GST ON FREIGHT PAID ON BEHALF OF RECIPIENT

[PANKAJ CHUGH]

HI,

Brief Facts: Invoice value ₹ 1,00,000 @ 18%

Freight of ₹ 10000/- paid by supplier on behalf of recipient. supplier issued debit note for the amount of freight on the recepient.

Query: whether there will be GST on the freight value to be shown in debit note ? If yes at what rate ?

Thanks

[KASTURI SETHI]

It is a case of composite supply. GST on freight will also be paid at the rate of GST applicable to principal supply which is 18% in your case. Principal supply attracts 18% as mentioned by you. They cannot be separated. The tax rate of the principal supply will apply on the entire supply.

Illustration :

See the definition of composite supply

Section 2 (30) of CGST Act “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;

Illustration. - Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply;

Both the supplies cannot be separated. The tax rate of the principal supply will apply on the entire supply.

[Himansu Sekhar]

Please go through the contract. If the freight is to be borne by the recipient and for convenience the supplier has paid the freight, the transaction value will be the value prevailing at factory gate. It is just like an advance to the transporter for transport of the hoods. In long distance movement of goods such practice is common. The recipient will pay the gst. But this should be clear in the contract and the consignment note.

[Ganeshan Kalyani]

Most important to check is on whose name the transporter is raising his consignment note. I do agree with the views or Sri Kasturi Sir as you are not a goods transport agency to provide transport service and become eligible to pay gst @5%. Your debit note is linked to original invoice and the rate applied on the original invoice will be considered in the debit note.

[Ganeshan Kalyani]

As suggested by Sri Himanshu Sir, you need to check the terms agreed with your customer.

[Himansu Sekhar]

If it is a mere reimbursement, the gst will be borne by the recipient. Adding the transportation value with the transaction value depends upon the place of supply and the decision of the Hon,ble Apex Court in the case of M/s Accurate meters

[Ganeshan Kalyani]

Sir, reimbursement may attract 18% GST

[Himansu Sekhar]

It is after the completion of the supply event and the amount is paid on behalf of the recipient to the transporter which is subject to section 9(3)

[KASTURI SETHI]

I agree with the views of both experts detailed above. Otherwise also, if supplier has paid freight for and on behalf of you, liability to discharge GST is yours. So there was no requirement of mentioning GST details on debit note. From your query it appears a composite supply.

[KASTURI SETHI]

All the replies are very useful to arrive at correct decision. Now it is up to the querist to go through contract and how to implement the same.

AI Summary

Composite supply: freight paid by supplier on recipient's behalf is taxed at the principal supply rate.
If freight paid by a supplier on behalf of the recipient is naturally bundled with the principal supply (a composite supply), the principal supply's tax rate applies to the freight and the debit note follows the original invoice rate. If the supplier merely reimburses the transporter on the recipient's behalf per contractual terms and consignment note, the amount may be treated as a reimbursement with GST borne by the recipient; classification depends on contract terms, consignment documentation, place of supply, and whether the transporter is a Goods Transport Agency.