Are co-loaders who provide services to courier agency liable to pay service tax?
A concerned Netizen sent us this:-
As per s. 65(33) of Finance Act, 1994 "courier agency" means any person engaged in the door-to-door transportation of time–sensitive documents, goods or articles utilising the services of a person, either directly or indirectly, to carry or accompany such documents, goods or articles. Hitherto when courier agency was brought into the tax net in October 1996 and up to May 1, 2006, instead of ‘person' it was ‘commercial concern'.
Further, vide clause (f) of s. 65(105), taxable service of a courier agency was defined as a service provided or to be provided “to any person, by courier agency in relation to door-to-door transportation of time-sensitive documents, goods or articles”.
When this new levy was introduced TRU issued a clarification vide F. No. 341/43/96- TRU dated 31.10.2006. At paras 15 and 16 thereof explained briefly the services of co-loaders and clarified that the activity of co-loaders is excluded from the purview of service tax under the “Courier Agency service”.
Further, the service profiles on the CBEC website enumerates that a ‘Co-loader' is a company whose services are engaged by a Courier Agency for handling part of the job for delivery of articles, goods, documents, etc. They are not providing any direct service to the customer. The client is concerned only with the Courier Agency, for the services and the co-loader is only a subcontractor. Therefore the service provided by the “co-loader” is not leviable to Service Tax.
However, the Master Circular No. 96/2007 dated August 23, 2007 is silent on this. But by virtue of its overriding effect, the TRU clarification dated 31.10.1996 may not be valid anymore. It appears that certain field formations are issuing show cause notices to co-loaders proposing to classify their services under the category of “Business Auxiliary Services” on the ground that these co-loaders are providing services to the clients on behalf of the courier agency.
If we look at the definition of BAS in s. 65(19) of the Act, at clause (vi) therein, “provision of service on behalf of a client” is a taxable service and the department's proposal is by virtue of this provision. But is it really so in the case of co-loaders? If we examine the practice prevailing in the trade, co-loaders are merely engaged by the courier agencies to collect the parcels/documents etc from their clients. They get their remuneration from the courier agency for this service. They do not provide any service directly to the client on behalf of the courier agency but provide the service only to the courier agency.
For the client, the identity of co-loader is nonexistent. Co-loader does not act as a representative of the courier agency before the client but is regarded as the courier agency itself. In other words, a co-loader has no independent identity before the client of the courier agency. So when the service is provided by a co-loader to the courier agency it would have to be construed only as "provision of service to the client" but not "provision of service on behalf of the client" as is being made out in certain field formations. Though technically the original clarification dated 31.10.1996 is overruled/redundant by virtue of Master Circular dated August 23, 2007, the principle enunciated in the original clarification still holds good in the absence of anything contrary to this in the Master Circular.
Before it escalates into further controversy, CBEC is requested to issue a suitable clarification by amending the Master Circular No. 96/2007. Of late, CBEC has started issuing clarifications independent of the Master Circular notable among them is the latest Circular No. 105 issued on September 16, 2008 clarifying the jurisdiction and liability of services provided by SEZ units. The very idea of codification of services in the Master Circular for the purpose of issuing clarifications systematically service-wise would be defeated if CBEC goes about issuing clarifications / circulars independent of Master Circulars 96 and 97 both dated 23.08.2007.