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of <h1>Rail transport of empty containers taxed at 5% GST under Entry 9(i) of Notification 11/2017-CTR, subject to ITC restriction</h1> AAR, Gujarat held that transportation of empty containers by rail is classifiable under Entry 9(i) of Notification No. 11/2017-CT(R) and liable to GST at ... Correct GST rate applicable for the transportation of empty containers by rail - legal and tax implications if GST is charged at 5% on the transportation of empty containers instead of 12% - applicability of condition of Entry No. 9(i) (transport of goods by rail, other than services specified at item No. 9(iv)) to the transportation of empty containers - under what conditions would Entry No. 9(i) apply to the transportation of empty containers?. Correct GST rate applicable for the transportation of empty containers by rail - HELD THAT:- There is no ambiguity when the applicant transports the goods in containers as they fulfil all the conditions of Clause (iv). The only issue is when the empty containers are transported by the applicant, as there is no specific entry for such service. Further, in such cases, the intention is not to transport any goods in the container but the container itself, thus bringing it outside the scope of Clause (iv). It is found that Clause (i) covers transport of goods by rail other than those services mentioned in Clause (iv). Thus, according to us, this is a general entry covering all transport of goods by rail except when goods are transported in containers by rail by any person other than Indian Railways. While it is trite law that a specific entry will prevail over a general entry, but if there is no specific entry for a certain service then it would be covered by the general entry. Since, there is no specific entry for transportation of empty containers, the proper entry would be Clause (i) of Sl. No. 9 of the Notification. During the Service tax regime, CBIC vide Circular No. 96/07/2007-ST dtd. 23.08.2007, while clarifying the scope of storage and warehousing of empty containers as leviable to service tax under Storage and Warehousing services, had stated that empty containers are covered within the meaning of goods as defined in Section 65(50) of the Finance Act, 1994. As per Section 65(50), ‘goods’ has the meaning assigned to it in clause (7) of section 2 of the Sale of Goods Act, 1930 (3 of 1930). It is found that the definition of ‘goods; under Section 2(7) of the Sale of Goods Act, 1930 (3 of 1930) is almost akin to the definition of goods in the CGST Act. This further fortifies the argument that the empty containers which are goods and transported by rail is covered vide Clause (i) of Sr No. 9 of Notification No. 11/2017-CT(R) dtd. 28.06.2017. Thus, the correct GST rate applicable for the transportation of empty containers by rail is the rate provided in Clause (i) of Sr. No. 9 of Notification No. 11/2017-CT(R) dtd. 28.06.2017, which is 5%. Legal and tax implications if GST is charged at 5% on the transportation of empty containers instead of 12% - HELD THAT:- Since it is already held that the tax rate is 5%, the question is not answered. Under what conditions would Entry No. 9(i) apply to the transportation of empty containers? - HELD THAT:- Entry No. 9(i) would also apply to the transportation of empty containers. Further, this Entry has a condition that the credit of input tax charged in respect of goods in supplying the service is not utilised for paying central tax or integrated tax on the supply of the service. It is found that though the other entries have two rates based on the availment of ITC or otherwise, there is no such condition as far as Entry No. 9(i) is concerned. Therefore, the applicant would have to mandatorily forego his ITC (as mentioned in Explanation -IV to the Notification) while paying GST @ 5% for the transportation of empty containers. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether transportation of empty containers by rail by a container train operator is covered under Entry 9(i) or Entry 9(iv) of Notification No. 11/2017-Central Tax (Rate), for the purpose of determining the applicable GST rate. 1.2 Whether empty containers transported by rail qualify as 'goods' under Section 2(52) of the CGST Act so as to fall within 'transport of goods by rail' under Entry 9(i) of the said Notification. 1.3 Whether the residual Entry 9(vii) of Notification No. 11/2017-Central Tax (Rate) is applicable to transportation of empty containers by rail. 1.4 What are the conditions attached to the applicability of Entry 9(i) for transportation of empty containers by rail, particularly regarding availment of input tax credit. 1.5 Whether any ruling is required on the legal and tax implications of charging GST at 5% instead of 12% when the Authority holds that 5% is the correct rate. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Classification of service: Entry 9(i) vs. Entry 9(iv) of Notification No. 11/2017-Central Tax (Rate) Legal framework discussed 2.1.1 The Court examined Entry 9 of Notification No. 11/2017-Central Tax (Rate), dealing with 'Goods transport services' under Heading 9965, specifically: - Entry 9(i): 'Transport of goods by rail (other than services specified at item no. (iv))' - GST 5% (2.5% CGST + 2.5% SGST) subject to non-utilisation of input tax credit on goods used in supplying the service. - Entry 9(iv): 'Transport of goods in containers by rail by any person other than Indian Railways' - concessional rate subject to specified credit conditions. Interpretation and reasoning 2.1.2 The Court held that Clause (iv) is a specific entry, applicable only when: (a) transportation is through rail, (b) the 'goods' are transported in containers, and (c) the service is provided by a person other than Indian Railways. 2.1.3 When loaded containers are moved, these conditions are met, and the service clearly falls under Entry 9(iv). However, for transportation of empty containers, there are no 'goods in containers'; instead, the containers themselves are the subject of transport. Hence, the activity does not fall within 'transport of goods in containers' under Clause (iv). 2.1.4 Entry 9(i) is a general entry that covers 'transport of goods by rail' in all cases 'other than services specified at item no. (iv)'. Where a service is not specifically covered by Clause (iv), it must be classified under Clause (i) if it amounts to transport of goods by rail. 2.1.5 The Court noted the principle that a specific entry prevails over a general entry, but where there is no specific entry for a given service (here, transportation of empty containers), the general entry applies. 2.1.6 The contention that Clause (i) is meant only for services provided by Indian Railways and Clause (iv) for non-railway operators was expressly rejected. The Court found no such limitation in the text; the wording was 'clear, plain and unambiguous' and had to be given effect as such. Clause (iv) is restricted to 'goods in containers' by persons other than Indian Railways, and there is 'no scope for an intendment' to include transportation of empty containers. Conclusions 2.1.7 Transportation of empty containers by rail by a person other than Indian Railways does not fall under Entry 9(iv) ('transport of goods in containers'). 2.1.8 Such transportation is classifiable as 'transport of goods by rail (other than services specified at item no. (iv))' under Entry 9(i) of Notification No. 11/2017-Central Tax (Rate). 2.1.9 Accordingly, the applicable GST rate for transportation of empty containers by rail is 5% under Entry 9(i). 2.2 Whether empty containers are 'goods' for the purposes of Entry 9(i) Legal framework discussed 2.2.1 Section 2(52) of the CGST Act defines 'goods' as 'every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.' 2.2.2 The Court referred to CBIC Circular No. 96/07/2007-ST dated 23.08.2007 issued in the service tax regime, where empty containers were treated as 'goods' for the purpose of service tax on storage and warehousing, by reference to the definition in Section 65(50) of the Finance Act, 1994 and Section 2(7) of the Sale of Goods Act, 1930. Interpretation and reasoning 2.2.3 The Court observed that the definition of 'goods' in Section 2(7) of the Sale of Goods Act, 1930 and the definition in Section 2(52) of the CGST Act are substantially similar in breadth. 2.2.4 Containers are movable property. Empty containers, therefore, fall within the statutory definition of 'goods' as long as they are movable and not excluded categories such as money and securities. 2.2.5 The earlier administrative clarification under the service tax regime treating empty containers as 'goods' was taken as reinforcing this interpretation under the GST regime. Conclusions 2.2.6 Empty containers constitute 'goods' within the meaning of Section 2(52) of the CGST Act. 2.2.7 Transportation of empty containers by rail is, therefore, legally 'transport of goods by rail' and is covered by Entry 9(i) of Notification No. 11/2017-Central Tax (Rate). 2.3 Applicability of residual Entry 9(vii) to transport of empty containers by rail Legal framework discussed 2.3.1 Entry 9(vii) of Notification No. 11/2017-Central Tax (Rate) covers: 'Goods transport services other than (i), (ii), (iii), (iv), (v), (vi) and (via) above.' 2.3.2 The Court noted that the other entries under Serial No. 9 pertain to modes such as rail, vessel, GTA, pipeline, multimodal transportation and ropeways. Interpretation and reasoning 2.3.3 The Court held that the residual Entry 9(vii) is intended to cover goods transport services not falling under any of the specific modes or categories already enumerated in Entries 9(i)-9(vi) and 9(via). 2.3.4 Since transportation of goods by rail is specifically and comprehensively dealt with under Entries 9(i) and 9(iv), rail transport services cannot be subsumed under the residual category. Conclusions 2.3.5 Entry 9(vii) does not apply to transportation of empty containers by rail. 2.3.6 Transportation of empty containers by rail must be classified under Entry 9(i) and not under the residual Entry 9(vii). 2.4 Conditions attached to applicability of Entry 9(i) for transport of empty containers (Input tax credit implications) Legal framework discussed 2.4.1 Entry 9(i) prescribes a concessional rate of 5% GST, subject to the condition that 'credit of input tax charged in respect of goods in supplying the service is not utilised for paying central tax or integrated tax on the supply of the service.' 2.4.2 Explanation (iv) to Notification No. 11/2017-Central Tax (Rate) (referred to by the Court) clarifies the effect of forgoing input tax credit in the context of concessional rates. Interpretation and reasoning 2.4.3 The Court noted that, unlike certain other entries under Serial No. 9 which provide two alternative tax rates depending on whether input tax credit is availed, Entry 9(i) is structured with a single concessional rate of 5% subject to a mandatory condition on non-utilisation of input tax credit on goods used in supplying the service. 2.4.4 Once the service (transportation of empty containers by rail) is classified under Entry 9(i), the condition concerning input tax credit becomes compulsorily applicable. Conclusions 2.4.5 For transportation of empty containers by rail under Entry 9(i), GST is payable at 5%. 2.4.6 The supplier must not utilise credit of input tax charged in respect of goods used in supplying the service for payment of central tax or integrated tax on that service and must, in effect, forego such input tax credit in accordance with Explanation (iv) to the Notification. 2.5 Need to rule on 'legal and tax implications' of charging 5% instead of 12% Interpretation and reasoning 2.5.1 One of the questions posed sought the legal and tax implications if GST is charged at 5% on transportation of empty containers instead of 12%. 2.5.2 Having held that the correct legal classification of the service is under Entry 9(i) with an applicable GST rate of 5%, the Court considered that a further ruling on 'implications' of charging 5% in place of 12% was rendered unnecessary. Conclusions 2.5.3 No separate ruling was given on the legal and tax implications of charging 5% instead of 12%, as the Court had already determined 5% to be the legally correct rate.
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