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,

I welcome the views of Sh. Venkat Subramaniam, Ji. Difference of opinion is always welcome.But I express myself as under:-

1. If any contract/agreement is executed in violation of letter and spirit of Service Tax law, Service Tax law will prevail over agreement/contract that may be in letter and spirit of Indian Evidence Act

2. Taxable value will be amount of freight though paid by the person residing in Jammu.

3. In such a situation, if ST is not paid in the guise of any agreement with an intent to avoid or evade ST, the assessee will get SCN sooner or letter. It is a matter of time only.

4. The department has to prove that agreement has been executed with an intent to evade ST in the guise of agreement.

Final decision is yours, being querist.

AI Summary

Place of provision rules: GTA tax liability follows the taxable service receiver even if freight is paid in non taxable territory.
Liability for service tax on GTA services is governed by the Place of Provision Rules and the reverse charge mechanism: where the service receiver is located in a taxable territory, the receiver bears the RCM liability even if freight is arranged and paid by a consignor in a non taxable territory; contractual arrangements or payments by the consignor do not override statutory liability, and valuation is based on the freight amount.