Applicability of service tax on transporation/ freight charges, Service Tax

[SANDEEP GUPTA]

Sir,

One of my client (Pvt. Ltd. co) who is engaged In providing logistics service to exporter and importers as well. company arrange transport vehicle from the open market, and such agency issue consignment note/ bilty/ lorry slip in fevour of this logistic company. Such logistics company do not issue any consignment note but raise a slip for taking receipt of goods only. Will such services be taxable under GTA or covered under negative list & not taxable at all.

Since transportation/ freight charges of truck, ship and airlines are paid by such company, please state whether liability will arise under service tax.

Posts / Replies

[Ganeshan Kalyani]

As per clause B of Rule 2(1)(d) of Service Tax Rules, 1994 any person who pays or is liable to pay freight either himself or through his agent for the transportation of such goods by road in a goods carriage is liable to pay service tax. In view of this rule, the consignor or consignee i.e. importer or exporter is a person liable to pay freight and they pays it through their agent Pvt Ltd. co. Hence, the export and importer on whose behalf the Pvt Ltd Co is arranging the transport vehicle and paying freight charges are supposed to pay service tax. But contrary situation is that as the consignment note is in the name of Pvt Ltd Co. and the company is paying freight charges it may be treated as the consignor and it may be made liable to pay service tax under reverse charge mechanism. This is my view. The views of expert is welcomed in this regard for more clarity.

[SANDEEP GUPTA]

Thanks for opinion, please also give your opinion on first part (will such service could be taxed under any head our be claimed not taxable as per nagetive list.

sandeep gupta

[ashish chaudhary]

Pvt Ltd company would be liable to pay service tax on RCM on services availed from the transport vehicles vendors provided the consignment note is issued in the name of Pvt Ltd company and payment of freight is made by it. If it can be established that the payment has been made by Pvt Ltd company as agent of exporter/importer, liability under RCM would be on such party.

The nature of services provided by pvt ltd company to exporter/importer needs to be examined to determine the liability. If the services provided is in the nature of cargo handling/freight forwarding (i.e. responsibility of Pvt Ltd company is more than mere transportation which appears to be so), ST applicable @ 14%. If service is merely of transporter, negative list exclusion could be claimed citing that no consignment note issued, hence no GTA.

Department may not agree in view of KMB Granites 2014 (35) S.T.R. 63 (Mad.)= 2014 (11) TMI 87 - Madras High Court where held that consignment note is not mandatory for GTA service.

[SANDEEP GUPTA]

Thank u very much for sharing case law,

Further I elaborate my case,

Basically pvt. ltd is providing bundle of services which broadly falls under transportation, CHA, warehousing etc. Company hire another agency(truck/shipping or airline) for transport and incur incurr some fee (like duty, octroi etc) as pure agent. Company does not raise won consignment note but issue a document for taking receipt thereon. Now I want to know whether amount charged as freight/transportation (with profit margin) be claimed as tax free vide entry (66D(p) negative list or not.

[Ganeshan Kalyani]

As per section 66 (D)(p) the service by way of transportation of goods i) by road except the service of (A) a goods transport agency. is provided as exempt. It means goods transport agency service is a taxable service. Since the company is availing the service of GTA and is paying freight and is being raised with consignment note it is rightly liable for paying service tax under reverse charge.

[KASTURI SETHI]

I fully agree with Sh. Ganeshan Kalyani’s replies dated 16.11.2015 and dated 18.11.15 and Sh.Ashish Chaudhary’s reply dated 17.11.15.I would like to express my views only on the issue of ‘Consignment Note’ in this context.The judgement in the case of KMB Granites reported as 2014(35) STR 63 (Mad.)= 2014 (11) TMI 87 - Madras High Court pertains to the period from January, 2005 to June,2005 and the person who has sought for reply is concerned about the present position. And if we talk of period prior to 1.7.2012, issuance of consignment note was one of the ingredients to qualify the definition of GTA Services under Section 65 (50b) of the Finance Act. Note the words in the definition,"..........................., by whatever name called. This definition remained in force from 18.4.2006 to 30.6.2012 and, thereafter, w.e.f. 1.7.2012 it is in force for statistical analysis. Change of nomenclature from 'Consignment Note' to another name of the document or non-fulfillment of one condition out of seven does not absolve the assessee of service tax liability. I mean to say contents of the definition do not lose its applicability even in the present scenario. Normally there are following ingredients to qualify for the taxable service and these are :-

1. There must be Service Provider (Service Receiver in the case of RCM)
2. There must be Service Receiver.
3. Actually service should be provided
4. Consideration billed/received.
5. Service. does not fall in the category of negative list.
6. Service Does not fall in the category of exempted service.
7. Service should fall in the taxable jurisdiction.

For GTA Service there is another requirement i.e. issuance of consignment note. In case Service Provider of GTA service fulfills all the seven conditions but does not fulfill one condition of ‘Consignment Note’ or he prepares its own document in lieu of consignment note, it does not imply that the assessee shall be allowed to avoid payment of due service tax or exploit law irrespective of the tha fact whether period is before 1.7.2012 or after 1.7.2012. So practically better option for the assessee (Service Provider or Receiver) is to pay service service tax and avoid interest and penalty.

[SANDEEP GUPTA]

Thanks sir,

Please tell me if am wrong on the following stand,

1) My client company is liable to pay service tax on GTA service under reverse charges irrespective of the fact goods is moving to or from custom station.

2) He can take cenvat credit of such service tax deposited under rcm.

3) He can claim benefit of negative entry on the ground that He is not acting as GTA. This service is being provided by another agency. One service (activity) can not be taxed in two hand at the same time.

Please guide me.

[Ganeshan Kalyani]

Your first and second point is in affirmative as you have correctly understood from the discussion by experts as above. However your third point is incorrect. You client company is availing the service of GTA from a goods transport agency. For goods transport agency service the recipient of the service and more specifically the person who pays the freight is liable to pay service tax. The service of GTA availed by your client company may have been availed for their customers but facts remains intact that the service is availed by your client company and have paid the freight to the goods transport agency

[Ganeshan Kalyani]

Further I fully agree with Kasturi sir reply. And as said it is better to pay service tax and avoid interest and penalty.

[KASTURI SETHI]

Today I opened the Discussion Forum of TMI for writing point-wise reply to the queries dated 19.11.2015 of Sh.Sandeep Gupta and found that Sh.Ganeshan Kalyani has already answered to the queries. I thought of writing on the same lines. Hence I endorse Sh.Ganeshan Kalyani's views on the three points displayed on 19.11.2015.

[ashish chaudhary]

Dear Sandeep Ji,

Services provided by pvt ltd company is bundled services of freight forwarding, liable to service tax at full rate.

Transporters charges could be exempted for all the parties subject to fulfilment of condition of Notification No. 31/2012-ST

[Ganeshan Kalyani]

Thank you Kasturi sir.

[SANDEEP GUPTA]

Thanks to all sir(s),

I we assume that our client company is also a GTA (In spite off no issuing own consignment note). Then also service tax is to be paid by customers.

In this situation our client company can utilize cenvat credt of tax paid under RCM on GTA service taken, against other services or can also file refund claim.

Please reply.

[Ganeshan Kalyani]

You have reiterated that your client company is a GTA and we are pitching to make you know that your client company is not GTA but has availed GTA service and it should rightly comply for service tax. Further to your query regarding input credit of service tax paid under reverse charge against output liability I am of the view that if you can prove to the department that there is justifiable nexus of input service of GTA for providing output bundled services to customers by your client company. this is my view.

[Ganeshan Kalyani]

* Credit can be availed. to be read with my previous reply. Thanks.

[SANDEEP GUPTA]

Sir, I ma very thankful to you for suggestion,

But still am little confused and want more clarity on the following issues with regard to Transportation charges paid and billed with margin to customers,

1) Whether my client company would be treated as GTA or not.

2) If yes, Service tax is liable to be paid by customers. In case no GTA then what are the consequences on our client company and customers of the company.

3) How to treat service tax paid on transportation service used.

Please clarify

[Ganeshan Kalyani]

After incurring the freight cost if your client company collects the same from its clients/customers then it tentamounts to a reimbursement transaction and not a GTA service and as such your client company will not be treated as GTA. further service tax is applicable on reimbursement transaction w.e.f.14.05.2015 as per amendment in Finance act 2015. Moreover a margin element is also added which gives weightage for taxability.

[Radha Arun]

The person liable to pay service tax in respect of GTA is "any person who pays or is liable to pay freight either himself or through his agent", as per Rule 2(1)(d)(i)(B) of the Service Tax Rules 1994.

Therefore, if the exporter / importer authorises the pvt ltd company to pay freight, and the consignment notes are obtained in the name of the exporter / importer, that person can avail Cenvat credit or exemption for exporter, as the case may be.

[SANDEEP GUPTA]

Ganeshan Kalyani Sir,

My client company charges the transportation charges with some margin (or agreed rate with customer) irrespective of actual payment. Now please tell me the applicable rate and relevant account head.

[Ganeshan Kalyani]

The Service tax on reimbursement shall attract the accounting code of the service toward which the the expense is incurred on behalf of the recipient of the service. This is second thing. First being the liability of service tax to be paid by your client company under reverse charge on the freight charge paid based on the consignment note it received from GTa.

[Ganeshan Kalyani]

If you justify the nexus of availing of GTA service toward the bundled service it provides the credit will certainly be available.

[SANDEEP GUPTA]

Thanks for clarifying the issues,

It is clear that my client company should pay service tax on tpt. charges under RCM.

Now question is how much or what rate of service tax should they charged in the invoice and in which code this will be deposited and how it will be shown in ST-3.

Please clarify the matter.

[Ganeshan Kalyani]

Abatement on GTA service is 70%. The receiver of the service who pays freight should pay service tax on 30% of the freight amount under reverse charge. secondly the freight amount which would be recovered from their customer should have service tax charged@14.5% on the invoice raised on them. The service tax so collected shall be paid under same heading as that of GTA since it is reimbursement of the freight charges with some profit element. this is my view.

[SANDEEP GUPTA]

Thanks u very much sir,

If my client company issue own consignment note and pay the vehicle hiring charges to agencies, in such situation what will be the position of taxability of input service and output service.

Further please also express your view whether freight charges paid to shipping and airlines (for to and from customer station) and then billed to customers with agreed rate, would be taxable output service or not. Please also justify the view taken.

Please waiting for reply.