"CHAKA JAM" (TRANSPORTERS STRIKE) AND RECENT RELIEF OF SERVICE TAX TAXES

[C.A. DEV KUMAR KOTHARI]

Goods transporters (particularly by road) have many times used the practice of  'CHAKA JAM ANDOLAN', against government policies affecting them. As these transporters have major role in maintaining supply of goods to general public, trade, commerce and the industry, Chaka Jam badly effect on all segments of  the economy.  Therefore, the demands raised by them have to be considered seriously. For the same reason, the strikers have sufficient bargain power to seek commitments from government.

Meeting demand of transporters at cost of others:

Many times while meeting demands of 'Chaka Jammers', the government shifts their burden on others. For example, by reducing price of diesel, the burden may be shifted to oil companies or to the exchequer of GOI and local governments. In case of taxation also a relief allowed to strikers may be a reason of burden on others. For example, when service tax was levied on GTA, they resorted to Chaka Jam, and then major burden of paying service tax was shifted on specified type of consigner or consignee who pays freight.    

Recent Strike:

Members / supporters of All India Motor Transport Congress (AIMTC) have gone on nation-wide indefinite strike w.e.f. 5.1.2009 with the following major demands:

a.       reduction in diesel prices by Rs.10/- per litre,

b.      reduction in tyre prices by about 35%,

c.       moratorium on payment of instalment and waiver of interest on truck finances,

d.       moratorium on payment of toll for six months,

e.        free movement of vehicles without any National/State permits and related tax,

f.         fixation of minimum freight rate;

g.        abolition of service tax on any services provided by Goods Transport Agency (GTA) or its subcontractors / intermediaries;

h.        exemption of limit for paying cash to transporters or by transporters to their subcontractors like truck owners;

i.          to make amendments in the Motor Vehicles Act and Carrier Act in tune with ground realities;

j.         Exempting from  tax deduction  at source (TDS) from payment of freight.

Certain actions taken by Government:

            The Government announced reduction of diesel price by Rs.2/- w.e.f. 6.12.2008 despite significant financial burden on the oil sector companies.

            The Reserve Bank of India and Indian Banks Association have already taken certain measures such as giving liberty to the banks to allow first and second restructuring of loan which also covers truck finances.

Tyres-  As regards the allegation of AIMTC regarding cartelization of tyre manufacturers, the government spokesperson stated that  it is open for them to approach Monopolies and Restrictive Trade Practices Commission (MRTPC) to seek proper redressal. Regarding  abolition of duties and taxes on tyres, the same has been taken up with Ministry of Finance and Department of Industrial Policy & Promotion for appropriate decision.  

Service tax-as regards abolition of service tax on Goods Transport Agencies (GTA) and their sub-contractors, it is pertinent to mention that the AIMTC earlier went on strike on the same issue in July 2008. As per the agreement signed with AIMTC at that point of time, the Government has already issued necessary notifications / clarifications relating to service tax matters on transporters. A final decision relating to exempting all subcontract services under GTA from payment of service tax is also under consideration at the highest level of the Government and a decision in this regard is expected at any time.

Regarding TDS  the transporters were explained of the redressal mechanism available for seeking relief in the matter relating to TDS. ( obtaining certificates from A.O. for no TDS or TDS at lower rate.  

 

Recent Notification on Service Tax -added six more input services in exempted list:

By exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32  of 1994) vide  notification, No.1/2009-Service Tax  of 5^th January, 2009 the Central Government has fully exempted the following services from service tax, when service receiver is GTA, subject to fulfillment of prescribed conditions:

Brief description	relevant  clause of S.65 (105)
(i)  clearing and forwarding agent service;	clause (j)
(ii)  manpower recruitment or supply service;	clause (k)
(iii ) cargo handling service;	clause (zr)
(iv)   storage and warehousing service;	clause (zza)
(v) business auxiliary service;	clause (zzb)
(vi)  packaging activity service;	clause (zzzf)
(vii)  business support service;	clause (zzzq)
(viii)  supply of tangible goods service.	Clause (zzzzj)

It is noted that items at serial no. (i) to (vii) are newly exempted, and item (viii) was earlier exempted  through NOTIFICATION NO 29/2008-Service Tax,  Dated: June 26, 2008 F No. 334/ 105/2008-TRU.

Limitations of exemption:

It is applicable only when the above services are rendered by a service provider to GTA service referred to in sub-clause (zzp) of clause (105)  as service receiver and not in case of any other service receiver. Therefore if a road transport activity does not meet the criterion of GTA, then such service receiver will not be exempt. Therefore, it is desirable that conditions applicable to GTA  should be fully satisfied. 

New conditions for documentation by service provider:

The conditions are:

a.        the invoice issued by such service provider, providing services to GTA  should mention the name and address of the goods transport agency and

b.      also the name  (should be number) and date of the consignment note, by whatever name called, issued in his behalf.

The requirement at b.  is not justified because service providers may  provides service to GTA on regular basis and several CN may be involved every day. The requirement of name of GTA should be considered sufficient. This requirement should therefore, withdrawn.

GTA service provider vis a vis consignor or consignee:

In case the  GTA agency use these services as per contract or trade practices in the course of GTA business, the revenue should not draw an adverse inference merely because  such services should have been availed or can be availed  directly by the  consignor and/ or  consignee and not by the GTA service provider. However, if there is sudden shift in terms and conditions, and services hitherto availed by consignor / or consignee are shifted to GTA service provider, then off course an adverse inference can be drawn by the revenue that such sudden shift in terms and condition is just to avoid tax payment. 

Relief to GTA:

Although the notification says that the notification is issued …' on being satisfied that it is necessary in the public interest so to do, …, however reasoning of such satisfaction are not mentioned. It appears that to avoid strikes and related problems this notification has been issued.

An abatement of 75% of value of GTA services is allowed in lieu of taxes paid on input goods and input capital goods. There is no further credit for input service tax.  Since no credit is available to GTA services  referred to in sub-clause (zzp) of clause (105),  for input services, it appears that the present notification is issued to mitigate hardship and  cascading effect which leads to high transportation cost  and inflation.

Exempt all input services:

When major input services have been exempted, and considering purpose GTA service provider should be exempted from levy of  service tax on all input services availed by them. For example, services of  authorized service station, communication by way of telephones, fax, internet, email, courier , advertisements, repair and maintenance and annual maintenance contracts, insurance services etc. are important input services and has sizable element of cost in cost of transportation of goods by road.  To make the case simple all input services availed by GTA can be exempted.

Long-term decisions should be preferred:

It can be noticed that  within a short period of  less than seven month a new notification has been issued. This shows that while issuing such important notifications, proper exercise of review of all related matters is not made and piecemeal approach is adopted. When a notification is superseded  with a new one giving more exemptions, it can be  said that the new notification can be applied w.e.f. earlier notification or even from inception, because there cannot be such frequent change in legislative intentions when there are same set of legislators are found at all these times. This can lead to litigation. It is desirable that the policy of wholesome and  long-term decisions should be preferred.