A brief note on Goods Transport Agency
(GTA) Service
An Insight into History of Goods Transport Agency
Service
Tax was first introduced on Goods Transport Operator (GTO) services with effect
from 16-11-1997. However, due to several oppositions from the truck
associations, the levy of service tax on the same was withdrawn with effect
from 02-06-1998. Since the magnitude of revenue loss from the withdrawal of service
tax on transport services by road became so high that the Ministry of Finance
once again introduced the tax on Goods Transport Agency (GTA) Services with
effect from 01-01-2005.
With
the re-introduction of service tax on transportation services by road, the
incidence of tax has been shifted from Goods Transport Operator (GTO) to Goods
Transport Agency (GTA). In fact a very thin linedistinction can be drawn between
the two, which can be noted from the Budget Speech dated 08-07-2004 delivered
by Hon’ble Finance Minister, Shri P.Chidambaram which reads:
“the tax would be only on transport booking
agents and there is no
intention to levy
service tax on truck owners or truck operators”
Goods
Transport Agency – Definition
It would be pertinent to note that Clause (p) of
Section 66D (Negative List) specifies transportation of goods by road except when
provided by GTA as a Non-Taxable service. It means that only service provided
by GTA is taxable. Now the question arises as to what technically is a Goods
Transport Agency. Goods Transport Agency as defined u/s 65B(26) of Finance
Act,1994 introduced with effect from 01-07-2012 means:
- Any person;
- that provides service ‘in relation to’;
- transport of goods by road; &
- issues consignment note.
It
may be noted that the definition uses the word “means” which makes the
definition restrictive and exhaustive. As defined above, the aforementioned
points are the mandatory ingredients for the purpose of levy of service tax on
GTA. Besides the phrase used in the definition ‘in relation to’ has extended
the scope of GTA, which includes various intermediary and ancillary services
such as loading, unloading, packing, unpacking, transhipment, temporary
warehousing and is to be treated as part of GTA service for the successful
provision of the principal service. Further, it needs to be mentioned that any
service which has a direct or indirect connection with a specified service has
to be treated as ‘in relation to’ that specific service. The aforesaid can be
affirmed from the decision laid down by Hon’ble Supreme Court in the case of Doypack
Systems (P) Ltd. vs. Union of India 1998(36)ELT 201(SC).
Moreover,
any person who is the owner of trucks or arranges the trucks by hiring them and
provides transportation service cannot be termed as GTA. In addition to this, a
GTA must have a direct contract with consignor/consignee and receive freight
from consignor/consignee.
Now
the question which puts many minds into dilemma is the issue pertaining to consignment
note. What actually is it? Let us have a brief analysis on it.
Consignment Note
Generally,
when a person deposits the goods with any transporter for the purpose of
transport to a given destination, the transporter issues the lorry receipt or consignment note to
the person depositing the goods. The name of the consignee is mentioned on such
note. The original copy of the lorry receipt is sent by the person depositing
the goodsi.e consignor to the consignee to enable him to collect the goods from
the transporter.
Further,
it has been made mandatory for every GTA to issue consignment note to the receiver
of service under Rule 4B of Service Tax (Fifth Amendment) Rules, 2004. It would
be pertinent to note that the failure to issue consignment note would merely be
a violation of law but will not discharge the service receiver from paying his
liability.The aforesaid can be affirmed from the case of Bharati Soap Works v CCE [2008]13
STT 196.
Liability to pay Service Tax
When
the taxable service is provided by GTA to an individual, HUF, sole
proprietorship or an unregistered partnership firm, then it is the GTA who is
liable to pay service tax on the taxable value of the services provided. However,
as per Clause (2) of Notification No. 30/2012 – ST dated 20-06-2012, 100%
liability (popularly known as, Complete
Reverse Charge Mechanism) to pay service tax has been shifted from service
provider to service receiversubject to the condition that the service receiver must
belong to any of the specified categories which includes factory(registered
under Factories Act,1948), company, registered corporation, registered society,
registered body corporate or a registered partnership firm.
Now,
the common question which arises is that whether the threshold limit of INR 10
lacs needs to be considered, in case the liability to pay service tax falls on
service receiver. In this connection, it would be pertinent to note that the
threshold exemption of INR 10 lacs under Notification No. 33/2012–ST is made
available only to service provider and not to service recipient. The service
receiver is liable to pay service tax under Reverse Charge Mechanism.
Abatement/ value-based exemption in Value
An
abatement of 75% of gross amount charged is permitted for determining the value
on which tax is payable. In simple words, as per entry no. 7 of Notification
No. 26/2012 – ST dated 20-06-2012, the service tax is payable for services
provided by GTA on 25% of gross amount charged. But
one needs to be cautious that if abatement of 75% is availed then CENVAT credit
on inputs, capital goods and input services is prohibited if used for providing
output service.
Besides abatement, it would be relevant to note that certain value
based exemptions have also been inserted vide Item No. 21 of Notification No.
25/2012-ST dated 20-06-2012 which grants full exemption under two circumstances
namely (i) where the gross amount charged on goods transported in a single
goods carriage does not exceed INR 1500; & (ii) where the gross amount
charged for transportation on a consignment of all such goods for a single
consignee does not exceed INR 750.
Consignor Ltd., a public limited company, engaged in
manufacturing of excisable goods arranges for the transportation of goods from
Goods Transport Agency to the Consignee Ltd. The GTA charges a consideration of
INR 10000 from Consignee Ltd.
What will be the amount of service tax & who
shall be liable to pay service tax?
Since
both the consignor & consignee falls under the specified category, the
liability to pay service tax falls on consignor or consignee whoever pays
freight or is liable to pay freight. In the instant case, as the freight is
paid by the consignee, the liability to pay service tax also falls on consignee
under the Reverse Charge Mechanism by availing an abatement of 75% on the gross
amount charged by the GTA. It is pertinent to note that the Consignee will have
to mandatorily take registration of GTA Services and pay
service tax & accordingly file the half yearly return in Form ST-3. Service
Tax payable by Consignee = INR 309 (10000*25%*12.36%)
What if the consideration is reimbursed to the
consignor from the consignee?
It
may be noted that generally the freight is paid by the person who is the
recipient of goods. However, in some cases, when the goods are sold on Free on
Board (FOB) basis, it is the consignor who pays the freight. In this regards,
it is relevant to note that in M/s
Sumangalam Suitings Pvt. Ltd. & Others vs. CCE, the Hon’ble Tribunal
has held that if the consignor has engaged a GTA for delivery of goods to the
consignee, it cannot be contended that the consignee is liable to pay service
tax, even if the consignee would have reimbursed freight charges to the
consignor. Service Tax payable by Consignor = INR 309 (10000*25%*12.36%)
What if the Consignor/Consignee (liable to pay) is an
individual, proprietorship firm, or unregistered partnership firm?
If
the consignor/consignee is an individual, proprietorship firm or unregistered
partnership firm, then the liability to pay service tax falls on service
provider i.e. GTA subject to the condition that threshold limit of INR 10 Lacs
must have exceeded. The GTA may not claim CENVAT credit of inputs and input
services in case it claims abatement. Service Tax payable by GTA = INR 309 (10000*25%*12.36%).
Cenvat Credit on GTA Services
Rule
2(l) of the Cenvat Credit Rules, 2004 defines Input Services as “inward transportation of inputs or capital
goods and outward transportation upto place of removal”.It would be
relevant to note that if the manufacturer utilizes the services of GTA for
inward transportation, then without giving any second thought to other things,
the manufacturer can avail the CENVAT credit of service tax paid on GTA. But
the doubt may arise in case of Outward freight. Is CENVAT credit allowed on
outward transportation?
From
the afore-mentioned definition of Input service, it is crystal clear that outward
transportation upto place of removal is eligible for credit. Here, emphasis
should be placed on the phrase “up to the place of removal”. Now, one may
question that when can outward transportation is to be treated as input
service?In this regard, Circular No. 97/8/2007 dated 23rd August,
2007 may be referred wherein it is stated that if the following three
conditions are satisfied then only outward transportation is to be treated as
input service, which are mentioned here-in-below:
(i)
The ownership is with
the seller till the doorstep of the buyer;
(ii)
The seller shall bear
the risk of loss or damage during transit; &
(iii)
The freight charges
were integral part of the price.
And
accordingly by satisfying the aforesaid conditions, a manufacturer paying the
service tax on GTA service can avail the CENVAT credit on outward
transportation.
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| Nischal |
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| Aditya |
By
Aditya Singhania & Nischal Agarwal
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