FRT. CHARGED ON BILL AS PER PURCHASE ORDER CONDITION WHO IS LIABLE TO PAY SERVICE TAX

[DEEPAK GAGRANI]

Dear Sir

We have received one bill of our vendor, & vendor has charged freight on bill as per purchase order condition. so my question is who is liable to pay service charge to govt.

As per LR copy transporter not charged service tax on LR. & Transporter received payment from vendor & same vendor received the freight charges from us.

So please tell who will pay the tax as per RCM.

[MUKUND THAKKAR]

Dear,

As and when your vendor has charged freight on bill as per purchase order condition. same has treated out ward freigt charges for your supplier. in such condition what ever serive tax was paid by your vendor. please obtain the service tax paid certificate and take cenvat credit as freight for Inward charges.

you need not to pay serivice tax. but eligalbe to take credit of serivice tax paid by your vendor.

[DEEPAK GAGRANI]

Dear sir

It is not possible to take credit on payment of service tax by vendor, if possible kindly elaborate by way of circular / Section / Case law.

[Ganeshan Kalyani]

Your vendor has charged freight charges on invoice which means you have borne the freight cost. At the same time the transport service is arranged and availed and the freight charges has been made to the transporter by your vendor. Thus as per provision in service tax the person who pays the freight and to whom the consignment note has been issued is supposed to pay the service tax under reverse charge. In this case your vendor is supposed to pay the service tax. Further you may loose the service tax credit as the service tax is paid by your vendor. Further in your books of accounts you would be booking the freight as expenses and would appear in your P&L and therefore department may ask for service tax. On the other hand your vendor has first incurred the freight cost and subsequently got that amount from you by charging on invoice and thus net impact to his is NIL. Therefore i am of the view that you would pay service tax on the freight charges charged on the invoice under reverse charge (subject to you are the person as mentioned u/r 2(1)(d) of the Service Tax Rules) then you would be able to take service tax credit. This is my opinion.

[KASTURI SETHI]

Sh.Ganeshan Kalyani's reply is crystal clear. Ultimately freight is borne by Sh.Deepak Gagrani (supposing manufacturing unit and falling under Rule 2(1)(d)(B) of Service Tax Rules, 1994.

[Rajagopalan Ranganathan]

Sir,

According to rule 1 (d) (B) of Service Tax rules, 1994, in relation to service provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road, where the person liable to pay freight is,-

(I) any factory registered under or governed by the Factories Act, 1948 (63 of 1948);

(II) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India;

(III) any co-operative society established by or under any law;

(IV) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder;

(V) any body corporate established, by or under any law; or

(VI) any partnership firm whether registered or not under any law including association of persons;

any person who pays or is liable to pay freight either himself or through his agent for the transportation of such goods by road in a goods carriage:

Provided that when such person is located in a non-taxable territory, the provider of such service shall be liable to pay service tax.

If your vendor or yourself fall in the above categories, then the person who is liable to pay the freight is liable tom pay the service tax. In your case since your vendor is paying the freight he is liable to pay the service tax provided your vendor falls under one of the specified categories enumerate above. Since your vendor is the consignor, that is dispatching the goods to you he cannot avail the credit. You can avail the credit on the basis of invoice, bill, challan etc., issued by the GTA. Here your vendor is issuing the invoice for the goods and freight and he is not the output service provider you cannot avail the credit on the basis if invoice issued by your vendor. This is my opinion.

[Ganeshan Kalyani]

If the vendor pays the service tax as he has paid the freight charge the service tax credit is not allowed to him. Even if he pays the service tax he may collect it from you by debit note / credit not as generally in industries such practices takes place. If you are going to reimburse him the service tax element then better is the option that you can change your PO terms about freight and borne the freight amount directly from your account and as you will be paying freight you will also be paying service tax on it and you will be able to take the service tax credit as well. This is an option according to me.