'cargo handling service' the same may be brought to the notice of this office.
F.No. Dated : December 12, 2007