RCM ON FREIGHT PAID FOR TRANSPORT TO NEPAL, Goods and Services Tax - GST

[ROHIT GOEL]

DEAR SIR,

A manufacturer is shipping their goods from Haryana to Nepal via road. The transporter is issuing consignment note for transport service and not charging GST. My question is whether RCM is payable on such transport?

As per my understanding, as per section 13 of IGST Act, place of service is outside India but service supplier is located in India and as such it would be a Inter state supply liable to GST and thus RCM.

Posts / Replies

[CAHemanth Kumar]

Dear Sir,

Since the supplier of GTA services and recipient both are located in India, PoS has to be decided as per section 12 of IGST Act and not as per section 13.

Relevant provision will be section 12 (8) of IGST Act and PoS will be destination of goods (Nepal)

Place of supply of services where location of supplier and recipient is in India

(8) The place of supply of services by way of transportation of goods, including by mail or courier to,––

(a) a registered person, shall be the location of such person;

(b) a person other than a registered person, shall be the location at which such goods are handed over for their transportation.

1[Provided that where the transportation of goods is to a place outside India, the place of supply shall be the place of destination of such goods.]

Further if we see section 7(5) of the IGST Act, this transaction will be consider as inter state supply.

5) Supply of goods or services or both,––

(a) when the supplier is located in India and the place of supply is outside India;

shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.

Thereby the said transaction will be an inter state supply and RCM liability will attract as there is no specific exemption provide for the said transaction.

One more issue may arise is once we pay tax IGST (PoS as other territory) under RCM, credit of the same may not be eligible as IGST (PoS as Haryan) will only be an eligible credit.

Request experts to share their view on liability, PoS and ITC as this is peculinear transaction.

[Shilpi Jain]

Agree with Hemanth.

There is an unintended amendment done in the law which could lead to denial of credit since PoS is a place other than the location of the recipient. This will have to be seen how it reflects in the GSTR 2B, in case the supplier is registered.

However, credit should be taken under intimation to the department since there is no specific denial of this kind of credit in the law.

[KASTURI SETHI]

Goods have been exported. Goods cannot be exported without transportation. Supply of service and supply of goods are integrally related. It is composite supply. GTA service has been exported. Both supplies are zero-rated supply, it being composite supply. No question of RCM arises.

[CAHemanth Kumar]

Dear KASTURI SETHI Sir,

For supplier of goods and recipient of goods, we can say it is a composite supply of goods and no separate GST will be applicable for transport charges.

Whereas for GTA, he is just providing the services of transportation we cannot call it as a composite supply as there is only 1 supply involved

[KASTURI SETHI]

Sir, The query says a manufacturer is shipping goods from Haryana to Nepal via road. What does it mean ? Pl. Clarify.

[CAHemanth Kumar]

Dear Sir,

The query

A manufacturer is shipping their goods from Haryana to Nepal via road. The transporter is issuing consignment note for transport service and not charging GST. My question is whether RCM is payable on such transport?

May be the question is not about the transaction between the supplier and the customer. It is about the Transporter and the supplier.

[KASTURI SETHI]

Dear Sir,

When goods are exported, normally GTA services are up to the port or international border but in the present scenario, GTA services have been exported (crossed the border). Therefore, both goods and services are inter-State supply on account of export of goods and services both. Both are zero-rated supplies.When export has taken place, we should talk of IGST regarding determination of place of supply. We should talk of Section 13 of IGST Act and not of Section 12 of IGST Act. Buyers/recipients of both goods and services are located outside India (non-taxable territory). No question of applicability of RCM.

Supposing (as you say) it is not composite supply, even then RCM is not applicable.

[Shilpi Jain]

As I mentioned Kasturi sir, this is the by-product of the unintended consequences of the amendment to the statute. I have been of the view that the Government should put considerable thought and effort before making any amendment in the law. I have myself written articles on a few of the blunders in certain amendments made

[KASTURI SETHI]

Madam, I want to read your article. Post link here pl.

[Alkesh Jani]

Shri / Ku.

The query raised need some clarification. Whether, the freight is to be paid by the importer i.e. buyer in Nepal or freight will be paid by the exporter i.e. Indian seller.

Whether the said supply is on C & F basis or FOB (i.e. upto India's Border).

Based on above, reply can be given.

Thanks

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

A crucial point raised by you. This point may prove determinant factor.

[Rajan Atrawalkar]

The manufacturer is selling goods to Nepal , raising invoice with / or without freight component. In any case it it a composite supply and being export/ zero rated supply no tax is leviable in the invoice on forward charge basis. Now the other part is that, the freight component is borne by the manufacturer and same is debited to his expense account. When the freight is paid by the manufacturer then he becomes recipient of service for RCM purposes. And he has also received consignment note for the same. Hence RCM is payable by him. Now, regarding place of supply, section 12(8)(a) “location of such regd. Person”. If the transporter and the manufacture are from the same state / UT, then CG+SG will be payable, and if transporter is from another state /UT then IGST will be payable. Section 13 of IGST will not come in to picture as both the supplier and receiver are within taxable territory.

[KASTURI SETHI]

Sh. Rajan Atrawalkar Ji,

Beautifully explained on both aspects of the issue by you. Your reply has really enriched my knowledge regarding how RCM is applicable and how RCM is not applicable in this scenario. The role of ,"IF' cannot be brushed aside inasmuch as still full facts are not known to us.

Furthermore, I am of the view that, de facto, freight is borne by the recipient of the goods located in foreign country, a non-taxable territory. And I presume that the supplier (exporter) will recover the amount of freight along with the agreed price of the goods exported from the foreign buyer. Thus freight is not actually borne by the consignor.(It also depends upon the terms and conditions of the agreement/contract between the seller and the buyer of the goods.)

[Shilpi Jain]

@Kasturi sir - I have not written on this particular topic but in general I see that the amendments in general create controversies which sometimes become a part of my articles.

[Shilpi Jain]

@Rajan sir

The moment you conclude that it is a composite supply in the hands of the supplier, it cannot be seen differently in the hands of the recipient. So in your kind of conclusion if the supply is composite in the hands of supplier it cannot be split in the hands of the recipient to charge GST under RCM

[Rajan Atrawalkar]

Whether a supply is mixed or composite, is the question regarding forward charge on sale/supply of goods and services. The supply may be including expenses such as freight or separately shown in the invoice. If they are shown separately, the principal supply being of goods, rate of tax on goods will be applicable on entire invoice value being composite supply.

Now, regarding freight paid to GTA. If that would have been borne by the buyer in Nepal, then no question of paying RCM in India would have arisen. However, as per the querist, the manufacturer has received consignment note of freight from GTA. RCM liability is cast upon recipient of service. And the person who pays the freight or who is liable to pay is deemed to be recipient of service and he becomes liable to pay RCM. So ultimately the manufacturer is liable to RCM on freight paid to GTA.

[KASTURI SETHI]

MY VIEWS

It is undisputed fact that GTA service stands exported. Hence it is zero-rated.

HYPOTHETICAL SITUATION

Freight paid by the consignor (manufacturer) to GTA will be actually borne by the buyer in Nepal. The consignor has paid freight to GTA for and on behalf of his buyer located in Nepal. So he will recover that amount of freight from the buyer. GTA, being registered in taxable territory will have to issue consignment note.

In case freight is actually borne by the Nepal buyer, GST service will be zero rated supply.

[Rajan Atrawalkar]

GTA service is not exported at all. GTA raised consignment in the name of Manufacturer. Manufacturer is recipient of service. He made the payment to GTA. He is liable to raise “self-made Invoice” u/s 31(3)(f) of that amount along with RCM.

For better understanding the situation, change the location of Nepal dealer to somewhere UP in India.

Now does he becomes liable to RCM. The answer is no, because he is not recipient of consignment note, neither he may not be even aware of freight component. RCM is always paid on the basis of consignment note. How can he pay RCM on without knowing anything about freight component? As the freight is borne by the manufacturer and has supplied the goods, presumably FOR basis, he is the only person liable to pay RCM.

In normal course of all businesses , freight component always passes from manufacturer to distributor, wholesaler and to ultimate consumer. Does this means that the ultimate consumer becomes liable to RCM. This will lead to some absurd theory. RCM is only payable by the person who is direct recipient of service and has received consignment note.

[Alkesh Jani]

Dear Experts,

With due regards, I am of the view that it is not wise to discuss the issue with "IF" and "BUT". The issue can be discussed if all the facts are made available. Therefore, issue is not eligible for further discussion.

Above is simple and humble request, anyone is free to act as per his/her wisdom and knowledge.

Thanks,

With Regards

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

I agree with you. You are absolutely right.Full facts must be known to the experts at the first instance. Sometimes the querist discloses full facts at later stage and then direction of reply is changed. In the absence of factual position, we are 'forced' to beat about the bush. So if full facts are known to us time and energy of querists and experts is saved.

[Ganeshan Kalyani]

Every expert is correct here. It is like a painting hanging on the wall and each person is guessing the thing. The painter has to come forward and explain the facts.

[ROHIT GOEL]

Thank you to all esteemed experts for their valuable inputs. It appears that facts were not clear so i am stating the same hereunder:

A manufacturer has supplied goods to one of its customers in Nepal. As per agreement, price of shipment is included in price of product i.e. freight is to be borne by manufacturer. The manufacturer arranges for transport of goods via truck and transporter raises consignment note/bilty and freight is paid by manufacturer to transporter.

In my understanding, the RCM liability in such case falls upon manufacturer since he is responsible for paying freight to transporter. However since place of supply is defined to be outside India in such case, there may be issue when it comes to claim of ITC on such RCM.

The remaining is left by me to best of understanding and opinion of the panelists. Thank you.

[Amit Agrawal]

I agree with views of CA Hemanth Kumar (at Post No. 1) with regards to liability to pay tax under RCM (u/s 7 (5) (a), Place of Supply (i.e. outside India) as well as nature of tax (i.e. IGST) to be paid.

I also agree with views of Ms. Shilpi Jain (at Post No. 2) that ITC against IGST paid under RCM is available to the manufacturer-exporter of concerned goods, even when 'place of supply' is outside India.

Lastly, I believe that constitutional validity of Section 7 (5) (a) is doubtful. But, better option is to pay IGST under RCM and take ITC there-against in subject scenario under discussion.

All above are strictly personal views of mine and same must not be taken as professional advice / suggestion.

[Alkesh Jani]

Shri

As per the facts made available, my views are as under :-

First, IGST is to determine the place of supply of goods and/or service i.e. CGST + SGST is payable or IGST.

In present case, GTA services are supplied to the manufacturer, so CGST + SGST is applicable as per Section 12 (8) (a) of IGST Act, but on going through the proviso it is clear that the supply of service is to be treated as outside India and therefore, IGST is applicable. RCM is applicable and manufacture is required to pay IGST on the services. (Refer Section 7 (5) (a) of IGST Act.)

Further, service of GTA is well within the definition of input services given at Section 2 (60) of CGST Act, we can say that GTA services are used for export of goods and ITC is available.

Thanks