The Hindu Business Line : The IATA hiatus

For starters, airlines give International Air Transport Association (IATA) agents (forwarders usually) compensation for the export cargo booked; termed `IATA Commission', the commission ranges from 5 per cent to 15 per cent depending on volume and by reason of being an IATA member. The so-called commission (a misnomer, in fact) is primarily on volumes .

It would be pertinent to note that apart from commission agents dealing in commodities not having to pay service tax (Notification No. 13/2003-Service Tax dated June 30, 2003), the Department has clarified that volume-based commission will not be covered under service tax.

There is also a detailed departmental notification (No. F.No.B.11/1/2001-TRU of August 1, 2002) on IATA commission: "Some of the cargo handling agencies may also act as marketing agents for individual airlines for which they get a commission, which seems to range from 5 per cent to 15 per cent of the freight. The question is whether service tax is payable on this. Marketing or canvassing for cargo for airlines does not come within the ambit of cargo handling services. Hence, no service tax is payable under the category of cargo handling service".

At the time of this notification, neither did the Department clarify that a single registration would suffice for even multiple taxable services (Circular No. 72/2/2004-ST of January 2, 2004) nor was there a taxable head called `business auxiliary services'.

Forwarding activity, per se, would get covered under the nomenclature of `cargo handling services' under the service tax regime and is in line with Section 65A of the Service Tax Act.

In this context, the following points are worth noting.

There is no marketing or canvassing involved in IATA commission; IATA members are entitled to the commission, based on tonnage. Thus, the Department's stand on volume commission is contradictory.

The practice of paying this commission has always been as a price abatement on the amount payable to the airline, more in the nature of a trade or rate discount. This has been the custom in the industry.

Instead, the Department could have objectively listed taxable marketing services, bearing in mind the industry practice. Let us not forget that exports are exempt from service tax under cargo handling services (reason, exporters need not pay extra input cost). But queerly, IATA commission is an earning only on exports.

Thus, charging tax on the commission will mean IATA agents will in turn pass on their burden to exporters.

(The author is Chennai-based chartered accountant.)

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