Service Tax on Transportation

[Ayub Mohammad]

A is a goods seller. Buyers requested for the goods to be transported to buyers place at his cost. Seller arranged transport of goods, paid on behalf of the buyer and collected the money from buyer. If this is pure agent's service or service tax is applicable on such transaction? If applicable, then for which part of service (i.e, providing transporting service to buyer or on RCM for getting transported the goods by truck owners)? This is the questione for F Y 2016-17 & 2017-18.

[KASTURI SETHI]

Such transaction does not conform to the definition of 'pure agent' as per Service Tax Determination Valuation Rules. In this scenario, the concept of 'pure agent' does not come into picture.In simple words, a person who actually bears the amount of freight for transportation of goods by road will pay service tax under RCM. In your example, here the buyers have actually borne the amount of freight and so the buyers will pay ST and not seller A.

[RAMASWAMY Advocate]

In my view, A separate bill has to be raised by the seller indicating the freight amount and the buyer has to pay the service tax on Reverse Charge Mechanism method.

[KASTURI SETHI]

Sir,

Your view is right. Preference-wise Service Tax on GTA is payable as under:

1.Consignor A (seller)

2. Consignee B (buyer)

3 GTA

Here Consignor has paid on behalf of the buyer B. So B is liable to pay ST on the amount freight. Otherwise either Consignor or consignee can pay ST.

AI Summary

Reverse charge liability: buyer bears service tax on road freight when seller arranges and recovers transport cost.
The arranging seller who pays and recovers road freight is not a pure agent; the person who bears the freight is liable under the Reverse Charge Mechanism. Priority for service tax on transport is consignor, consignee, then the Goods Transport Agency. Where the consignor pays on behalf of the buyer and recovers the amount, the consignee is treated as bearing the freight and must account for service tax under RCM; the seller may raise a separate freight bill for this purpose.