Import freight/ charges incurred prior to import or included in Customs valuation, cannot be charged to Service tax

Import freight/ charges etc., which are incurred prior to import or which are included in Customs valuation, cannot be charged to Service tax under Cargo Handling or any other service

In the instant case, United Shippers Ltd. (the Appellant) entered into contracts with various customers and agreed to provide various services in relation to stevedoring including on-board stevedoring, barging, loading, unloading, transportation of cargo by barges from Mother Vessels to Jetty, handling, weighment, deployment of security services, storage and all other services necessary for successful discharge of cargo.

The Appellant was splitting up the gross consideration received by raising separate invoices – one for ‘stevedoring, loading, unloading, internal haulage, deployment of security and storage charges’ under the description – ‘Port Services (Minor Ports)’ and another for ‘Shipping Charges’ & ‘Reimbursement of Expenses incurred at the Port for wharfage, transshipment and Jetty usage charges’.

Accordingly, the Appellant was discharging Service tax only on Port Services (Minor Ports) and not on the Shipping Charges. The Department alleged that entire contract was a composite contract and therefore, it was entirely taxable under Cargo Handling services.

The Hon’ble CESTAT, Mumbai held that since the transaction involves a Customs transaction and a service transaction, it is necessary to decide where the Customs transaction ends and the service transaction begins. Thus, when the goods are being transported by the barges from the mother vessel to the jetty onshore, that activity is part of the import transaction of bringing the goods into India from a place outside India. The question of rendering any service in respect of such goods by way of Cargo Handling or otherwise can take place only after the Customs transaction is completed.

Therefore, the question of levying Service tax on the transportation by barges from the mother vessel to the jetty on shore, would not arise at all since the said activity is part of the import transaction leviable to import duty.

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)

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