The Hindu Business Line : Documentation difficulties

SHIPPING lines and vessel owners have proposed to add service tax to documentation charges collected from forwarders/NVOCCs (non-vessel operating common carriers) and exporters.

Such charges are apart from BoL (bill of lading) surrender fees, amendment charges, late BoL charges, and so on,levied locally by shipping lines to take care of the incidental levies/outlays incurred by them in export of cargo. For instance, an amendment charge is due when changes are made in the manifest or for carrying out permissible changes in the BoL.

Of late, various agents have been questioned by the service tax department on the nature of these documentation charges.

They will not fall under the head `Shipping agency services', as under Section 65(100) these would cover the agency fee received by them from their principals on which service tax is being paid by the shipping lines or their agents.

The levying of service tax on these documentation charges is being rationalised because of the controversial business auxiliary services (Section 65(19)), where incidental services may also be taxed.

Another Damocles' sword hanging on shipping lines and their agents is the new commission agency definition in business auxiliary services introduced by Finance Act, 2005 w.e.f. June 16, 2005.

The services of most forwarders/NVOCCs will fall under the definition of cargo handling (Section 65(23)) under service tax if read with the classification rules under Section 65A.

Under cargo handing services, the definition of cargo handling for service tax excludes levy of service tax for export of both containerised and non-containerised cargo (this is the only definition in the whole gamut of taxable services which has an exemption in the provision of the law itself). The purpose of this exemption is to spare exporters of an add-on cost and make them competitive in the global market.

The result of this is the Cenvat chain gets broken for this levy at the forwarders'/NVOCCs' end which, in turn, overburdens the exporters. The case is unique only for cargo handling services.

If the same forwarding service is rendered by a CHA (Customs House Agency), the Agency will be able to pass on the Cenvat to end-exporters owing to non-exemption for export services under the definition of CHA services.

This is likely to affect the entire businesses of forwarders/NVOCCs who are rendering a number of invaluable services, such as consolidation of cargo.

For the same charge and levy within the same industry, this break in the Cenvat chain is likely to cause pricing pressures, resulting in loss of business for a number of forwarders.

(The author is a Chennai-based chartered accountant.)