Service Tax Liability (E-commerce transaction scenario)

[Pallav Singh]

Dear Sirs,

There are four companies in discussion - 'S' is Supplier,; 'C' is Customer, 'P' is e-commerce portal and 'T' is transporter.The arrangement is B2B and is explained as -

1. Customer 'C' orders material on the e-commerce portal of company 'P' to Supplier 'S'.
2. The e-commerce portal 'P' has taken responsibility to service the order and has got into agreement with transporter 'T' to pick the material from 'S' warehouse and deliver to location of 'C' by road.
3. The transporter 'T' will raise freight charges invoice on e-commerce company'P'(Say freight charge is ₹ 90/-)
4. E-commerce company 'P' raises an invoice to the Supplier 'S' mentioning freight charges component as ₹ 100/- (i.e mark up of ₹ 10/- is there in freight charges) along with payment of material cost as agreed between 'P' and 'S'.

As per Reverse Charge Mechanism, for Point 3 above, where Transporter 'T', a GTA, is providing transportation services to E-commerce company 'P' and freight charge is paid by 'P'. In this scenario, liability of S.Tax payment lies on 'P'. ie 4.35% of the freight value (4.35% of ₹ 90/-).

Questions:

1. Now 'P' an e-commerce company is charging freight to supplier 'S' as ₹ 100/- instead of ₹ 90/-. In this scenario, who is liable to pay Service tax on transportation (freight value ₹ 100/-). Can 'P' pay the S.tax to the department.
2. Say, If 'P' pays the S.Tax for the scenario in Question 1, then what is the net liability of 'P' on service tax considering input and output service tax.
3. What is the service tax liability of all four parties involved in the above arrangement.

Request your valuable suggestions and advise.

Regards,

Pallav Singh

[Ganeshan Kalyani]

Freight should be paid by 'P' as transporter is getting payment from 'P'. Further since it is buying and selling activity there is no service tax liability .

[Pallav Singh]

Thank you Ganeshan Kalyani...I am clear now that since "T" (a GTA) is providing transportation services to "P" hence the service tax liability lies on "P" as per reverse charge mechanism.

But It may be noted that "P" is marking up the freight value ( from ₹ 90 paid to Transporter "T" to ₹ 100/-). He is charging ₹ 100/- for transportation of material of Supplier "S" but not as a GTA. Sale transaction of material is clear and is not under the ambit of S.Tax. But the transportation services rendered by "P" to "S" is a Service (though indirectly through transporter "T"). Hence the question no 1 and 2.

Thanks and request your valuable advise.

Regards,

Pallav

[Ganeshan Kalyani]

'P' is recovering the freight so paid to 'T' from'S' under the heading GTA with profit therfore it will also attract service tax.

AI Summary

Reverse charge on freight places tax liability on the e commerce platform when it pays the transporter on behalf of suppliers. Liability under the reverse charge mechanism falls on the e commerce intermediary P when it pays the goods transporter T for freight; P is therefore liable to discharge service tax on freight. If P recovers freight from supplier S with a markup, that recovery is treated as provision of GTA services with profit and attracts service tax on P.