The clearing and forwarding service is very complicated issue in past and present tax structure and is always a litigation area, as regard POS, classification of service and valuation of service and due to its various scenario. We here try to analyse the issue with the help of CBEC clarification. The two scenario has been discussed here, one is When the freight forwarder acts on his own account and second when he acts as an agent.
“Para 5.9.6 of CBE&C’s ‘Taxation of Services: An Education Guide’ published on 20-6-2012 gives following illustration.
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 service tax will be attracted.
Analysis with different scenario of above clarification
1. Supply of service as principle (Transport of goods by ship)
| Particulars | When he work as an principal |
| HSN Code | 99652 |
| POS Rule for domestic transaction | POS shall be location of recipient if he registered, otherwise the place where goods handover for transportation. |
| POS Rule for International Transaction | POS shall be the destination of goods |
| Export | Not taxable |
| Import | Taxable |
| Tax Rate | 5% -No ITC of input service |
| Outward supply (Sale) By Indian FF | |
| Outward supply of service to a resident, where goods goes outside India. | Taxable |
| Outward supply of service to a resident, where goods comes to India. | Taxable |
| Outward supply of service to a non-resident, where goods goes outside India | The transaction will qualify as Export of service which is zero rated. |
| Outward supply of service to non-resident, where goods comes to India. | Taxable-POS is in India |
| Supply of service to oversee agent by Indian FF for Indian leg of shipment when goods comes to India. | Taxable-POS is in India
|
| Inward supply (Purchase) | |
| Inward supply of service from a resident, where goods goes outside India. | Taxable |
| Inward supply of service from a resident, where goods comes to India. | Taxable |
| Inward supply of service from a non-resident, where goods goes outside India. | In case of Non-resident providing service to Indian Principal, the place of supply of service is outside India. Hence, no IGST is payable even under reverse charge. |
| Inward supply of service from a non-resident, where goods comes to India. | Import of service liable for GST on reverse charge basis under sec 9(3). |
| Service of oversee agent by Indian FF for foreign leg of shipment when goods goes to outside India. | In case of Non-resident providing service to Indian Principal, the place of supply of service is outside India. Hence, no IGST is payable even under reverse charge.
|
| Service by non -resident to non –resident -Services by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India received by persons specified in the entry. | Taxable |
2. Supply of service as principle (Transport of goods by Air)
| Particulars | When he work as an principal |
| HSN Code | 99653 |
| POS Rule for domestic transaction | POS shall be location of recipient if he registered, otherwise the place where goods handover for transportation. |
| POS Rule for International Transaction | POS shall be the destination of goods |
| Export | Not taxable |
| Import | Services by way of transportation of goods by an aircraft from a place outside India up to the customs station of clearance in India-Nil rated |
| Tax rate | 18% with full ITC |
| Outward supply (Sale) | |
| Outward supply of service to a resident, where goods goes outside India. | Taxable |
| Outward supply of service to a resident, where goods comes to India. | Services by way of transportation of goods by an aircraft from a place outside India up to the customs station of clearance in India-Nil rated |
| Outward supply of service to a non-resident, where goods goes outside India | Export service is zero rated |
| Outward supply of service to non-resident, where goods comes to India. | Services by way of transportation of goods by an aircraft from a place outside India up to the customs station of clearance in India-Nil rated |
| Inward supply (Purchase) | |
| Inward supply of service from a resident, where goods goes outside India. | Taxable |
| Inward supply of service from a resident, where goods comes to India. | Services by way of transportation of goods by an aircraft from a place outside India up to the customs station of clearance in India-Nil rated |
| Inward supply of service from a non-resident, where goods goes outside India. | Not an import of service, the POS is outside India. |
| Inward supply of service from a non-resident, where goods comes to India. | Services by way of transportation of goods by an aircraft from a place outside India up to the customs station of clearance in India-Nil rated |
When he acts as an intermediary
Where the freight forwarder acts as an intermediary, the place of provision will be his location. Service tax will be payable on the services provided by him. However, when he provides a service to an exporter of goods, the exporter can claim refund of service tax paid under notification for this purpose.
Similarly, persons such as call centers, who provide services to their clients by dealing with the customers of the client on the client’s behalf, but actually provided these services on their own account, will not be categorized as intermediaries.
Ironical situation – receiving foreign exchange is taxed
This provision has created an ironical situation. If Indian commission agent provides service to Principal outside India, he is required to pay IGST, though he is receiving payment in foreign exchange. On the other hand, if a foreign commission agent provides service to Indian Principal, the Indian Principal has to pay him in foreign exchange but no IGST is payable.
Thus, a transaction where actually India received foreign exchange is subjected to IGST, while transaction where there is outflow of foreign exchange from India is not subject to IGST.
No IGST and no reverse charge on services provided by foreign Commission Agents to Indian Principals
In case of foreign commission agents providing service to Indian Principal, the place of supply of service is outside India. Hence, no IGST is payable even under reverse charge.
Analysis with different scenario of above clarification
Supply of service as an Agent
| Particulars | When he act as an agent |
| HSN Code | 996713 -Clearing and forwarding services |
| POS Rule for domestic transaction | General rule of POS shall apply |
| POS Rule for International Transaction | Place of supplier of service (Agent) |
| Export | Taxable |
| Import | Not taxable |
| Tax rate | 18% with full ITC |
| When agent is resident and recipient is non resident | The POS shall be in India and liable for GST. |
| When agent is non-resident and recipient is an resident | In case of foreign commission agents providing service to Indian Principal, the place of supply of service is outside India. Hence, no IGST is payable even under reverse charge. |
Disclaimer: The views and opinions; thoughts and assumptions; analysis and conclusions expressed in this article are those of the authors and do not necessarily reflect any legal standing.
Author Bio
Dear Sir,
We are doing a clearing and forwarding service for andaman and nicobar island, Some of our customer are asking for not taxable service invoice for the goods like rice, poultry feeds,pappad, etc which are coming in Non gst goods. Is that possible to raise a bill like that. Can you give advice?
Ques 1 : we are the clearing and forwarding agency. The transporter raise the transport bill in the name of ours on 5% RCM basis. we raise the service bill to our exporter/importer including transport charges in 12% Is it right?
and Are we pay the tax on RCM basis against the transporter bill and can we claim the ITC against the Transporter bill.
Ques 2: we raise the service bill including transport charges 12% to one customer and raise the service bill on RCM basis to other customer. Is it right
Ques 3: How can we bill the transport charges to our customer finally? Pls explain
HI SIR ,
AM DOING A CLEARING AND FORWARDING SERVICES TO ANDAMAN AND NICOBAR ISLANDS.
MY QUESTION IS
IF I RECEIVED A TAX EXEMPTED GOODS LIKE RICE AND PULSES ETC, SHOULD I PUT TAX FOR THE SERVICE OR ITS EXEMPTED FOR SERVICE TOO.
Hi,
in the 1st scenario, where: if
A freight forwarder provides domestic transportation within taxable territory (say, from the exporter’s factory located in Pune to Mumbai port) and there his service ends, what would be the GST implications ? can it be called as a export ? Since the GST invoice is generated on a Overseas party.
Hi,
Can you tell me what is Domestic Transaction and what is international transaction?
I mean to ask whether it is based on goods moving inside/outside India OR whether service receiver is resident or non resident?