Service tax on GTA in Non-taxable territory

[Ganeshan Kalyani]

Sir, I would like to discuss on applicability of service tax on GTA availed in non-taxable territory.

A manufacturing unit is located in J&K (non-taxable territory). It has branches in across states (taxable territory). Manufacturing unit manufactures goods and for sale it has to be carried to states where it has depots. For this purpose, manufacturing unit arranges for freight and also pays the freight charges in J&K. The vehicle then moves to different states to deliver the goods to its own depots for sale.

Query: The service is availed in non-taxable territory, but goods are delivered to its own depot in other state. Since the unit to which the goods are delivered is also the same company, can department raise an issue that though freight is arranged in J&K but the receiving depots, being the same company should pay service tax on freight.

My view: service tax is liable to paid by the person paying freight. Here the unit in non-taxable territory has paid, hence no service tax.

Request to discuss on the issue. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Service tax is consumption based tax. GTA is under RCM. As per Rule 10 of Places of Provision Services Rules, 2012, the place of provision is place of destination of the goods which is taxable territory (in different cities other than J & K . Hence Service Tax is payable.

I also solicit the views of other experts on this issue.

[Ganeshan Kalyani]

Sir, the second para of Rule 10 of POPS Rule, states that ''Provided that the place of provision of services of goods transport agency shall be the location of the person liable to pay tax.''

Whether the above provision can be related to the Unit in non-taxable territory. or it would refer to the depots in non-taxable territory. Thanks

[MUKUND THAKKAR]

sh. Ganeshan Kalyaniji,

please clear consignment note / LR mark TOPAY basis in such condition, depot has pay the service tax as explain shree kasturi sethi sir, if freight is paid basis need not pay service tax in such situation. This is my view.

[Ganeshan Kalyani]

Sri Mukund ji , do you mean to say that if 'freight Paid basis' is mentioned on invoice then this would be strong proof to justify that liability of service tax arises on unit located in unon-taxable territory. Am I right.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Sir, Suppose Service Provider (GTA) is located in non-taxable territory and that person provides GTA service in taxable territory. Now if SP wants to pay the freight with an intent to evade ST, he cannot do so. Here statutory liability is of service recipient. The following sentence is meant for SR.

''Provided that the place of provision of services of goods transport agency shall be the location of the person liable to pay tax.''

If SP and SR executes a contract to the effect that SP would pay ST whereas statutory liability is of SR, that agreement would be in violation of Service Tax law. (Though that agreement may be legal as per Evidence Act.) But here ST rules and regulations will prevail.

In respect of 'Manpower Supply', entire liability is cast upon SR and in case SP says he would pay ST on behalf of SR, he cannot do so as per ST law. Now the department is issuing SCNs to those Assessees who are liable to pay either SP or SR but do not pay on the ground that SP has paid ST on behalf of SR or vice versa.

Moreover, if we go through all the relevant notifications of GTA in conjunction with POPS Rules, 2012 (all examples mentioned in Rule 10), in this case ST is to be paid by SR. This is my opinion and interpretation.

[KASTURI SETHI]

Dear Sir,

We cannot forget that one of the major factors of RCM is to plug the leakage of the revenue by shifting liability on the service receiver/business entity. It is worthwhile to mention that most evasion-prone services have been brought under RCM. This is strategy of Govt. to involve two persons and one of them should be business entity.

GTA was brought under RCM after a great uproar created by the transporters during the years 1998 and 2004.

[CSSANJAY MALHOTRA]

Dear Friends,

Endorse the views of Sh. Kasturi ji as he has in right spirit sticked to First Part only of Rule 10 of POPS.

"Second part" of the Rule as stated by Sh. Ganeshan ji applies to GTA.

“Goods transport agency” means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called.

Wherever GTA is liable to pay service tax, Second part of Rule 10 of POPS is applicable. (GTA is based in Chandigarh and delivers goods across India, where will he pay tax, as per Rule 10 of POPS, Chandigarh i.e. the location of Service provider...

[Ganeshan Kalyani]

Sir, what would prevail in law if i compare Service tax rules, 1994 and Place of provision of service rules, 2012. Thanks

[Ganeshan Kalyani]

Sri Kasturi Sir, both the rules have different view and therefore the query is here. Thanks

[CSSANJAY MALHOTRA]

Service Tax Rules 1994

Rule 2(1)(d) : if the person liable to pay freight is located in Jammu (Non-Taxable territory), then the liability is on the service provider (who is located in taxable territory)

Place of Provision Rules 2012

As per Rule 10 of the POP Rules, the place of provision of service in respect of GTA service is the location of the person liable to pay service tax.

But above all, important is that if the person is located in taxable territory, then he has to pay service tax.

In short, irrespective of Service Tax Rules 1994 or POPS- 2012, service tax liability is to be discharged by service receiver of goods, who is based in Taxable territory in your case.

IMPORTANT IS THE LOCATION I.E. TAXABLE TERRITORY OR NON-TAXABLE TERRITORY and then comes other provision of Rules.

• If the service is provided from taxable to non-taxable territory, then Service provider (Taxable territory) has to pay tax, irrespective of who makes freight payment.
• If the service is provided from non-taxable territory to Taxable territory, then the service receiver (taxable territory) has to pay service tax irrespective of person making the freight payment.

Reference can be made to Sec 66B & 66C of Finance Act.

 

[Ganeshan Kalyani]

Sir would like to stretch a bit more. In my case the manufacturer is at Jammu (non-taxable territory) and for the purpose of delivering the manufacturer goods to various location the said manufacturing unit has arranged for transport from the same stare (non-taxable territory) and had paid the freight by the said unit. Here both the consignor and the transporter are in non-taxable territory. Hence as per Service tax rule, the person liable to pay freight is liable to pay service tax. Since both the party are in non-taxable territory service tax is not applicable.

Further the material reached the depots at various location (taxable territory) from Jammu (non-taxable territory). As per Place of provision of service rules the place of provision of service of goods transport agency shall he the location of the person paying freight. Thus as per both the provision in my case service tax is not liable. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

After going through all the replies, I am of the view that non-payment ST on the ground that the element of freight has been borne by GTA Service Provider or Consignor located at Jammu, would invite litigation. I am cock sure that doors of litigation are being opened by this way. The Department would treat it as strategy not to pay ST by connivance. Govt. intends to give benefit to the residents of J & K State and not to the outsider. In this situation, outsider would get benefit which is not permissible in ST Rules and POPS Rules,2012. For example; in Himachal Pradesh under area based exemption scheme, people misused the facility of job-work and Govt. amended the rules to plug the leakage of revenue. Assessee located outside HP started misusing the job-work facility. Similarly, non-payment ST would be treated as misuse of ST law by the Service Receiver with the connivance of Service Provider/Consignor.

Sir, this is my view.

[CSSANJAY MALHOTRA]

R/ Ganeshan ji,

Freight is to be paid by either consignor or consignee. In the recent issue, Consignor is based in J&K and the depots i.e. where the consignment is to be delivered is the territory of Consignee, which is taxable. Hence, considering that the assessee in taxabe territory may avoid tax liability by shifting freight payments arrangement to consignor in non-taxable territory, department has drafted the Rules in such a manner that the consignee (service receiver) based in taxable territory has to pay service tax.

Transporter is not relevant person in the present issue as the goods are transported by him, but the person liable to pay freight is to be considered as either consignor or consignee.

Location of Person liable to pay service tax

If the consginor and consignee are based in taxable and non-taxable territory then the Person liable to pay service tax shall be considered as person location in taxable territory.

Sir, request once gain Please refer Sec 66B & 66C.....

[Ganeshan Kalyani]

Thanks a lot sir. Thanks to Sri Kasturi Sir, Sri Sanjay Sir and Sri Mukund ji. This is a topic which creates an issue to all the assesses. Thus all of your valuable replies were helpful to me and to all the visitors of this Forum. Thanks once again. The issue is clear to me now. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani ji,

Really no match for his (Sh Sanjay Malhotra's) art of presentation and interpretation of law.

[Ganeshan Kalyani]

Yes sir.

Sir for me both of you are super star. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

But I consider Sh.CS Sanjay Malhotra, Sir not only above me but also at the zenith in the taxation sky, especially, in view of the fact that during my 33 years' service I have seen so many advocates and higher officers in the department. Whenever I express my views on any disputed issue, I cannot sit still until or unless my views are either okayed or rebutted by Sh.CS Sanjay Malhotra, Sir. If rebutted, I learn more. This is not sycophancy. I do not believe in doublespeak.

[Ganeshan Kalyani]

Thanks for sharing your valuable experience. Thanks a lot. Sir.

[CSSANJAY MALHOTRA]

R/Sh Kasturi ji & Sh. Ganeshan ji,

I keep on learning from both of you and other experts in this platform. Am really thankful to both for inspirational words.

regards

Sanjay Malhotra

[Venkat Subramaniam]

Hi,

My personal opinion is that no service tax should apply in this case, as freight is being paid by J&K unit.

Even assuming it is taxable, on what value will you pay service tax. I do not pay anything to the transporter. I pay only for the goods purchased.

AI Summary

Applicability of Service Tax on Goods Transport from Non-Taxable to Taxable Territories under Reverse Charge Mechanism A discussion on the applicability of service tax on Goods Transport Agency (GTA) services availed in non-taxable territories, specifically Jammu & Kashmir, involved multiple participants. The primary issue was whether service tax is payable when a manufacturing unit in a non-taxable territory pays freight for goods transported to its depots in taxable territories. The consensus was that service tax is consumption-based and under the reverse charge mechanism (RCM), the liability typically falls on the service recipient in the taxable territory. Despite differing interpretations of the Service Tax Rules and Place of Provision of Services Rules, 2012, it was concluded that non-payment of service tax might invite litigation, as the department could view it as an attempt to evade tax. The discussion emphasized the importance of understanding the location of the person liable to pay tax and the potential for legal challenges if service tax is not appropriately accounted for.