The Hindu Business Line : A closer look at terminal handling charges?

Terminal handling charges (THCs) are primarily levied on export cargo. It was clarified in these columns that THCs will fall under cargo-handling services which, in my opinion, is also the correct head. If this is the appropriate head under service tax, then, under cargo handling, export cargo should be exempt from service tax. The exemption lies in the very definition of cargo handling itself, which also means that one cannot charge service tax on terminal handling services. Accordingly, no service tax is leviable on export cargo on THCs due to this exemption by shipping lines.

The issue in the industry on this is that shipping lines presume THCs to fall under business support service, which is why shipping lines charge service tax. The fact of classification of the service should always be determined from the substance and the nature of the service rendered rather than the head in the taxing statute.

Unfortunately, the new definition or the new entrant "business support services" has caused much ripples. Also, not much thought has been given to Section 65A before levying service tax on THCs.

What happens if shipping lines charge service tax under "business support services"? Then, cargo-handling agency/forwarders will not be able to charge it back to back due to the export exemption — the VAT chain is broken here.

This leads to exporters paying out of their pocket to the extent of service tax and creating a discrimination within the industry players. A cargo-handling agency (CHA) that handles export cargo, simply because it gets covered under CHA services, will be able to pass on the VAT down the line.

Srivatsan R.

The statement that there is discrimination within the industry with regard to levy of service tax for cargo handling is based only on presumption. A CHA can claim service tax exemption for export cargo handling and where the service tax is payable for other cargo he can pass on the tax paid as credit to the client. Even when shipping lines pay service charges for cargo handling, such payment need not be made under `business support services'.

When shipping lines pay terminal handling charges to the terminal operators/custodians, the service tax paid by them to such agencies can still be passed on to the clients as reimbursable charges with documentary evidence for such payment. Confusion will arise only if a shipping line chooses to treat the terminal handling charges paid by it, on behalf of a client, as payment for business support service.

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S. MURUGAPPAN

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