Customs House Agent Services To Foreign Clients Are Export, Service Tax Not Payable: CESTAT Kolkata

The Kolkata Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) on 19 February held that Customs House Agent (CHA) services rendered by an international freight forwarder to overseas customers constitute “export of service” and are not liable to service tax.

A Bench comprising Judicial Member Ashok Jindal and Technical Member K. Anpazhakan heard cross appeals arising from an order passed against Ceva Freight India Pvt. Ltd (taxpayer), an international freight forwarder engaged in the transportation of cargo for inbound and outbound shipments.

The Bench stated:

"the assessee-appellant's main service is that of freight forwarding and the order for provision of freight forwarding service together with CHA service for a foreign customer comes from any of the overseas group companies of the assessee which is incorporated outside India and carrying on the business of freight forwarding services outside India."

The dispute arose from two show cause notices covering the period 2007–08 to 2011–12, alleging non-payment of service tax on amounts received towards CHA services, which were wrongly treated as export of services.

While the adjudicating authority confirmed service tax of about Rs. 1.04 crore on a portion of the demand, a substantial demand exceeding Rs. 9.83 crore was dropped, leading to appeals by both sides.

The taxpayer contended that where CHA services were rendered to foreign customers through overseas group companies, the services formed part of a composite freight forwarding transaction, the benefit of which accrued outside India.

It further argued that payments were received in convertible foreign exchange, the services were used outside India, and therefore, the conditions under the Export of Services Rules, 2005, were met.

After examining the nature of activities, the Tribunal held that the principal service rendered by the taxpayer was freight forwarding, and CHA services were merely incidental and supplementary.

It found that the orders for transportation, including customs clearance, emanated from overseas entities, the benefit of services accrued to foreign customers, and consideration was received in convertible foreign exchange.

The Bench further stated:

"the provision of CHA service is to be treated as export of taxable service in terms of Rule 3(1)(ii) of the Export of Services Rules, 2005. As the CHA services provided by the assessee-appellant from India is used outside India, and payment for the same is received by the assessee in convertible foreign exchange, we find that the assessee-company has satisfied the conditions laid down under Rule 3(2) of the said Rules. Therefore, we hold that the said service is to be treated as “export of service”, which is exempt from levy of Service Tax under Rule 4 of the said Rules."

The Bench held that no service tax is payable on CHA services rendered to foreign customers as part of the export of services.

Accordingly, the Tribunal set aside the service tax demand, interest, and penalties, allowed the appeal filed by the taxpayer, and dismissed the Revenue's appeal.

For Appellant: Chartered Accountant, Anup Sinha,

For Respondent: Authorized Representative, S. Dutta