1. Service
Tax - Introduction
It is
quite surprising to know that unlike other central taxation laws like Central
Excise Act, 1944; Customs Act, 1962; Income Tax Act, 1961; Central Sales Tax
Act, 1956; etc; there is no specific act like Service Tax Act. The power to levy service tax is derived by the Central Government
vide residual entry No. 97 of Schedule VII of the Constitution of India.
Service Tax is levied, collected and administered under Chapter V of the
Finance Act, 1994 (hereinafter referred to as the Act). It extends to whole of
India except
the state of Jammu & Kashmir.
Service
Tax is, as the name suggest, a tax on services. It is an indirect tax, akin to
excise duty and sales tax, where the incidence of tax is passed on to the
consumer. It is significantly different from excise duty and sales tax, where
the tax is levied on goods, which are tangible. The taxable event for levy of
service tax is the rendering of service, which is intangible.
Since
introduction of Service Tax in the year 1994 (when initially only three service
were taxable), the concept was based on selective approach, wherein the
services specified (positive list) under Section 65(105) of the Act (as
amended) were taxable.
The
Finance Act, 2012 has made a paradigm shift in the taxation of services. In the
new concept, popularly known as Negative List approach, all the services provided or agreed to be
provided in the taxable territory are taxable, unless they are specified
under the negative list entry or otherwise exempted. This has tremendously broadened the scope of levy of service tax.
The negative list approach is made applicable w.e.f. 01-07-2012. Section 66B of
the Act is the charging section which prescribes the rate of service tax as
12%. After adding the Primary Education Cess of 2% on service tax and Higher
Secondary Education Cess of 1% on service tax, the effective rate of service
tax, is 12.36%. [Refer Para 10.1]
In this
Article, the author has attempted to reply, to some of the queries, in
Frequently Asked Questions (FAQ’s) format, related to service tax on ‘Goods
Transport Agency Service’ with reference to the new negative list approach. It can be used as a guide to service tax on GTA which is one of
the most litigated services.
2. Service
Tax on GTA - Background
The levy
of Service Tax on Road Transportation Service has always remained subject
matter of uncertainty and litigation. Earlier, The Finance Act, 1997 had levied
Service Tax on Goods Transport Operators w.e.f. 16-11-1997 which was
subsequently withdrawn after nation-wide strike. Thereafter by the Finance (No.
2) Act, 2004 Service Tax has been imposed on Transport of Goods by Road service
rendered by any goods transport agency with effect from 10-09-2004. However,
the levy was deferred till further notice again in view of transporters strike.
The Government thereafter constituted a committee to study the matter. Taking
into account the recommendations of the Committee, Notification Nos. 32 to
35/2004 – ST all dated 03-12-2004 were issued, finally levying tax of Transport
of Goods by Road with effect from 01-01-2005.
3. Definitions
3.1 Who
is a GTA - Goods Transport Agency?
As per
Section 65B(26) of the Finance Act, 1994; "Goods Transport Agency means
any person who provides service in
relation to transport of goods by road and issues consignment note, by whatever name called”. Therefore,
issue of Consignment Note (C/N) is integral and mandatory requirement before
any road transport can be said to be GTA.
The use
of the phrase ‘in relation to’ has extended the scope of the definition of GTA.
It includes not only the actual transportation of goods, but any
intermediate/ancillary service provided in relation to such transportation,
like loading/unloading, packing/unpacking, transshipment, temporary
warehousing, etc. If these services are not provided as independent activities
but are the means for successful provision of GTA Service, then they are also
covered under GTA and abatement allowed.
In the
positive list approach, by statutory provision, GTA service was taxable if
provided in a ‘goods carriage’ as defined therein. There is no such explicit
condition in the negative list approach.
3.2 What
is a Consignment Note?
Consignment
Note is not defined in the Act. As per Explanation to
Rule 4B of Service Tax
Rules, 1994; consignment note means a document, issued by a goods transport
agency against the receipt of goods for the purpose of transport of goods by
road in a goods carriage, which is serially numbered, and contains the name of
the consignor and consignee, registration number of the goods carriage in which
the goods are transported, details of the goods transported, details of the
place of origin and destination, person liable for paying service tax whether
consignor, consignee or the goods transport agency.
3.3 Who
is a Courier Agency?
As per
section 65B(20) of the Act, “courier agency means any person engaged in the door-to-door transportationof time-sensitivedocuments, goods or articles utilising
the services of a person, either directly or indirectly, to carry or accompany
such documents, goods or articles”.
Note: A
courier agency is not restricted to transportation of goods by road. It can
transport any documents, goods or articles by any mode of transport such as
air, road or water.
3.4 Is it
mandatory to issue Consignment Note?
Yes, Rule
4B ibid mandates issue of C/N by any goods transport agency which provides
service in relation to transport of goods by road in a goods carriage to the
recipient of service. In case of default, penalty upto Rs. 10,000/- may be
imposed u/s 77 of the Act. However, it is not mandatory for a courier agency to
issue a consignment note.
4. Negative
List
4.1
Whether each and every transportation of goods by road is taxable for all
persons?
No.
Services by way of transportation of goods by road are taxable, ONLY IF the
same is provided by (i) a goods transportation agency; or (ii) a courier
agency. Services of Road Transport provided by all others are not taxable
because they are covered by the Negative List u/s 66D(p)(i) of the Act. In
other words, if any person is providing service of transportation of goods by
road, and is neither covered under the statutory definition of GTA, nor under
courier agency, then he is not liable to pay any service tax on such
transportation.
5. Reverse
Charge on GTA
5.1 We
are a Partnership Firm. We purchased Plant & Machinery from Kolkata and
paid freight of Rs. 20,000/-to the transporter. Our chartered accountant
informed that we are legally required to obtain service tax registration and
pay service tax on Rs. 20,000/-!!!!Why? We are not providing any service?
Your C.A.
is absolutely correct. Normally, the liability to pay service tax is on the
person providing the service. But, by fiction of law, section 68(2) of the Act
has empowered the Central Government to notify such services, on which the
liability to pay service tax, to the extent specified, shall be shifted from
the service provider to the service recipient. This is popularly known as
Reverse Charge Mechanism (RCM). Notification No. 30/2012-ST dated 20-06-2012
has been issued which covers GTA service and shifts full (100%) liability of
service tax on the service receiver. Any person located in taxable territory,
who pays or is liable to pay freight is treated as service receiver.
5.2 Does
the same rule apply to individual/proprietorship firm paying freight?
No. As per Entry No. A(ii)
of N/No.-30/2012, reverse charge is applicable only when taxable service
provided or agreed to be provided by a goods transport agency in respect of
transportation of goods by road, where the
person liable to pay freight is,—
a) any factory registered
under or governed by the Factories Act, 1948 (63 of 1948);
b) any society registered
under the Societies Registration Act, 1860 (21 of 1860) or under any other law
for the time being in force in any part of India;
c) any co-operative society
established by or under any law;
d) any dealer of excisable
goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the
rules made there under;
e) any body corporate
established, by or under any law; or
f) any partnership firm whether
registered or not under any law including association of persons;
So, it can be clearly seen
that an individual/proprietorship firm is not covered in the above ‘specified category’. It means, if the freight
is paid (either himself or through his agent) by an individual/proprietorship
firm or HUF then the service tax thereon shall be paid by the GTA itself.
Note: N/No.-30/2012 is
effective from 01-07-2012. But, even before that, reverse charge was applicable
on GTA and instead of ‘person liable to pay freight’, it earlier covered ‘if
the consignor or consignee’ is a specified category. The specified category as
prescribed earlier was slightly different from the current specified category.
ILLUSTRATION:
A goods transportation agency transports a consignment of M.S. Rod from
Rourkela to Mumbai. The consignor is a public limited company and the consignee
is an unregistered partnership firm. The goods shall be used in construction of
a single residential house. As per the agreement, freight shall be payable by
the consignee. The consignment note is prepared on ‘TO PAY’ basis. Who is the
person liable to pay service tax?
One of the ‘specified category’ is a partnership firm whether registered or not
under any law. Here, the person liable to pay freight is a ‘specified
category’, so reverse charge is applicable. The service tax shall be paid by
the partnership firm. The end use of goods is generally not relevant for taxing
GTA service (Except few instances, say when it is provided to the United
Nations or a specified international organization, SEZ, etc.)
ILLUSTRATION:
ABC Ltd. sells the goods to
XYZ Ltd. The freight for transportation of the goods has been paid by ABC Ltd
to the GTA. The consignment note is prepared on ‘FREIGHT PAID’ basis. ABC Ltd.
collects this freight from XYZ Ltd., on actual basis, by separately showing it
in the invoice, which is paid by XYZ Ltd., to ABC Ltd. Who is liable for
payment of Service Tax?
ABC Ltd. is the person liable to pay freight. It cannot be said to be paying
the freight on behalf of XYZ Ltd. ABC Ltd. is only getting reimbursement of the
freight paid by it, initially. As such, the liability for payment of service
tax will only be on ABC Ltd.
5.3 It
means an Individual/Proprietorship Firm can pay any amount of freight to any
GTA without any service tax implications?
Yes, if
the same is neither a factory, nor a registered dealer under Central Excise
Act, 1944.
Practical Issue: As
mentioned in Para 2.2, the consignment note should indicate that whether
consignor, consignee or the GTA shall be paying service tax on the consignment.
It is the duty of the GTA to ascertain, in each case, the person liable to pay
freight as per the agreement, check if such person is covered under specified
category and accordingly mention the person liable to pay service tax in C/N as
per law. In practical situation, it would be very difficult for GTA, especially
when freight is to be paid by an individual/proprietorship firm. How can a GTA
know that such a person is registered or governed under the Factory Act, 1948
or is a registered dealer of central excise? Should he take certified true copy
of such registration certificate for each such person and in case of
non-registration, a declaration to such effect?
5.4 We
have entered into a contract with a very renowned and big size GTA which is a
Public Limited Company for transportation of raw materials to our factory. They
are registered with the service tax department. Who is liable to pay service
tax?
For
application of reverse charge, the size and status of the GTA providing
transportation service is irrelevant. Since you are a factory (specified
category), paying the freight, you shall discharge the service tax liability.
5.5 What
if the service tax is charged separately by the GTA in C/N or Bill?
The
reverse charge liability under section 68(2) of the Act is a statutory
liability imposed by law. The liability of service provider and service
receiver is different and independent of each other. Even when the service
provider (GTA) has wrongly charged service tax in bill, the liability of
service receiver is not discharged. So, it is suggested that the person paying
freight shall deduct service tax charged by the GTA and pay only the freight
amount to the GTA. The service tax on GTA shall be deposited directly by the
service recipient to the government exchequer.
5.6
Whether reverse charge is applicable on courier agency?
No,
courier agency is not covered under reverse charge. Any person receiving
services of a courier agency are not liable to pay service tax on payment of
courier charges.
6. Place
of Provision of GTA Service
6.1 What
is the place of provision of a service of transportation of goods?
As per
Rule 10 of Place of Provision of Services Rules, 2012, Place of provision of a
service of transportation of goods is the place of destination of goods, except
in the case of services provided by a GTA in respect of transportation of goods
by road, in which case the place of provision is the location of the person
liable to pay tax (as determined in terms of Rule 2(1)(d) of Service Tax Rules,
1994).
6.2 Who
is a person liable to pay tax?
Rule
2(1)(d) of Service Tax Rules, 1994 provides that where a service of
transportation of goods is provided by a‘goods transportation agency’, and due
to reverse charge [Refer Para 5.2] , the person liable to pay tax is the person
who pays, or is liable to pay freight (either himself or through his agent) for
the transportation of goods by road in a goods carriage. But, if the person liable to pay freight is located
in non-taxable territory, then the person liable to pay service tax shall be
the service provider. [Proviso to Rule 2(1)(d) ibid]
In simple
words, in all the cases of transportation of goods by road, by GTA, where the
location of the person liable to pay freight is in the state of Jammu&
Kashmir or Outside India, the person liable to pay service tax is GTA itself.
ILLUSTRATION:
A goods transportation agency,
GTA Ltd. is located in Bhubaneswar. It transports a consignment of steel ingots
from Rourkela to a Steel Rolling Mill in Jammu (Non-Taxable Territory). As per
the agreement, the freight shall be payable by the rolling mill in Jammu. The
consignment note is prepared on ‘TO PAY’ basis. Who is the person liable to pay
service tax?
The service tax shall be
paid by GTA Ltd. because the person liable to pay freight is located in Jammu
which is in non-taxable territory and as per proviso to Rule 2(1)(d) ibid, the
person liable to pay tax is the service provider i.e. GTA Ltd.
7. Threshold
Exemption
7.1 I
have heard that just like basic exemption of Rs. 2 Lacs in Income-tax, there is
a threshold exemption of Rs. 10 Lacs in service tax. Is it correct?
Yes,
there is threshold exemption of Rs. 10 Lacs available under N/No. – 33/2012-ST,
but the same is allowed only to the service provider. The service recipient
liable to pay tax under RCM, on services covered u/s 68(2) has been
specifically excluded to avail the threshold exemption.
In strict
legal terms, suppose a partnership firm of chartered accountants or advocates
is setting up a new office. They paid freight of Rs. 1,501/- to GTA on
transportation of furniture & fixtures purchased for the office. For such a
trivial transaction, the partnership firm must obtain service tax registration
and pay tax thereon and file half yearly return!!! This is quite illogical and
harsh requirement, particularly for the small assessee’s, but that’s law.
The trade
associations/ chamber of commerce should send representation to the Central
Government to allow some threshold exemption to the service recipient liable to
pay tax under reverse charge. It would prevent small assessee’s from genuine
hardship. This may also save a lot of unknowing defaults resulting into
litigations, which could put extra pressure on judiciary.
8. Exemptions
– Value / Item Based
8.1
Whether service tax leviable on every consignment by GTA, including local
transporting, where the freight charged is very low?
No. Mega
Exemption Notification No. 25/2012-ST has exempted low value consignments from
the levy of service tax, as follows: (a) Where the gross amount charged for the
transportation of goods on a consignment transported in a single goods carriage is upto Rs
1,500/-; or (b) Where the gross amount charged for transportation of all such
goods for a single consignee in
the goods carriage is upto Rs. 750/-
Note:
Many authors have interpreted that the exemption of higher limit of Rs. 1500 is
available if the goods carriage is transporting goods of single consignee. But
in my view, the higher exemption is available even when the goods carriage is
transporting goods of more than one consignee, if the gross amount charged from
all the consignee’s for single goods carriage is upto Rs. 1500.
ILLUSTRATION:
A company receives goods
from a GTA in a truck. No other goods are loaded in that truck. The company
pays freight of Rs. 1500/- to GTA. No service tax is payable by any person on
this consignment as it is exempted.
ILLUSTRATION:
A company receives goods
from a GTA in a truck. Some other goods not belonging to the company are also
loaded in the truck. The company pays freight of Rs. 900/- to GTA. The freight
of other goods is Rs. 500/-. Service Tax is not payable by the company on this
consignment as the total freight for the truck is Rs. 1400 (<1501) so it is
exempted.
ILLUSTRATION:
In the above illustration,
if the freight of other goods is Rs. 700/-, then the total freight for the
truck is Rs. 1600 (>1500). Freight paid by company is Rs. 900 (>750). So,
exemption is not available and the company should pay service tax on Rs.
900/-!!
Practical
Issue: What could be the documentary proof that the goods carriage is
transporting goods belonging to only single consignee or more than one
consignee!! Should the consignor/consignee take a certificate from the GTA that
vehicle did not carried any other goods?
8.2 A proprietorship firm trading in steel is registered under central
excise as dealer, has paid freight for a quarter as below. What is the service
tax liability?
Here, the
proprietorship firm is liable to pay service tax under reverse charge as it is
registered under central excise. The consignment in a single vehicle with
freight upto Rs. 1,500 is fully exempted. So, service tax on balance Rs.
5,31,000/- @ 3.09% = 16,408/-
8.3 In
the above example at Para 8.2, if the proprietorship firm is not registered
under central excise, then what are the consequences?
Then, RCM
is not applicable and the service tax shall be paid by the respective GTA,
after considering the exempted consignments. Assuming that a single GTA is
involved in the above case, the GTA is liable to pay tax amounting to Rs.
16,408/-
8.4 Is
there any other exemption available on GTA Service?
Yes.
N/No. 3/2013-ST dated 01-03-2013 has amended the N/No. 25/2012 w.e.f.
01-04-2013, extending exemption for services provided by a GTA, by way of
transport in a goods carriage of;
i.
agricultural produce;
ii. foodstuff includingflours, tea, coffee,
jaggery, sugar, milk products, salt and edible oil, excluding alcoholic
beverages;
iii.
chemical fertilizer and oilcakes;
iv.
newspaper or magazines registered with the Registrar of Newspapers;
v. relief
materials meant for victims of natural or man-made disasters, calamities,
accidents or mishap; or
vi.
defense or military equipments;”
This
amendment is a positive for the FMCG and food companies like Hindustan
Unilever, Nestle, ITC, Perfetti, Kellogs, etc. and those manufacturing or
trading/dealing or retailers (including departmental stores like Big Bazaar,
Vishal Mega Mart, etc.) in these products. It is pertinent to mention that
prior to this amendment; the exemption was available on fruits, vegetables,
eggs, milk, food grains or pulses in a goods carriage.
8.5 We
are wholesale dealers of food items like rice, wheat, sugar, refined oil,
mustard oil, jeera, etc. Are we liable to pay service tax on freight paid on
transportation of these food items?
No.
Neither service receiver, nor service provider (GTA) is liable to pay service
tax as the transportation of these items is exempted.
9. Registration
of GTA
9.1
Whether it is compulsory for a GTA to take registration for service tax?
As per
section 69(2) of the Act, registration is compulsory, when the aggregate value
of taxable services, provided from all the premises, of all descriptions, exceeds
Rs. 9 Lacs. So, a GTA need not apply for service tax registration until the
limit of Rs. 9 Lac is reached. While calculating the limit of Rs. 9 Lac, the
GTA service where reverse charge is applicable is to be excluded.
9.2 Does
it mean that a GTA providing all transportation service to persons covered
under RCM is not required to obtain service tax registration?
Yes,
because he is neither liable to pay tax, nor his aggregate value of taxable
services exceed Rs. 9 Lacs. As per circular no. 341/18/2004-ST dated
17-12-2004, according to provisions of section 69 of the Act, requirement of
registration is limited to persons liable to pay service tax. Thus those goods
transport agencies, which are not liable to pay any service tax, are not
required to be registered under the service tax rules.
9.3
Whether it is compulsory for a recipient of GTA service to take registration
for service tax?
Yes, if
reverse charge is applicable, service recipient becomes liable to pay service
tax and section 69(1) of the Act mandates that every person liable to pay tax
shall obtain service tax registration. The application shall be made in Form
ST-1 within 30 days of arising of liability. The Range Superintendent shall
issue the registration certificate in Form ST-2. The half-yearly returns are
required to be filed in Form ST-3 by 25th October/April
every year for 1st & 2nd Half
respectively.
10. Abatement
on GTA
10.1 What
is abatement on GTA?
The
dictionary meaning of abatement is‘diminution in amount, degree or intensity;
moderation’ or reduction. Notification No. 26/2012-ST dated 20-06-2012 has
allowed abatement of 75% on GTA. It means that if the value of GTA service
(freight) is Rs. 100, service tax is exempted on
Rs. 75 and service tax @ 12.36% (including Ed. & SHE Cess) shall be paid
only on the balance value of Rs. 25. So, effective
rate of service tax on GTA service is 3.09% of total freight.
10.2 Who
can avail abatement?
The
abatement can be availed by the person liable to pay service tax on GTA. In
other words, in case of reverse charge, the service recipient can avail
abatement and pay tax @ 3.09% and when reverse charge is not applicable, than
the GTA can avail abatement and pay tax @ 3.09%
10.3 What
are the conditions for availing abatement?
The
abatement is available subject to the condition that the CENVAT credit on
inputs, capital goods and input services, used for providing the taxable
service, has not been taken under the provisions of the CENVAT Credit Rules,
2004.
Note: In
the positive list approach, due to a lot of litigations and practical
difficulty in proving non-availment of cenvat credit by the GTA, the government
had allowed unconditional abatement of 75% w.e.f. 01-03-2008 vide N/No.
13/2008-ST, and dropped the similar condition as in Para 10.3. But, it has
re-appeared in the negative list regime w.e.f. 01-07-2012 vide N/No.
26/2012-ST!!!
11. Cenvat
Credit
11.1 A
manufacturing company is paying freight on transportation of raw materials upto
its factory. Can it avail abatement and cenvat credit simultaneously?
Yes, any
service receiver can avail abatement and pay tax @ 3.09% and still take cenvat
credit of such tax, if the GTA service is otherwise eligible as ‘input
service’. In case of outward freight, cenvat credit is not available for
freight paid beyond the ‘place of removal’. The above condition in Para 10.3
restricting the cenvat credit is for the service provider using any inputs,
capital goods or input services for providing such services.
11.2 How
can a service recipient ascertain that the GTA has not taken cenvat credit?
The
service recipient should obtain a declaration/certificate from the GTA that
they have not availed cenvat credit on inputs, capital goods and input
services, used for providing the taxable service. In the absence of such a
declaration, the Assessing Officer may deny the benefit of abatement and can
raise demand. It is suggested that the GTA should have a declaration
pre-printed in its consignment note. [Refer Note to Para 10.3]
11.3 A
person has cenvat credit balance available for utilization. Can he utilize
cenvat credit for payment of service tax on GTA under reverse charge?
No, the
service recipient is not allowed to utilize cenvat credit for payment of
service tax under reverse charge. [Explanation to Rule 3(4) of Cenvat Credit
Rules, 2004]. Thus, the service recipient must directly deposit service tax on
GTA through GAR-7 Challan.
11.4 When
can a service recipient avail cenvat credit of service tax paid under RCM?
As per 1st proviso
to Rule 4(7) of Cenvat Credit Rules, 2004; the service recipient can avail
cenvat credit of an input service, where service tax is paid by him on reverse
charge, after making payment of value of input service to the service provider
and after payment of service tax thereon. Thus, cenvat credit is not available
unless payment of value of input service is made.
11.5 What
is the relevant document for availing cenvat credit by service recipient?
The
cenvat credit is available to service recipient as the person liable to pay tax
on the basis of GAR-7 challan evidencing the payment of service tax. [Rule
9(1)(e) of Service Tax Rules, 1994]
12. Due
date for payment of Service Tax
12.1 What
is the due date for payment of service tax?
However,
for the month/quarter ending on 31stMarch,
the due date shall be 31st March
of the same month/quarter. [2ndproviso
to Rule 6(1)]
13. Point
of Taxation
13.1 A
company, which is following mercantile system of accounting, is unable to
decide due date for the following GTA service received by it during the month
of October, 2013
Lord Justice
Topes had once famously remarked that “The auditor is a watchdog and not a bloodhound.” Companies Act,
2013 does not seem to echo this thought! The kind of stringent measures
prescribed in the Companies Act 2013 against auditors gives the picture that
the Act indeed expects the auditors to be bloodhounds in discharging their duties
and not merely as watch dogs. The Satyam saga seems to have cast a very looming
image in the minds of regulators as far the auditors are concerned.
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