Service Tax on GTA on Despatches made on Ex-Works basis

[saket s]

Request your opinion on Service Tax on GTA against the transaction as explained below.

· Consignor of the goods is a Limited Company.

· The Consignees are not one of persons mentioned in Rule 2(1)(d)(v)

· Consignor despatches the goods to Customers/buyers on Ex-works basis.

· Transfer of property takes place at factory gate.

· The Customers/buyers take the material from Consignor’s premises on following ways:

(a) The Customers/buyers bring their own vehicles and take delivery of the material

No Consignment note issued

OR

(b) On request of Customers/buyers, the Consignor arrange the transportation of goods through GTA on Freight-to-pay basis.

The GTA issues consignment note (Lorry Receipt) on To-pay basis and collect Freight charges from consignees after delivering the goods.

· Normally the GTA is not registered under Service Tax except some reputed transporters like TCI

· Since the billing is on Ex-works basis, the consignor is not discharging service tax on GTA though the consignor is one of the person mentioned in Rule 2(1)(d)(v) as the freight charges are not being accounted in the books of consignor.

We understand that neither consignee nor GTA discharging service tax on GTA on above said situation mentioned at (a) & (b)

In this connection, we request you to give us your opinion on liability of Service Tax payment (Consignor/Consignee/GTA)

Thanks

[Rajagopalan Ranganathan]

Sir,

Answer to your query (a) is as follows: -

Since he Customers/buyers bring their own vehicles and take delivery of the material, no service tax is payable on the ground that your customer is providing GTA service to himself.

Answer to query (b) is as follows: -

The Consignor arrange the transportation of goods through GTA on Freight-to-pay basis. Though consignor is a person mentioned in rule 2(1)(d)(v) of Service Tax Rules, 1994 and since he arrange the transportation of goods through GTA on Freight-to-pay basis freight will be paid by the consignee. Consignee is not a person in mentioned in Rule 2(1)(d)(v) of Service Tax Rules, 1994 he is not liable to pay service tax. Therefore service tax is payable by the GTA.

[Ganeshan Kalyani]

Yes if the consignee is not liable to pay service tax because he is not a person as mentioned in rule 2 (1) (d) (v) and consignor is not liable to pay service tax as he is neither availing the service nor paying freight amount then in that case GTA is the person liable to pay service tax on the GTA service provided.

[YAGAY andSUN]

Dear Saket,

In Ex Works transaction, Goods are removed on factory gate and buyer is responsible to arrange the transportation and liable to pay the freight on such events. Hence, the liability to pay the service tax would be shifted from you to your customer.

Regards,

YAGAY and SUN

(Management, Business and Indirect Tax Consultants)

[Ganeshan Kalyani]

The reply submitted by Rajagopalan sir is apt. However the service tax on GTA service is very much unorganized. Generally it tends to happen that the consignor is not the person as mentioned in the provision for paying service tax. Also consignee is not the person as mentioned in the provision for paying service tax. Further the GTA is liable to pay service tax as both consignor and consignee are not the person as mentioned in the provisions for paying service tax. However, in practice the service tax is not paid by the GTA because the GTA does not accept the responsibility or does not aware of their responsibility that if both consignor or consignee are not the person paying service tax, GTA should discharge the liability. Therefore there are various notices being issued on GTA for recovery of service tax in practice. Thus consignor, consignee and GTA should discuss these things before the transactions is done.

[saket s]

Thank you all for your valuable inputs.

[Vishal Kulkarni]

Dear All,

I beg to defer on views provided by the other experts.

We should refer to Rule 2(1)(d)(i)(B) of Service tax Rules, 1994 wherein it has been provided that any person who pays freight to GTA is liable to discharge Service tax. Accordingly, in the present facts:

A) If customer transports goods in its own vehicle then there is no service provider and service recipient relationship as customer is rendering services to himself- hence, no Service tax;

if Customer hires GAT agency and pays freight for said transportation then Customer is liable to discharge Service tax. However, Service tax credit would be available to them as input service.

In case of B

B) Customer is liable to pay Service tax as he will pay freight to GAT agency as freight term is "to be pay" basis.

Regards, Vishal Kulkarni

AI Summary

GTA service tax liability: payer of freight bears tax in ex works shipments; otherwise the transporter is the residual taxpayer. Liability for service tax on GTA services in ex-works shipments depends on who pays freight: buyer-transported pickups attract no tax; where freight is payable by the buyer on delivery, the buyer is ordinarily liable to discharge service tax (with input credit if available); if neither consignor nor consignee is statutorily liable, the GTA remains the residual taxpayer, though GTAs frequently do not pay and disputes arise.