Ruling: Freight charges without consignment note not exempt from CGST/SGST under works contract

The Authority for Advance Ruling, Maharashtra, ruled that the freight charges recovered by the applicant from the customer without issuing a consignment note were not eligible for exemption from either CGST or SGST. The services were deemed part of a composite supply of works contract, with transportation services being integral to the overall contract, making them taxable at 18%. The interdependence of the supply of goods and transportation services indicated they were not separate supplies but part of a single, indivisible contract.

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Issues Involved:
1. Eligibility for exemption from CGST on freight charges recovered without issuance of consignment note.
2. Eligibility for exemption from SGST on freight charges recovered without issuance of consignment note.

Issue-wise Detailed Analysis:

1. Eligibility for exemption from CGST on freight charges recovered without issuance of consignment note:

The applicant, a technology solutions provider, entered into a contract with a Public Sector Undertaking for the supply and service of HVDC Terminals. The contract was divided into six parts, with the applicant responsible for the "On-shore service contract (VSC part)." This included local transportation, insurance, and other incidental services.

The applicant engaged local transporters who issued consignment notes and charged GST on the freight paid. The applicant then recovered these transportation charges from the customer without issuing additional consignment notes. The applicant sought an advance ruling on whether these charges were exempt from CGST under Serial no. 18 of Notification no. 12/2017 - Central Tax Rate, which exempts services by way of transportation of goods, except those provided by a goods transportation agency (GTA) or courier agency.

The applicant argued that since they did not issue consignment notes, they did not qualify as a GTA and thus should be eligible for exemption. They cited several judicial precedents and the GST Council's intent to maintain pre-GST exemptions.

The Authority observed that the contract was a composite supply of goods and services, with the transportation being an integral part of the overall works contract. The contract's terms, including cross fall breach clauses, indicated that the supply of goods and transportation services were not independent but part of a single, indivisible contract. Therefore, the transportation services could not be considered separately for exemption purposes.

The Authority concluded that the freight charges recovered by the applicant from the customer without issuing a consignment note were not eligible for exemption from CGST, as the services were part of a composite supply of works contract, taxable at 18%.

2. Eligibility for exemption from SGST on freight charges recovered without issuance of consignment note:

The applicant also sought a ruling on the applicability of SGST exemption under Serial no. 18 in Notification no. 12/2017 - State Tax (Rate). The arguments and facts presented were similar to those for the CGST exemption.

The Authority reiterated its findings that the contract was a composite supply of works contract, with the transportation services being an integral part of the overall contract. The terms of the contract, including the cross fall breach clauses, supported the view that the supply of goods and transportation services were not independent but part of a single contract.

Therefore, the Authority concluded that the freight charges recovered by the applicant from the customer without issuing a consignment note were not eligible for exemption from SGST, as the services were part of a composite supply of works contract, taxable at 18%.

Conclusion:

The Authority for Advance Ruling, Maharashtra, ruled that the freight charges recovered by the applicant from the customer without issuing a consignment note were not eligible for exemption from either CGST or SGST, as the services were part of a composite supply of works contract. The contract's terms and the interdependence of the supply of goods and transportation services indicated that they were not separate supplies but part of a single, indivisible contract.

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