Goods Transportation is an extensive industry with its own complications, especially when it comes to its taxability under GST.
GTA (Goods Transport Agency) as a supplier is engaged in providing transport services to customers. Such GTA may have its own vehicles, or they might sometimes take them on hire or a rental basis as per the requirement. Not just transportation by road, there are other means of transportation like the seaway or by air. So in all such cases, there always exists a confusion on how to tax such supplies? Whether such supplies fall under the forward charge or reverse charge mechanism? At what rate it should be taxed and who can avail the credit of such tax paid?
This article contains some of those specific cases and their implications. To deal with specific issues, few of the possible scenarios have been compiled in the form of case studies for better understanding. Let us discuss them individually:
Let’s assume that 3 parties are involved in this case- TATA motors, GTA and the ultimate recipient, i.e. customer.
TATA motors have given a truck to a GTA, and that GTA uses this vehicle in providing their outward taxable supply by transporting goods for its customer, that is the recipient. Now, in the 1st leg, there are two main possibilities, either TATA motors have given such vehicle to GTA on:
Where A Vehicle Is Sent On Hire Basis:
Where A Vehicle Is Sent On A Rental Basis:
- The first leg of supply is between TATA motors and GTA. It is pertinent to note here that it is not a GTA service that has taken place.
- It's merely a vehicle supplied on hire basis. Such a supply is covered under the forward charge mechanism whereby TATA motors are liable to pay taxes.
- In this particular case, no taxability shall arise on the supplier (TATA Motors) because the hiring of a motor vehicle by a GTA has explicitly been exempted by the government under heading no. 9966/9973.
- As discussed above this supply is also covered under the forward charge whereby TATA motors shall be liable to pay tax at a prescribed rate of 18%.
- It is essential to understand that the supply of vehicle on hiring vs supply of vehicle on a rental basis, both are two different terms, and so is the treatment.
- The taxability of such supplies entirely depends upon the type of agreement entered. So one has to be very careful while drafting an agreement.
The 2nd leg of the supply is between the GTA and its recipient. The following are the relevant points in this regard:
- Now, this supply is a GTA service.
- An input tax credit of tax paid by GTA (where the vehicle is taken on rent) shall be available only if GTA has opted to pay tax at 12% under the forward charge mechanism.
- But, if the GTA opts to pay GST at 5%, the reverse charge mechanism shall apply, and consequently, no ITC shall be allowed, which will resultantly increase GTA’s cost.
Suppose in the above case, GTA has been approached by the recipient to transport Agricultural Produce
from one place to another. What are the implications?
No taxability shall arise on transportation services by GTA since a notification has specifically exempted agricultural produce.
What if this agricultural produce is processed and tagged up with a “Brand” which is now taxable @ 5%?
It will still not be taxable because these goods are still in the nature of agricultural produce and mere tagging with a brand name will not change its substance. Maybe it is taxable @ 5%, but its nature is still that of agricultural produce, and thus no liability to pay tax shall arise.
In continuation of the above, another possibility is that the goods being transported are the ones that are NIL rated. Will there be any liability to pay tax in this case as the goods being transported are nil rated?
So the answer to this question will be Yes. There is a difference between exempted services
and exempted goods
. Exemption for goods (i.e. exempted goods) are given under N/n 2/2017- CTR.
Whereas if we refer to the exemption of services, services of GTA have been explicitly exempted when goods being transported are ‘Agricultural Produce’.
Thus, even if the goods being transported are exempted, there is a liability to pay tax under RCM/FCM on transportation services as the case may be.
For this case, let us consider another scenario, where there are 3 parties involved, i.e. exporter of India, shipping transport service provider, and the final recipient, i.e. customer located outside India.
Let’s assume that, the exporter in India has availed services of a shipping line to export goods to his customer in another country, say, Australia. Now, a question arises that, is there any applicability of tax on transportation services and if so can the exporter claim the credit of tax paid on shipping services availed?
In order to understand this scenario, we need to first refer to section 12(8) of the IGST Act, 2017.
The said section states that where goods are transported outside India, the place of supply shall also be outside India. It seems that the government intends to promote exports by keeping such supply outside the scope of taxability.
But interestingly, this supply of transportation services is not covered under the definition of export of services for the simple reason that the recipient is located in India and the consideration paid will always be paid in INR. Thus, this service fails to qualify as export of services.
So, one can undoubtedly conclude that IGST is leviable on such supply. But another question that stands before us is, which state should get the portion of IGST charged since the goods are not destined to any Indian state. They are delivered outside India, and so the SGST component of IGST is not specific.
For these specific supplies, the supplier can deposit the SGST component of IGST under the head “other territory tax”. The exporter can claim an input tax credit of the tax paid since IGST Act in itself does not bar claiming credit merely for the reason that credit can be claimed from that state only to whom the tax is paid.
Guest Post By
: CA Sakshi Virmani