Freight charged along with raw material Invoice

[RAM SHARMA]

Dear Experts,

We are registered manufacturer in Central Excise and Service Tax Department. We are liable to pay service tax under GTA services as a service receiver. Our some Raw material supplier shows freight amount in raw material invoice. They are not raising seperate freight invoice nor GR in our favour. Are we liable to pay service tax on such freight amount. Please advice.

Thanks

[MANDAVILLI RAMAKRISHNA]

you are liable to pay both vat and service tax

[manju nath]

Sir,

 

As per my knowledge when supplier shows freight amount in raw material invoice. There is no need to pay service on such freight amount.

 

Thanks

c.k.manjunath

8903156245

[Guest]

Hi all.......

What practically i have seen a lot is,

If supplier is showing freight in invoice, he should not charge VAT on it, as most of VAT Act's have this provision to exclude freight from taxable value.

Further under reverse charge mechanism who so ever pays freight is liable for service tax. (This is based on queries raised even by Service Tax auditors also).

Further what you can ask from your supplier is, instead of putting freight  word in invoice, they can put "Other charges" hereby you can evade any service tax complication.

Thanks.

[RAM SHARMA]

Pl. tell any rule or judgement in this regard.

Thanks

[manju nath]

Rule 5(2) provides that the expenditure or cost that a service provder incurs, as a pure agent  of the clinet , shall be excluded from the value if such serice  provider fulfils prescribed conditons.

(1)    The service provider act as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured:

 (2)     The recipient of service receives and uses the goods or services so procured by the service

Provider in his capacity as pure agent of the recipient of service.

(3)      The recipient of service is liable to make payment to the third party.

(4)    The recipient of service authorizes the service provider to make payment on his behalf:

(5)     The recipient of service know that the goods and services for which payment has been

Made by the service provider shall be provided by the third party.

(6)    The Payment made by the service provider on behalf of the recipient of service has been

Separately indicated in the invoice issued by the service  provider to the recipient of

Service.

 

(7)    The service provider recovers from the recipient of service only such amount as has been

Paid by him to the third party: and

(8)     The goods or services procured by the service provider from the third party as a pure agent

Of the recipient of service are in addition to the services he provides on his account.

SINCE THIS IS A CASE OF PURE SALE, ONLY GETTING REIMBURSEMENT OF THE FREIGHT PAID BY HIM INTIALLY, AS SUCH THE LIABLITY FOR PAYMNET OF SERVICE TAX WILL BE ON SUPPLIER.

AI Summary

Pure agent exclusion may prevent reverse charge on freight, else freight reimbursement could attract service tax on recipient. Liability for service tax on freight shown in a raw material invoice depends on whether the freight is a reimbursed pure agent expense under Rule 5(2); if the supplier or transporter qualifies as a pure agent and the eight prescribed conditions (payment to third party, separate invoice indication, recipient authorization and knowledge, recovery of only paid amounts, goods/services procured being additional) are satisfied, freight may be excluded from value and not attract reverse charge on the recipient; absent such characterisation in a pure sale, liability rests with the supplier.