GST on Freight Charges

[Suresh P]

Dear Experts,

Please verify the correctness of contents of the below table in case of freight charges reimbursement by the Company to C&F. Please note in the 3rd case, paying GST out of the fixed amount received from the Company will be a loss to the C&F and the Company does not insists to raise an Invoice and If GST is included in invoice , Co may take ITC and in effect the actual cost of transportation will be higher than the rate at which it is reimbursed.

Sl No	Contract Nature	Explanation
1	Contract between Company and C&F is FOR. But C&F incur TP Charges but later reimbursed by Company at a Fixed Rate. C&F hires a GTO for the delivery.	Responsibility to deliver to the place of destination is upon the Company. Under Rule 33, C&F can Act as Pure Agent and raises invoices against the Company for the reimbursement of actual TP Charges without GST. If the Company pay at a fixed rate over and above the Actual TP charges, the excess is leviable to GST. The C&F may pay GST under RCM on the TP charges paid by it to GTO.
2	Contract between Company and C&F is Ex-WH & C&F incur TP charges own its own by hiring a GTO.	Responsibility of Inward Transportation is upon the C&F. No Reimbursement of expenses takes place. The C&F may pay GST under RCM on the TP charges paid by it to GTO.
3	Contract between Company and C&F is FOR. C&F uses its own vehicle for the inward transportation and the Company reimburse the same at a fixed rate.	Responsibility of inward transportation is upon Company. The concept of Pure Agent cannot be applied as no third-party GTO is involved. C&F Agent must raise a GST Invoice against the Company for the actual transportation cost received from the Company.
4	Contract between Company and C&F is Ex-WH & C&F uses its own vehicle for the Transportation.	Responsibility of Inward Transportation is upon the C&F. No Reimbursement of expenses takes place. No RCM as no GTO/GTA is involved.

 

[KASTURI SETHI]

A registered person who, de facto, bears the freight expenses will pay GST. Emphasis is supplied upon 'who bears'. 

This is one of the aspects. Other aspects have to be taken care of depending upon the facts of each case.

[Shilpi Jain]

It is highly recommended to take a professional opinion for these transactions. A stray question here may not help. It requires going through the contracts, which could also lead to suggesting a better way of doing any transaction which may optimise tax cost for the service provider and its customers.

AI Summary

GST on freight reimbursements depends on who bears the cost; pure agent reimbursements may be non GST, others taxable. GST on freight reimbursements depends on who bears the freight cost and contractual responsibility. If a C&F hires a third party transporter and is reimbursed for actual third party charges, the C&F may act as a Pure Agent under Rule 33 and reimbursements of actual charges can be invoiced without GST, while any excess reimbursement is taxable. If the C&F uses its own vehicle, the Pure Agent concept does not apply; fixed rate reimbursements should be invoiced with GST. Reverse charge can arise where the registered person de facto bears the freight and professional review of contracts is recommended.