Service of Transport of Goods by Road
As per section 66(105)(zzp) of Finance Act, 1994, any service provided to a customer, by a goods transport agency, in relation to transport of goods by road in a goods carriage is a ‘taxable service’.
Can you tell me background of the service tax on goods transport by road ?
Service tax was earlier imposed on goods transport operators (GTO) but was discontinued with effect from 2-6-1998.
Subsequently, the services provided by goods transport agency (and not the owner of truck or truck operators) were made taxable vide Finance (No. 2) Act, 2004, w.e.f. 10-9-2004. However, these were kept in abeyance as per MF(DR) circular No. B2/8/2004-TRU dated 10-9-2004. Subsequently, the service tax on goods transport by road is being made effective from 1-1-2005.
Can you tell me the mode of imposing and recovering service tax on goods transport agency?
All sort of services of goods transport by road are not liable to service tax. The tax is only on services provided by Goods Transport Agency (GTA) (termed as ‘transport booking agents’ by Finance Minister in his budget speech on 8-7-2004). Only GTA which is a ‘commercial concern’ and which issues a consignment note is liable to service tax.
Note that in 1997-98, the service tax was payable on services of ‘Goods Transport Operator’, while now it is payable by ‘Goods Transport Agency’. The difference is highly significant to understand the coverage of service tax.
The basic scheme is that the goods transport agency (GTA) will be preparing the consignment note and invoice containing details as required. Service tax payable will also be shown on the invoice/bill/challan prepared by goods transport agency. However, payment of service tax will be made by the consignor or consignee who is actually paying the freight, if the consignor/consignee paying freight is a company, body corporate, cooperative society, registered society, factory, partnership or dealer registered under Central Excise.
Even in other cases, i.e. where freight is paid by individual, HUF or unregistered partnership firm, the service tax is payable by individual/HUF/unregistered partnership firm, if the consignor/consignee is factory, body corporate, society etc. [This may not be the intention, but this is as per clear provisions of rule 2(1)(d)(v) of Service Tax Rules].
Exemption has been given to small consignments where freight is upto Rs 750 per consignee per carriage or Rs 1,500 per goods carriage. Similarly, transport of fruits, vegetables, eggs or milk by road has been fully exempted from service tax.
Though general rate of service tax is 10% plus 2% education cess, actual service tax payable is 25% of normal service tax, i.e. 2.5% plus 2% education cess (total 2.55%) of gross amount charged from customer for providing taxable service.
Is there service tax on all services of goods transport by road ?
There is no general service tax on all goods transport. Service tax is payable only when service is provided by ‘goods transport agency’, as defined in the Act.
Finance Minister Shri P Chidambaram, in his budget speech on 8-7-2004 (para 149 of speech), had stated as follows, ‘58 services have been brought under the net so far. I propose to add some more this year. These are business exhibition services, airport services, services provided by transport booking agents, transport of goods by air, survey and exploration services, opinion poll services, - - - - -. I may clarify that there is no intention to levy service tax on truck owners or truck operators’.
Thus, intention of Government is to tax only services provided by transport booking agents. This aspect should be kept in mind while interpreting various provisions in the Act and Rules.
Goods Transport Agency (GTA)
What is the meaning of ‘goods transport agency’ ?
As per section 65(50B), ‘goods transport agency’ means any commercial concern which provides service in relation to transport of goods by road and issues consignment note, by whatever name called.
Thus, essential requirement are – (a) Service must be in relation to transport of goods by road and (b) Service should be provided by ‘commercial concern’ and (c) The service provider must have issued consignment note by whatever name called.
An individual truck owner has direct contract with Consignor / consignee. He himself receives freight from consignor/consignee. Is Service Tax is payable ?
As per section 65(50B), ‘goods transport agency’ means any commercial concern which provides service in relation to transport of goods by road and issues consignment note, by whatever name called.
If driver of goods carriage is self employed (i.e. taken vehicle on rent) or he is himself owner of vehicle, he is not a 'commercial concern' and hence would not come under that definition, even if he issues a ‘consignment note’ (usually, he will not issue a ‘consignment note’).
The word ‘commercial concern’ is not defined in the Act. As discussed earlier, individual providing services will not be a ‘commercial concern’, if he is self employed, even if he purchases a vehicle for providing service. The reason is that his primary motive is to earn livelihood and not earn profit.
This view is also supported by statement of Finance Minister made in his budget speech on 8-7-2004.
However, a proprietary firm doing business on commercial basis will be a ‘commercial concern’.
Would services of Government or non-profit organisations be taxable ?
Service of goods transport provided by Government, charitable institution or any other non-profit organisation will not be taxable, as it is not a ‘commercial concern’.
I have given my truck on hire to a company. Am I liable to pay service tax ?
In some cases, the truck owners give their vehicle to some companies for transporting the goods. The charge for vehicle may be on kilometer basis or monthly basis or number of trips basis. In such cases, issue of any consignment note is not necessary. In fact, the service is in nature of hire and not service of ‘goods transport’.
Consequently, person giving vehicle on hire does not come within definition of ‘goods transport agency’ and their services are not taxable.
This view is also supported by budget speech of Finance Minister made on 8-7-2004.
If a booking agent say Mr. A having no truck of his own, hires a truck from another trucker and then sends the truck on his (i.e. of Mr. A himself) consignment note to say Bombay and charges Rs. 15,000 + 2.55% service tax. But he pays only Rs. 10,000 to the person who really owns the truck, now is the person who gets Rs. 10,000 and is the real owner of the truck liable for service tax.
The person who owns truck is not required to pay service tax, as he has not issued consignment note.
We transport goods only for companies and hence there will be no liability of service tax on us. Is it necessary for us to register under service tax ?
As per section 69, only person liable to pay service tax is required to be registered. It is true that as per rule 4A(1)(i), a service provider issuing invoice has to indicate his registration number in his invoice. However, in case of conflict between section and rule, obviously section will prevail. Moreover, as per para 5.1 of MF(DR) letter No. 341/18/2004-TRU(Pt) dated 17-12-2004, goods transport agencies which are not liable to pay service tax are not required to be registered under service tax rules.
Hence, applying rule of harmonious construction, in the opinion of author, the service provider need not indicate service tax registration number in his invoice. He may indicate ‘ Service Tax Registration Number – Not Applicable’. If one wants to be on safe side, he may register and file Nil returns, though not legally required [It would be better if department issues clarification on this aspect].
A GTA can avail either of the 2 benefits given to him i.e. (a) He can enjoy abatement of 75% on value of service & pay tax on only 25% of the value of service (b) he can claim the benefit of Cenvat Credit on duties paid on inputs & capital goods. In both the cases mentioned above, he is not barred from taking credit for service tax paid by him on value of input services availed by him for the purpose of rendering the taxable service. My query is how this choice of (a) or (b) i.e. whether to avail 75% abatement or Cenvat Credit is to be exercised? on yearly, quarterly, monthly basis or is it a one time choice?
There is no specific provision, but normally, a choice cannot be changed during a financial year. However, in the case of GTA, only a person who is out of his mind will avail Cenvat on inputs and capital goods and show full service tax in his invoice. Rest will not avail Cenvat on inputs and capital goods and will show 25% tax in their invoice. Person who is showing full i.e. 10.2% service tax in his invoice will soon go out of business and hence any further question will not arise.
Whether a person doing only business on commission & arranging for business to others for small amount of commission under Transport Sector will be covered under Business Auxiliary Services?
Yes, he may get covered under business auxiliary service as ‘commission agent’.
I am a GTA rendering exclusive service only to a few corporate clients, on contract basis, for which I am paid my charges on weekly basis. In the new regime w.e.f. from 1-1-2005, in such a case, if my bill is say Rs. 11,020/- inclusive of service tax, the client will pay me only Rs. 10,000/- & will pay Rs. 1,020/- service tax directly to the department on his own. However I will have to file all the necessary returns with the Service Tax Dept regularly, In such a case, what will be the proofs of payment that I will be required to attach & how they are to be obtained from my corporate clients who are the consignors?
If you are not liable to pay service tax, you need not register. In your invoice, you can show, ‘Service Tax Registration Number – Not Applicable’. If you want to be on safe side, you may register and file Nil returns, though not legally required.
You have no liability to prove payment of service tax by your clients.
Is a contractor carrying garbage for municipal corporation liable for service tax ?
No, for two reasons – (a) Garbage is not ‘goods’ as it is not marketable commodity and (b) he does not issue consignment note.
Goods Carriage
What is meant by ‘goods carriage’ ?
As per section 65(50A) of the Finance Act, ‘Goods carriage’ has the meaning assigned to it section 2(14) of the Motor Vehicles Act, 1988. As per section 2(14) of the Motor Vehicles Act, 1988, goods carriage means any motor vehicle constructed or adapted for use solely for the carriage of goods or any motor vehicle not so constructed or adapted when used for carriage of goods.
As per section 2(2 of Motor Vehicles Act, 1988, Motor vehicle or vehicle means any mechanically propelled vehicle adopted for use upon roads whether the power of propulsion is transmitted thereto from external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or vehicle of a special type adapted for use only in a factory or any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding 25 (Twenty-five) cubic centimeters.
Thus, goods carriage will cover any motor vehicle constructed or adapted for use solely for carriage of goods as well as other motor vehicles when used for carriage of goods. The words ‘Motor Vehicle’ will cover all the mechanically propelled vehicles like trucks, light carriage vehicles, trailers, cars, etc.
Many passenger buses also carry goods. Will they come under definition of ‘goods carriage’ ?
Passenger buses (public transport or privately owned) can come under definition of ‘goods carriage’, since the words used are – ‘any motor vehicle not so constructed or adapted, when used for carriage of goods’. Of course, if their charges are less than Rs 750 per consignee or total Rs 1,500, they will be exempt from service tax. They will also be exempt if they do not issue ‘consignment note’.
Can rickshaw or tempo or taxi driven by owner or self employed person be a ‘goods carriage’ ?
Rickshaw, taxi or tempo can come under definition of ‘goods carriage’, if they carry goods. However, if such rickshaw, tempo or taxi is owner driven or run by self employed person, it is not a ‘commercial concern’. It will be out of definition of ‘Goods Transport Agency’. Moreover, they do not issue consignment note.
Hence their services will not be taxable even if the charges are higher than Rs 750/1,500.
This view is also supported by budget speech of Finance Minister made on 8-7-2004.
Consignment Note and Invoice
Is issue of consignment note compulsory for all goods transporters?
No. As per section 65(50B), ‘goods transport agency’ means any commercial concern which provides service in relation to transport of goods by road and issues consignment note, by whatever name called.
Thus, as per section 65(50B), service provider which is a commercial concern and issues consignment note is covered. In other words, issue of consignment note is optional, it is not compulsory.
Finance Minister, in his speech, has also clarified that the service tax is on transport booking agents and not on truck owners or truck operators.
As per rule 4B of Service Tax Rules, issue of consignment note is compulsory only for ‘goods transport agency’.
If a goods transporter does not issue ‘consignment note’, he is not ‘goods transport agency’ at all u/s 65(50B), even if he is a ‘commercial concern’. Hence rule 4B does not apply to him. Similarly, if a transporter of goods is not a ‘commercial concern’, he is not required to issue a consignment note.
Assuming that there is some conflict between section and rule, obviously, section will prevail over rule. What is clearly permitted in a section cannot be restricted by rule making authority.
A rule cannot restrict scope of an Act. Rule cannot impose a condition, which is not there in Act.
What is meaning of ‘consignment note’ ?
As per explanation to rule 4B of Service Tax Rules, for purpose of rules 4A and 4B, “consignment note” means a document, issued by a goods transport agency against the receipt of goods for the purpose of transport of goods by road in a goods carriage. It should be serially numbered, and should contain following details –
Name of the consignor and consignee
Registration number of the goods carriage in which the goods are transported
Details of the goods transported
Details of the place of origin and destination
Person liable for paying service tax whether consignor, consignee or the goods transport agency.
The definition itself makes it clear that it is for purpose of rules 4A and 4B. This definition cannot be straight away used to interpret the word ‘consignment note’ in section 65(50B), but guidance can be taken from this definition. This means that even if some of the details as prescribed above are missing, it can still be a ‘Consignment Note’ for purpose of section 65(50B), if it is understood as a ‘consignment note’ in trade parlance.
Consignment note is document of title - The word ‘consignment note’ has a specific meaning in the trade. Normally, it contains, among other things – (a) name of consignor and consignee (b) details of goods transported (c) details of place of origin and destination (d) Freight paid/payable (e) Name and address of goods transport agency.
When a person deposits the goods with any transporter for the purpose of transport to a given destination, the transporter issues a lorry receipt (LR) or consignment note to the person depositing the goods. The original LR/consignment note is sent by the person booking the goods to the consignee either directly or through bank. The consignee can collect the goods from the transporter by presenting the LR/consignment note.
As per trade parlance, the ‘lorry receipt’ or ‘consignment note’ is a ‘document of title’ and ownership of goods passes by delivery of the LR/consignment note.
Mere issuing cash receipt or acknowledging receipt of goods is not a ‘consignment note’ - If the transporter issues a Cash Receipt or Receipt of Cheque, it is not taxable, as receipt of cash or cheque is not a ‘consignment note’. It is not a ‘Document of Title’. If goods are given to a transporter and he acknowledges receipt of goods by signing your Delivery Challan and keeps another copy with himself for transport, it is not a ‘Document of Title’, as consignee cannot get delivery of goods on production of such Delivery Challan. In such case, service tax cannot be imposed.
Is it necessary for a small tempo owner to issue consignment note ?
The unorganized transporters like small ‘tempo owners’ or ‘truck owners’ who carry the goods for transporting them at short distances from one place to another as per instructions of person delivering the goods to them. They usually do not and need not issue consignment note and hence do not come within definition of ‘goods transport agency’. Moreover, they are not a ‘commercial concern’.
Consequently, they do not come within definition of ‘goods transport agency’ and their services are not taxable.
Can you tell me when issue of consignment note is not necessary ?
As explained above, issue of consignment note is necessary only in case of ‘Goods Transport Agency’ and not in case of all goods transport by road. If goods transporter is not GTA, he is not required to issue consignment note.
Person who is not GTA not required to issue consignment note - As per rule 4B of Service Tax Rules (introduced w.e.f. 1-1-2005), any goods transport agency which provides service in relation to transport of goods by road in a goods carriage must issue a consignment note. This provision applies only to GTA and not to others. A person who is not a ‘Goods Transport Agency’ as defined in the Act is not required to issue ‘consignment note’.
When issue of consignment note by GTA is not required - Even in case of GTA, issue of consignment note is not necessary when the service is exempt under a notification issued under section 93 of Finance Act (exemptions discussed later).
What are requirements of invoice to be issued by GTA ?
As per rule 4A(1) of Service Tax Rules, the invoice/challan/Bill should be signed by authorised person of provider of input services. The invoice/Bill/challan should be serially numbered. It should contain following details –
Name, address and registration number of person providing taxable service
Name and address of person receiving taxable service
Description, classification and value of taxable service provided or to be provided and
Service tax payable on the taxable service
Even if Invoice/Challan/Bill does not contain serial number, Cenvat credit cannot be denied, in view of rule 9(2) of Cenvat Credit Rules.
The rule does not make mention of date, but actually, date should be mentioned.
In addition, as per second proviso to rule 4A(1), gross weight of consignment, consignment note number and date should be indicated in addition to aforesaid details.
Education cess payable should be shown separately in invoice/challan.
We have Annual contract with transporter for taking goods from one factory to another. Can he make a monthly invoice ?
Yes, there seems to be no objection for this purpose. In fact, as discussed earlier, he may not come under definition of ‘goods transport agency’ and service tax may not be payable at all, if he does not issue ‘consignment note’.
The goods transport agency is not liable to pay service tax. Is he still liable to show service tax separately in his invoice ?
Yes, that is what law says. He should show service tax and education cess separately in his invoice, but should not ‘charge’ it to customer. Consignor/consignee paying freight should pay him net amount (i.e. excluding service tax and education cess) and pay service tax directly.
Can a GTA issue combined consignment note cum invoice ?
There is no specific provision, but there seems to be no objection to do so, as the words used in section 65(50b) are ‘consignment note by whatever name called’. Second proviso to rule 4A(1) also uses the words ‘invoice, bill or challan on any document by whatever name called’.
The document should make it clear that it is invoice cum consignment note. Requirements of both documents as prescribed should be fulfilled.
Person liable to pay service tax
As per rule 2(1)(d)(v) of Service Tax Rules, Consignor or consignee who is paying freight will be liable to pay service tax, if consignor or consignee is any one of the following –
any factory registered under or governed by the Factories Act, 1948 (63 of 194
any company established by or under the Companies Act, 1956 (1 of 1956)
any corporation established by or under any law
any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India
any co-operative society established by or under any law
any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder
any body corporate established, or a partnership firm registered, by or under any law
In brief, if the goods are booked on ‘freight to pay’ basis, the consignee will be liable if he falls under any one of aforesaid categories. If goods are booked ‘freight paid’ basis, consignor will be liable, if he falls under one of aforesaid categories.
Is consignor/consignee liable to pay service tax required to be registered under service tax ?
Consignor or consignee who is liable to pay service tax should be registered under Service tax.
I am consignor. I am an individual/ HUF/unregistered firm consignor paying freight charges, but my consignee is company/society/factory. Who is liable to pay service tax ?
In such cases, the consignor who is individual/HUF/unregistered firm is liable to pay service tax. This is also the case where consignee is individual/HUF/unregistered partnership firm and freight is to be paid by him. In such case, consignee will be liable [This may not be the intention, but that is the clear wording of rule 2(1)(d)(v)].
When the goods transport agency will be liable to pay service tax ?
If either the consignor or consignee is factory, company, society, registered partnership firm etc., the goods transport agency is not liable at all, even if freight is to be paid by individual/HUF/unregistered partnership firm.
The goods transport agency will be liable only in cases where both consignor and consignee are individual/HUF/unregistered partnership firm and when individual consignment freight exceeds Rs 750/1500 as applicable.
He will also not be liable when he carries milk, egg, fruits or vegetables, as transport of these goods is completely exempt from service tax.
If taxable turnover of Goods Transport Agency is less than Rs four lakhs per annum, he is exempt from service tax under notification No. Notification No. 6/2005-ST dated 1-3-2005. This would be so even if his total turnover is in crores. However, this exemption is not available to service receiver, when service tax is payable by the service receiver.
My transporter has not shown any service in his invoice. Am I liable to pay service tax ?
Strictly legally- No. The reason is that service tax is payable only when service is provided by ‘Goods Transport Agency’ and not on each and every goods transport. He should be a ‘commercial concern’ and should issue a ‘consignment note’. Moreover, the service is taxable only when provided by road in ‘goods carriage’.
You have no powers or liability to investigate whether the provider of service is ‘commercial concern’ or not. You even do not (legally) know whether he has provided service by goods carriage. It is also not known whether or not he has availed Cenvat credit on inputs and capital goods. All these facts are only known to him.
Your legal liability commences only when he shows service tax separately in his invoice as required under rule 4A and issues consignment note as required under rule 4B. If this is missing, your liability cannot commence.
In short, assessment of service tax is liability of goods transport agency. Your legal liability is only when he issues consignment note and invoice as required under rules. Note that there is no provision similar to TDS, under Service Tax.
Of course, as a precaution, it is always advisable to get confirmation from him, and if required, advise him suitably the correct legal position, particularly in cases when he issues a consignment note.
If he is issuing consignment note, it is advisable to pay service tax @ 2.55% by TR-6 challan and avail Cenvat credit.
My transporter has simply shown, ‘Service tax extra, payable by person paying freight’. Am I liable to pay service tax?
The invoice is not correct. Though liability for payment is yours, the transporter should show service tax payable in his invoice. Otherwise, how you will know whether service tax payable is 2.55% or 10.2%? The concessional rate of service tax is payable only when the Goods Transport Agency fulfils required conditions. If service tax is not shown, you cannot know whether or not the GTA is fulfilling those conditions.
It is advisable to discuss with him and explain him the legal position. If nothing works, it is advisable to pay service tax @ 2.55% and avail Cenvat credit on basis of TR-6 challan.
We have entered into agreement with transporter that he will be liable to pay service tax. In such case, is it necessary for us to register under service tax ?
A statutory liability cannot be shifted to another by mutual private agreement. Whatever your agreement with transport agency, you will be liable to pay service tax, file returns etc. Your mutual private agreement has no validity in law.
If a company is paying freight charges to various transporters whether company is liable to deduct the service tax from the bill of transporters and pay the same to the service tax department ? If yes, then the company will have to get itself registered with the service tax department.
Company has to register if it is liable to pay service tax on goods transport. However, there is no liability to 'deduct' service tax from bill of goods transporter. Legally, the goods transport agency should show it separately in invoice. Your liability is only to pay service tax as shown by him in his invoice. If he does not charge any service tax, there is no legal liability, as you do not know whether he is ‘goods transport agency’ or not. This will be particularly so if he has not issued ‘consignment note’.
What precautions a consignor/consignee should take ?
He should take following precautions –
He should maintain separate account of transport charges in respect of services of GTA and others. Otherwise, he may face problems during EA-2000 audit.
Though not legally required, he should enquire whether person providing goods transport service is ‘Goods Transport Agency’ or not and get suitable certificate.
He should register under service tax, pay service tax by TR-6 challan (and not through Cenvat credit). He will have to file half yearly return, as required under Service Tax Rules.
Cenvat credit can be taken on basis of invoice of GTA and not on basis of TR-6 challan.
Recovery of service tax from customer
We are sellers. Our sales are ex-works basis. However, we pay freight on behalf of buyer and recover the freight from the buyer in invoice/debit note. Who will be liable to pay service tax ?
As per rule 2(1)(d)(v), any person who pays or is liable to pay freight either himself or through his agent is liable to pay service tax. In this case, since you are paying the freight, you will get covered under the words ‘who pays’. You will be liable to pay service tax. You may recover the net amount from the seller, but that is a separate transaction.
If invoice is in your name, You will be able to avail Cenvat credit as the payment is for activity relating to business.
You will not be liable to pay service tax only when you establish that you are paying freight ‘as agent’ of other. There should be proper agreement with Principal to make it clear that you are paying freight on behalf of other and you are his agent for payment of freight. Agreement should make it clear that service tax liability will be of Principal. The consignment note/invoice issued by GTA should be preferably in name of Principal.
In such case, the agent can pay freight and recover entire amount from Principal including service tax. However, he should not charge service tax separately in his debit note. The Agent cannot avail Cenvat credit when he is paying freight only as an agent. It is advisable if the Consignment Note indicates name of Principal as the person who is liable to pay freight.
In above case, can I recover the amount from buyer showing it separately as ‘service tax’, so that he can avail Cenvat credit ?
If you pay freight, you cannot recover any amount representing service tax. If you do so, department may take a view that you are liable to pay it to Government again, as per section 11D of Central Excise Act, which has been made applicable to service tax also [Of course, the issue is arguable, but risk is not worth taking].
The main issue is that if you recover an amount representing ‘service tax’, the same amount will be shown as ‘service tax’ in invoice of GTA as well as your invoice. Theoretically, it is possible that two persons may avail Cenvat credit of same service tax, which will be highly improper.
Even if you have agreement with customer that he has agreed to bear service tax, a private agreement cannot override a statutory provision.
Department vide para 5.7 of its circular No. 341/18/2004-ST dated 17-12-2004 has clarified as follows, ‘If service tax due on transportation of a consignment has been paid or is payable by a person liable to pay service tax, service tax should not be charged for the same amount from any other person, to avoid double taxation’.
This also supports the view that you cannot recover any amount from your customer showing it as service tax.
In aforesaid case, if the service tax cannot be passed on to the customers, whether the supplier himself can avail the credit immediately on payment of service tax? If so, what is the document based on which such credit can be availed by the supplier?
Supplier who has paid service tax can avail Cenvat credit on basis of invoice of GTA issued by him under rule 4A(1). If the supplier intends to avail Cenvat credit, it would be advisable to recover only net amount from the buyer. In any case, such amount should not be recovered showing it as ‘service tax’.
If he recovers gross amount from customer (i.e. inclusive of service tax), in addition to problems under service tax, he may face problem of valuation in section 4 of Central Excise. As per valuation rule 5, only ‘actual cost of transportation’ is allowable as deduction. A view is possible that service tax charged is not ‘actual cost of transportation’, particularly if he has availed Cenvat Credit of such service tax.
We are purchasers. Our purchase is on F.O.R. basis. For convenience, we pay on behalf of supplier and debit his account. In such case, who will be liable to pay service tax ?
As per rule 2(1)(d)(v), any person who pays or is liable to pay freight either himself or through his agent is liable to pay service tax. In this case, since you are paying the freight, you will get covered under the words ‘who pays’. You will be liable to pay service tax. Then you may recover the amount from the seller, but that is a separate transaction.
You cannot recover the amount showing it as ‘service tax’. Otherwise, you will have to pay it again to Government. As explained above, if you intend to avail Cenvat, it is advisable that you should recover only net amount from your customer.
If invoice and consignment note of GTA is in name to supplier, you can take a stand that you are paying as his agent. In that case, the supplier will be liable for payment of service tax. However, there should be clear agreement on this behalf, as discussed above.
Quantum of service tax payable
Normally, service tax is payable @ 10% plus 2% education cess on service tax i.e. total 10.2%. However, there is partial exemption and as per exemption notification No. 32/2004-ST dated 3-12-2004, actually service tax is payable on 25% of gross amount charged from customer by goods transport agency. Thus, service tax payable will be 2.5% of gross amount charged plus 2% education cess i.e. total 2.55%.
It is necessary to show education cess separately in invoice/challan. In the TR-6 challan also, the education cess is required to be shown separately under different account head.
Tax @ 25% is payable only if (a) the credit of duty paid on inputs or capital goods used for providing the taxable service has not been taken under the provisions of the Cenvat Credit Rules, 2004; or (ii) the goods transport agency has not availed the benefit under the notification No. 12/2003-ST dated the 20th June, 2003 [As per this exemption notification, if the service provider supplies certain goods while providing service, he is not required to pay service tax on the value of goods supplied]. It is apparent that these conditions for exemption are required to be fulfilled by goods transport agency and if he fulfils those conditions, the consignor/consignee paying service tax will also be eligible for this concession.
How consignor/consignee paying service tax would know whether the GTA fulfils these conditions ?
If the goods transport agency charges only 25% service tax in his invoice/challan, it can be taken as his declaration that he is fulfilling the conditions of exemption. Assessment of tax is his responsibility. However, wherever possible, it may be advisable to get a certificate from him annually that he is fulfilling the conditions of exemption, to avoid possible disputes.
The GTA has paid octroi, entry tax etc. on my behalf. Is service tax payable on such amounts also ?
No. As per section 67 of Finance Act, 1994, the service tax is payable on gross amount charged by service provider for taxable service rendered. Thus, tax is only on amount charged for taxable service and not for other services.
If the goods transport agency pays some amount ‘on behalf’ of customer, that amount is not part of service provided by him for transport of goods. In short, service tax is payable on value of services rendered for transport of goods. Thus, no tax will be payable on expenses incurred on behalf of customer and got reimbursed from customer. This was made clear in respect of some other services earlier, and the same principle will apply here also.
Is the tax payable on demurrage charges collected by GTA ?
Demurrage charges are levied when goods are not cleared within stipulated period. These are penal in nature. The charge is not for providing transport service, which alone is taxable. Moreover, these are never shown on the Consignment Note/Invoice of GTA. These cannot be included for purpose of service tax on service of GTA.
Notification No. 32/2004-ST exempts service provided in relation to transportation of goods upto 75% of total charges. Is this exemption available only if the transporter opts to pay the service tax, or it is available even if the consigner/Consignee pays the service tax ?
The condition for exemption is to be fulfilled by GTA and not by consignor/consignee. In his Invoice, he is required to show service tax separately. If he shows 2.55%, the liability of consignor/consignee is only 2.55%. Assessment of tax and showing it in invoice is responsibility of GTA, only payment is responsibility of consignor/consignee.
Exemption from service tax
In following cases, service tax is exempt.–
(a) Transport of fruits, vegetables, eggs or milk by road (as exempt under notification 33/2004-ST dated 3-12-2004) or
(b) Gross Amount charged on consignments transported in a goods carriage does not exceed Rs 1,500 (as exempt under clause (i) of notification No. 34/2004-ST dated 3-12-2004) [This is total of all consignments carried in a goods carriage at one time] or
(c) Gross Amount charged on individual consignment transported in a goods carriage does not exceed Rs 750 (as exempt under clause (ii) of notification No. 34/2004-ST dated 3-12-2004). - - ‘An individual consignment’ means all goods transported by a goods transport agency by road in a goods carriage for a consignee. [The intention is that the transporting agency should not split the consignment, so that transport charges of individual consignment remain below Rs 750].
The intention seems to be to exempt transporters carrying small consignments at short destinations. Interestingly, there is no exemption for transport of food grains, cotton, sugarcane, oil seeds or other agricultural produce.
The word used are ‘or’. Hence, service tax is exempt if either condition of clause (b) or condition of clause (c) are satisfied.
I would request you to kindly throw some light as to the limits of Rs 750 /- and Rs 1,500 /- as specified in the notification No. 34/2004-ST dated 3-12-2004. When would the limit of 750 and when the limit of Rs 1,500 has to be taken into consideration ?
The limit of Rs 750 is kept so that a consignment is not split, e.g. if total bill is Rs 2,100, goods transport agency may split one consignment into three consignments. He will make three invoices of Rs 700 each and then avoid service tax. Hence, ‘individual consignment’ has been defined as all goods transported in a goods carriage for a consignee.
Limit of Rs 1,500 applies in case of full load i.e. there may be more than one consignments to more than one consignees, but total freight for all consignments together should not exceed Rs 1,500.
Exemption is available if any one of the conditions is satisfied.
I agree that some confusion is likely. It is also not clear how department is going to check such Billing.
We are availing services of GTA. Our annual billing will be certainly less than Rs four lakhs per annum. Are we exempt from payment of service tax?
I am sorry to say that the general exemption available to small service providers under Notification No. 6/2005-ST dated 1-3-2005 is not applicable in cases where the service receiver is liable to pay service tax as per provisions of section 68(2) read with rule 2(1) of Service tax Rules. Thus, the exemption is not applicable to receiver of services of goods Transport Agency. However, the exemption is available to Goods Transport Agency.
One of my assessee is a partnership firm. They are in the wholesale business of kerosene. Daily they receive tankers of kerosene from the company and then sale it. For the tankers they have to pay the freight of Rs. 950/- per tanker. Daily the company receives around 10 tankers. Can the company take the exemption of Rs 1,500/- and therefore not liable for service Tax ? The whole tanker belongs to the assessee.
I think what you mean by 'whole tanker belongs to assessee' is that the kerosene in tanker belongs to assessee and not the tanker. If so, I agree that exemption will be available if whole consignment freight is less than Rs 1,500.
Cenvat Credit of Service Tax
Can the person paying service tax avail Cenvat credit of service tax paid by him ?
Consignor/consignee will be eligible if the service falls under the definition of ‘input service’ as defined in rule 2(l) of Cenvat Credit Rules, 2004. The invoice, bill or challan issued by goods transport agency will be a valid document to avail Cenvat credit.
Can I avail Cenvat credit on basis of TR-6 challan by which I have paid service tax ?
Since 16-6-2005, TR-6 challan has been made an eligible document to avail Cenvat credit.
Can we avail credit of service tax on transport charges paid by us ?
The service tax paid by you on good transport is obviously used in activities relating to business and hence, you can avail Cenvat credit on basis of invoice of GTA.
The definition of ‘input service’ as per rule 2(l) of Cenvat Credit Rules uses the words ‘outward transportation upto place of removal’. However, we incur expenses on outward freight from factory/depot also. Can we avail Cenvat of service tax paid on such freight ?
The words used in the definition of ‘input service’ in rule 2(l) are ‘activities relating to business, such as’. ‘Such as’ means all the examples given in the definition are only illustrative. They do not limit the definition. Use of words ‘upto place of removal’ does not mean that other transport charges are not allowable. Any service relating to your business will be ‘input service’ and will be eligible. Thus, outward freight even after place of removal will be eligible, as long as it is in relation to your business.
Who can avail credit of Service Tax paid by us on freight on finished excisable goods dispatched to our depots / stockyards? Is it the parent factory (Consignor) or the depots/stockyards (Consignee)? What is the document on which such credit can be availed?
If freight is paid in factory, consignor i.e. factory can avail Cenvat credit. If depot has paid service tax, it will have to register as 'Input Service Distributor' and then raise monthly invoice/challan on factory. Factory can avail Cenvat credit on basis of such invoice/challan. The depot will also have to register under Service Tax for purpose of payment of service tax.
Factory may apply to Commissioner for permission for central registration and payment of service tax under rule 4(3A) of Service Tax Rules. If such permission is obtained, the depot need not register under service tax provisions and need not pay service tax.
Whether service tax paid by the supplier on finished goods dispatched to their customers can be passed on to their customers; i.e. whether the service tax on Goods Transport Agency paid by the supplier can be collected from the customers separately? Is such collection permissible under Service Tax Act/Rules? Whether the element of Service Tax and Educational Cess can be indicated separately in the Rule 11 Invoice (prescribed under Central Excise Rules) for collection from customers?
There is no such provision. You cannot recover any amount representing service tax from your customer. This cannot be done as you are not ‘Goods Transport Agency’. However, Cenvat credit of service tax paid can be availed by you.
I have paid freight on behalf of my customer. Can I endorse the invoice of GTA, to enable my customer to take Cenvat credit ?
There is no such provision in law, though there is no specific prohibition. Note that as per rule 9(2) of Cenvat Credit Rules, credit cannot be denied even if name of user is not shown in the Invoice.
If you are risk taking and fighting type, you can legally do it. However, considering the way adjudication and appeal mechanism works in excise department, final success cannot be assured.
Hence, to avoid complications, it is advisable that you avail Cenvat credit yourself.
Payment of Service Tax
Can we pay the service tax on goods transport through Cenvat credit available with us ?
This is slightly risky. If you are not providing any service and not manufacturer, you can as well utilise your Cenvat credit (of telephone, courier etc.) for payment of service tax on GTA (possibly restriction of 20% of tax payable on output services may apply). If you are manufacturer or service provider, it is safer and better to pay service tax through TR-6 challan. You can avail its envat credit, since it is your 'input service'.
When the liability to pay service tax arises ?
Liability to pay service tax arises when you make payment of freight to Goods transport Agency. This is on the principle that as per rule 6(1), service tax is payable on ‘value received’.
We have few branch offices in India and they are not registered with Central Excise. The branch offices are meant for performing coordination work for factories situated in a far off place. These branch offices make payment of freight charges for movement of our raw materials from Port to factory. In this regard, the following points need clarification: (a) Whether the Branch Office is required to take registration for payment of Service (b) Centralised payment of Service Tax can be made at the factory in respect of freight payment made by the branch office? (c) In case, such Centralised payment of Service Tax at factory is not possible, whether the Service Tax so paid by the branches can be distributed by the Branch Offices to the factory?
The branch office is required to be registered if the freight is paid by branch. If service tax is paid by branches, same can be transferred to main factory by issuing Invoice/Challan as ‘Input Service Distributor’.
Centralised payment of service tax will be permissible only if you apply and get specific permission from Commissioner under rule 4(3A). If such permission is obtained, the branch office need not pay service tax and need not register under service tax provisions.
If payment of freight itself is done directly from factory/head office, then service tax can be paid by factory/head office.
Sample Consignment Note
Considering requirements of Service Tax Rules, a sample Consignment Note is given below. The form given above may be changed to suit individual requirements of Goods Transport Agency.
XYZ Goods Carriers
2245, Kamla Market, New Delhi – 110 002
Tel – (011) 25991401
Service Tax Regn No. AXMPZ128KST001
Consignment Note cum Invoice No.
Date
Name and Address of Consignor -
Name and Address of Consignee -
Delivery of Goods at -
Contents as declared by consignor
Number of Packages and marks
Weight Kgs
Details of Charges
Amount Rs
Actual
Charged
Freight
Labour Charges
Freight –
To pay by consignee/
To pay by consignor/
Paid by consignor
Stationery Charges
Consignor’s Challan No. and date
Value as declared by consignor(Rs)
Miscellaneous
Total
Details of Service Tax
Service tax Payable by –
Consignor/ Consignee/ Goods Transport Agency (GTA)
Service Tax
Education Cess
Remarks -
Total
Goods are carried at owner’s risk, unless specified otherwise. Subject to Delhi jurisdiction. Other conditions as overleaf.
For XYZ Goods Carrier
As per section 66(105)(zzp) of Finance Act, 1994, any service provided to a customer, by a goods transport agency, in relation to transport of goods by road in a goods carriage is a ‘taxable service’.
Can you tell me background of the service tax on goods transport by road ?
Service tax was earlier imposed on goods transport operators (GTO) but was discontinued with effect from 2-6-1998.
Subsequently, the services provided by goods transport agency (and not the owner of truck or truck operators) were made taxable vide Finance (No. 2) Act, 2004, w.e.f. 10-9-2004. However, these were kept in abeyance as per MF(DR) circular No. B2/8/2004-TRU dated 10-9-2004. Subsequently, the service tax on goods transport by road is being made effective from 1-1-2005.
Can you tell me the mode of imposing and recovering service tax on goods transport agency?
All sort of services of goods transport by road are not liable to service tax. The tax is only on services provided by Goods Transport Agency (GTA) (termed as ‘transport booking agents’ by Finance Minister in his budget speech on 8-7-2004). Only GTA which is a ‘commercial concern’ and which issues a consignment note is liable to service tax.
Note that in 1997-98, the service tax was payable on services of ‘Goods Transport Operator’, while now it is payable by ‘Goods Transport Agency’. The difference is highly significant to understand the coverage of service tax.
The basic scheme is that the goods transport agency (GTA) will be preparing the consignment note and invoice containing details as required. Service tax payable will also be shown on the invoice/bill/challan prepared by goods transport agency. However, payment of service tax will be made by the consignor or consignee who is actually paying the freight, if the consignor/consignee paying freight is a company, body corporate, cooperative society, registered society, factory, partnership or dealer registered under Central Excise.
Even in other cases, i.e. where freight is paid by individual, HUF or unregistered partnership firm, the service tax is payable by individual/HUF/unregistered partnership firm, if the consignor/consignee is factory, body corporate, society etc. [This may not be the intention, but this is as per clear provisions of rule 2(1)(d)(v) of Service Tax Rules].
Exemption has been given to small consignments where freight is upto Rs 750 per consignee per carriage or Rs 1,500 per goods carriage. Similarly, transport of fruits, vegetables, eggs or milk by road has been fully exempted from service tax.
Though general rate of service tax is 10% plus 2% education cess, actual service tax payable is 25% of normal service tax, i.e. 2.5% plus 2% education cess (total 2.55%) of gross amount charged from customer for providing taxable service.
Is there service tax on all services of goods transport by road ?
There is no general service tax on all goods transport. Service tax is payable only when service is provided by ‘goods transport agency’, as defined in the Act.
Finance Minister Shri P Chidambaram, in his budget speech on 8-7-2004 (para 149 of speech), had stated as follows, ‘58 services have been brought under the net so far. I propose to add some more this year. These are business exhibition services, airport services, services provided by transport booking agents, transport of goods by air, survey and exploration services, opinion poll services, - - - - -. I may clarify that there is no intention to levy service tax on truck owners or truck operators’.
Thus, intention of Government is to tax only services provided by transport booking agents. This aspect should be kept in mind while interpreting various provisions in the Act and Rules.
Goods Transport Agency (GTA)
What is the meaning of ‘goods transport agency’ ?
As per section 65(50B), ‘goods transport agency’ means any commercial concern which provides service in relation to transport of goods by road and issues consignment note, by whatever name called.
Thus, essential requirement are – (a) Service must be in relation to transport of goods by road and (b) Service should be provided by ‘commercial concern’ and (c) The service provider must have issued consignment note by whatever name called.
An individual truck owner has direct contract with Consignor / consignee. He himself receives freight from consignor/consignee. Is Service Tax is payable ?
As per section 65(50B), ‘goods transport agency’ means any commercial concern which provides service in relation to transport of goods by road and issues consignment note, by whatever name called.
If driver of goods carriage is self employed (i.e. taken vehicle on rent) or he is himself owner of vehicle, he is not a 'commercial concern' and hence would not come under that definition, even if he issues a ‘consignment note’ (usually, he will not issue a ‘consignment note’).
The word ‘commercial concern’ is not defined in the Act. As discussed earlier, individual providing services will not be a ‘commercial concern’, if he is self employed, even if he purchases a vehicle for providing service. The reason is that his primary motive is to earn livelihood and not earn profit.
This view is also supported by statement of Finance Minister made in his budget speech on 8-7-2004.
However, a proprietary firm doing business on commercial basis will be a ‘commercial concern’.
Would services of Government or non-profit organisations be taxable ?
Service of goods transport provided by Government, charitable institution or any other non-profit organisation will not be taxable, as it is not a ‘commercial concern’.
I have given my truck on hire to a company. Am I liable to pay service tax ?
In some cases, the truck owners give their vehicle to some companies for transporting the goods. The charge for vehicle may be on kilometer basis or monthly basis or number of trips basis. In such cases, issue of any consignment note is not necessary. In fact, the service is in nature of hire and not service of ‘goods transport’.
Consequently, person giving vehicle on hire does not come within definition of ‘goods transport agency’ and their services are not taxable.
This view is also supported by budget speech of Finance Minister made on 8-7-2004.
If a booking agent say Mr. A having no truck of his own, hires a truck from another trucker and then sends the truck on his (i.e. of Mr. A himself) consignment note to say Bombay and charges Rs. 15,000 + 2.55% service tax. But he pays only Rs. 10,000 to the person who really owns the truck, now is the person who gets Rs. 10,000 and is the real owner of the truck liable for service tax.
The person who owns truck is not required to pay service tax, as he has not issued consignment note.
We transport goods only for companies and hence there will be no liability of service tax on us. Is it necessary for us to register under service tax ?
As per section 69, only person liable to pay service tax is required to be registered. It is true that as per rule 4A(1)(i), a service provider issuing invoice has to indicate his registration number in his invoice. However, in case of conflict between section and rule, obviously section will prevail. Moreover, as per para 5.1 of MF(DR) letter No. 341/18/2004-TRU(Pt) dated 17-12-2004, goods transport agencies which are not liable to pay service tax are not required to be registered under service tax rules.
Hence, applying rule of harmonious construction, in the opinion of author, the service provider need not indicate service tax registration number in his invoice. He may indicate ‘ Service Tax Registration Number – Not Applicable’. If one wants to be on safe side, he may register and file Nil returns, though not legally required [It would be better if department issues clarification on this aspect].
A GTA can avail either of the 2 benefits given to him i.e. (a) He can enjoy abatement of 75% on value of service & pay tax on only 25% of the value of service (b) he can claim the benefit of Cenvat Credit on duties paid on inputs & capital goods. In both the cases mentioned above, he is not barred from taking credit for service tax paid by him on value of input services availed by him for the purpose of rendering the taxable service. My query is how this choice of (a) or (b) i.e. whether to avail 75% abatement or Cenvat Credit is to be exercised? on yearly, quarterly, monthly basis or is it a one time choice?
There is no specific provision, but normally, a choice cannot be changed during a financial year. However, in the case of GTA, only a person who is out of his mind will avail Cenvat on inputs and capital goods and show full service tax in his invoice. Rest will not avail Cenvat on inputs and capital goods and will show 25% tax in their invoice. Person who is showing full i.e. 10.2% service tax in his invoice will soon go out of business and hence any further question will not arise.
Whether a person doing only business on commission & arranging for business to others for small amount of commission under Transport Sector will be covered under Business Auxiliary Services?
Yes, he may get covered under business auxiliary service as ‘commission agent’.
I am a GTA rendering exclusive service only to a few corporate clients, on contract basis, for which I am paid my charges on weekly basis. In the new regime w.e.f. from 1-1-2005, in such a case, if my bill is say Rs. 11,020/- inclusive of service tax, the client will pay me only Rs. 10,000/- & will pay Rs. 1,020/- service tax directly to the department on his own. However I will have to file all the necessary returns with the Service Tax Dept regularly, In such a case, what will be the proofs of payment that I will be required to attach & how they are to be obtained from my corporate clients who are the consignors?
If you are not liable to pay service tax, you need not register. In your invoice, you can show, ‘Service Tax Registration Number – Not Applicable’. If you want to be on safe side, you may register and file Nil returns, though not legally required.
You have no liability to prove payment of service tax by your clients.
Is a contractor carrying garbage for municipal corporation liable for service tax ?
No, for two reasons – (a) Garbage is not ‘goods’ as it is not marketable commodity and (b) he does not issue consignment note.
Goods Carriage
What is meant by ‘goods carriage’ ?
As per section 65(50A) of the Finance Act, ‘Goods carriage’ has the meaning assigned to it section 2(14) of the Motor Vehicles Act, 1988. As per section 2(14) of the Motor Vehicles Act, 1988, goods carriage means any motor vehicle constructed or adapted for use solely for the carriage of goods or any motor vehicle not so constructed or adapted when used for carriage of goods.
As per section 2(2 of Motor Vehicles Act, 1988, Motor vehicle or vehicle means any mechanically propelled vehicle adopted for use upon roads whether the power of propulsion is transmitted thereto from external or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle running upon fixed rails or vehicle of a special type adapted for use only in a factory or any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding 25 (Twenty-five) cubic centimeters.
Thus, goods carriage will cover any motor vehicle constructed or adapted for use solely for carriage of goods as well as other motor vehicles when used for carriage of goods. The words ‘Motor Vehicle’ will cover all the mechanically propelled vehicles like trucks, light carriage vehicles, trailers, cars, etc.
Many passenger buses also carry goods. Will they come under definition of ‘goods carriage’ ?
Passenger buses (public transport or privately owned) can come under definition of ‘goods carriage’, since the words used are – ‘any motor vehicle not so constructed or adapted, when used for carriage of goods’. Of course, if their charges are less than Rs 750 per consignee or total Rs 1,500, they will be exempt from service tax. They will also be exempt if they do not issue ‘consignment note’.
Can rickshaw or tempo or taxi driven by owner or self employed person be a ‘goods carriage’ ?
Rickshaw, taxi or tempo can come under definition of ‘goods carriage’, if they carry goods. However, if such rickshaw, tempo or taxi is owner driven or run by self employed person, it is not a ‘commercial concern’. It will be out of definition of ‘Goods Transport Agency’. Moreover, they do not issue consignment note.
Hence their services will not be taxable even if the charges are higher than Rs 750/1,500.
This view is also supported by budget speech of Finance Minister made on 8-7-2004.
Consignment Note and Invoice
Is issue of consignment note compulsory for all goods transporters?
No. As per section 65(50B), ‘goods transport agency’ means any commercial concern which provides service in relation to transport of goods by road and issues consignment note, by whatever name called.
Thus, as per section 65(50B), service provider which is a commercial concern and issues consignment note is covered. In other words, issue of consignment note is optional, it is not compulsory.
Finance Minister, in his speech, has also clarified that the service tax is on transport booking agents and not on truck owners or truck operators.
As per rule 4B of Service Tax Rules, issue of consignment note is compulsory only for ‘goods transport agency’.
If a goods transporter does not issue ‘consignment note’, he is not ‘goods transport agency’ at all u/s 65(50B), even if he is a ‘commercial concern’. Hence rule 4B does not apply to him. Similarly, if a transporter of goods is not a ‘commercial concern’, he is not required to issue a consignment note.
Assuming that there is some conflict between section and rule, obviously, section will prevail over rule. What is clearly permitted in a section cannot be restricted by rule making authority.
A rule cannot restrict scope of an Act. Rule cannot impose a condition, which is not there in Act.
What is meaning of ‘consignment note’ ?
As per explanation to rule 4B of Service Tax Rules, for purpose of rules 4A and 4B, “consignment note” means a document, issued by a goods transport agency against the receipt of goods for the purpose of transport of goods by road in a goods carriage. It should be serially numbered, and should contain following details –
Name of the consignor and consignee
Registration number of the goods carriage in which the goods are transported
Details of the goods transported
Details of the place of origin and destination
Person liable for paying service tax whether consignor, consignee or the goods transport agency.
The definition itself makes it clear that it is for purpose of rules 4A and 4B. This definition cannot be straight away used to interpret the word ‘consignment note’ in section 65(50B), but guidance can be taken from this definition. This means that even if some of the details as prescribed above are missing, it can still be a ‘Consignment Note’ for purpose of section 65(50B), if it is understood as a ‘consignment note’ in trade parlance.
Consignment note is document of title - The word ‘consignment note’ has a specific meaning in the trade. Normally, it contains, among other things – (a) name of consignor and consignee (b) details of goods transported (c) details of place of origin and destination (d) Freight paid/payable (e) Name and address of goods transport agency.
When a person deposits the goods with any transporter for the purpose of transport to a given destination, the transporter issues a lorry receipt (LR) or consignment note to the person depositing the goods. The original LR/consignment note is sent by the person booking the goods to the consignee either directly or through bank. The consignee can collect the goods from the transporter by presenting the LR/consignment note.
As per trade parlance, the ‘lorry receipt’ or ‘consignment note’ is a ‘document of title’ and ownership of goods passes by delivery of the LR/consignment note.
Mere issuing cash receipt or acknowledging receipt of goods is not a ‘consignment note’ - If the transporter issues a Cash Receipt or Receipt of Cheque, it is not taxable, as receipt of cash or cheque is not a ‘consignment note’. It is not a ‘Document of Title’. If goods are given to a transporter and he acknowledges receipt of goods by signing your Delivery Challan and keeps another copy with himself for transport, it is not a ‘Document of Title’, as consignee cannot get delivery of goods on production of such Delivery Challan. In such case, service tax cannot be imposed.
Is it necessary for a small tempo owner to issue consignment note ?
The unorganized transporters like small ‘tempo owners’ or ‘truck owners’ who carry the goods for transporting them at short distances from one place to another as per instructions of person delivering the goods to them. They usually do not and need not issue consignment note and hence do not come within definition of ‘goods transport agency’. Moreover, they are not a ‘commercial concern’.
Consequently, they do not come within definition of ‘goods transport agency’ and their services are not taxable.
Can you tell me when issue of consignment note is not necessary ?
As explained above, issue of consignment note is necessary only in case of ‘Goods Transport Agency’ and not in case of all goods transport by road. If goods transporter is not GTA, he is not required to issue consignment note.
Person who is not GTA not required to issue consignment note - As per rule 4B of Service Tax Rules (introduced w.e.f. 1-1-2005), any goods transport agency which provides service in relation to transport of goods by road in a goods carriage must issue a consignment note. This provision applies only to GTA and not to others. A person who is not a ‘Goods Transport Agency’ as defined in the Act is not required to issue ‘consignment note’.
When issue of consignment note by GTA is not required - Even in case of GTA, issue of consignment note is not necessary when the service is exempt under a notification issued under section 93 of Finance Act (exemptions discussed later).
What are requirements of invoice to be issued by GTA ?
As per rule 4A(1) of Service Tax Rules, the invoice/challan/Bill should be signed by authorised person of provider of input services. The invoice/Bill/challan should be serially numbered. It should contain following details –
Name, address and registration number of person providing taxable service
Name and address of person receiving taxable service
Description, classification and value of taxable service provided or to be provided and
Service tax payable on the taxable service
Even if Invoice/Challan/Bill does not contain serial number, Cenvat credit cannot be denied, in view of rule 9(2) of Cenvat Credit Rules.
The rule does not make mention of date, but actually, date should be mentioned.
In addition, as per second proviso to rule 4A(1), gross weight of consignment, consignment note number and date should be indicated in addition to aforesaid details.
Education cess payable should be shown separately in invoice/challan.
We have Annual contract with transporter for taking goods from one factory to another. Can he make a monthly invoice ?
Yes, there seems to be no objection for this purpose. In fact, as discussed earlier, he may not come under definition of ‘goods transport agency’ and service tax may not be payable at all, if he does not issue ‘consignment note’.
The goods transport agency is not liable to pay service tax. Is he still liable to show service tax separately in his invoice ?
Yes, that is what law says. He should show service tax and education cess separately in his invoice, but should not ‘charge’ it to customer. Consignor/consignee paying freight should pay him net amount (i.e. excluding service tax and education cess) and pay service tax directly.
Can a GTA issue combined consignment note cum invoice ?
There is no specific provision, but there seems to be no objection to do so, as the words used in section 65(50b) are ‘consignment note by whatever name called’. Second proviso to rule 4A(1) also uses the words ‘invoice, bill or challan on any document by whatever name called’.
The document should make it clear that it is invoice cum consignment note. Requirements of both documents as prescribed should be fulfilled.
Person liable to pay service tax
As per rule 2(1)(d)(v) of Service Tax Rules, Consignor or consignee who is paying freight will be liable to pay service tax, if consignor or consignee is any one of the following –
any factory registered under or governed by the Factories Act, 1948 (63 of 194
any company established by or under the Companies Act, 1956 (1 of 1956)
any corporation established by or under any law
any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India
any co-operative society established by or under any law
any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder
any body corporate established, or a partnership firm registered, by or under any law
In brief, if the goods are booked on ‘freight to pay’ basis, the consignee will be liable if he falls under any one of aforesaid categories. If goods are booked ‘freight paid’ basis, consignor will be liable, if he falls under one of aforesaid categories.
Is consignor/consignee liable to pay service tax required to be registered under service tax ?
Consignor or consignee who is liable to pay service tax should be registered under Service tax.
I am consignor. I am an individual/ HUF/unregistered firm consignor paying freight charges, but my consignee is company/society/factory. Who is liable to pay service tax ?
In such cases, the consignor who is individual/HUF/unregistered firm is liable to pay service tax. This is also the case where consignee is individual/HUF/unregistered partnership firm and freight is to be paid by him. In such case, consignee will be liable [This may not be the intention, but that is the clear wording of rule 2(1)(d)(v)].
When the goods transport agency will be liable to pay service tax ?
If either the consignor or consignee is factory, company, society, registered partnership firm etc., the goods transport agency is not liable at all, even if freight is to be paid by individual/HUF/unregistered partnership firm.
The goods transport agency will be liable only in cases where both consignor and consignee are individual/HUF/unregistered partnership firm and when individual consignment freight exceeds Rs 750/1500 as applicable.
He will also not be liable when he carries milk, egg, fruits or vegetables, as transport of these goods is completely exempt from service tax.
If taxable turnover of Goods Transport Agency is less than Rs four lakhs per annum, he is exempt from service tax under notification No. Notification No. 6/2005-ST dated 1-3-2005. This would be so even if his total turnover is in crores. However, this exemption is not available to service receiver, when service tax is payable by the service receiver.
My transporter has not shown any service in his invoice. Am I liable to pay service tax ?
Strictly legally- No. The reason is that service tax is payable only when service is provided by ‘Goods Transport Agency’ and not on each and every goods transport. He should be a ‘commercial concern’ and should issue a ‘consignment note’. Moreover, the service is taxable only when provided by road in ‘goods carriage’.
You have no powers or liability to investigate whether the provider of service is ‘commercial concern’ or not. You even do not (legally) know whether he has provided service by goods carriage. It is also not known whether or not he has availed Cenvat credit on inputs and capital goods. All these facts are only known to him.
Your legal liability commences only when he shows service tax separately in his invoice as required under rule 4A and issues consignment note as required under rule 4B. If this is missing, your liability cannot commence.
In short, assessment of service tax is liability of goods transport agency. Your legal liability is only when he issues consignment note and invoice as required under rules. Note that there is no provision similar to TDS, under Service Tax.
Of course, as a precaution, it is always advisable to get confirmation from him, and if required, advise him suitably the correct legal position, particularly in cases when he issues a consignment note.
If he is issuing consignment note, it is advisable to pay service tax @ 2.55% by TR-6 challan and avail Cenvat credit.
My transporter has simply shown, ‘Service tax extra, payable by person paying freight’. Am I liable to pay service tax?
The invoice is not correct. Though liability for payment is yours, the transporter should show service tax payable in his invoice. Otherwise, how you will know whether service tax payable is 2.55% or 10.2%? The concessional rate of service tax is payable only when the Goods Transport Agency fulfils required conditions. If service tax is not shown, you cannot know whether or not the GTA is fulfilling those conditions.
It is advisable to discuss with him and explain him the legal position. If nothing works, it is advisable to pay service tax @ 2.55% and avail Cenvat credit on basis of TR-6 challan.
We have entered into agreement with transporter that he will be liable to pay service tax. In such case, is it necessary for us to register under service tax ?
A statutory liability cannot be shifted to another by mutual private agreement. Whatever your agreement with transport agency, you will be liable to pay service tax, file returns etc. Your mutual private agreement has no validity in law.
If a company is paying freight charges to various transporters whether company is liable to deduct the service tax from the bill of transporters and pay the same to the service tax department ? If yes, then the company will have to get itself registered with the service tax department.
Company has to register if it is liable to pay service tax on goods transport. However, there is no liability to 'deduct' service tax from bill of goods transporter. Legally, the goods transport agency should show it separately in invoice. Your liability is only to pay service tax as shown by him in his invoice. If he does not charge any service tax, there is no legal liability, as you do not know whether he is ‘goods transport agency’ or not. This will be particularly so if he has not issued ‘consignment note’.
What precautions a consignor/consignee should take ?
He should take following precautions –
He should maintain separate account of transport charges in respect of services of GTA and others. Otherwise, he may face problems during EA-2000 audit.
Though not legally required, he should enquire whether person providing goods transport service is ‘Goods Transport Agency’ or not and get suitable certificate.
He should register under service tax, pay service tax by TR-6 challan (and not through Cenvat credit). He will have to file half yearly return, as required under Service Tax Rules.
Cenvat credit can be taken on basis of invoice of GTA and not on basis of TR-6 challan.
Recovery of service tax from customer
We are sellers. Our sales are ex-works basis. However, we pay freight on behalf of buyer and recover the freight from the buyer in invoice/debit note. Who will be liable to pay service tax ?
As per rule 2(1)(d)(v), any person who pays or is liable to pay freight either himself or through his agent is liable to pay service tax. In this case, since you are paying the freight, you will get covered under the words ‘who pays’. You will be liable to pay service tax. You may recover the net amount from the seller, but that is a separate transaction.
If invoice is in your name, You will be able to avail Cenvat credit as the payment is for activity relating to business.
You will not be liable to pay service tax only when you establish that you are paying freight ‘as agent’ of other. There should be proper agreement with Principal to make it clear that you are paying freight on behalf of other and you are his agent for payment of freight. Agreement should make it clear that service tax liability will be of Principal. The consignment note/invoice issued by GTA should be preferably in name of Principal.
In such case, the agent can pay freight and recover entire amount from Principal including service tax. However, he should not charge service tax separately in his debit note. The Agent cannot avail Cenvat credit when he is paying freight only as an agent. It is advisable if the Consignment Note indicates name of Principal as the person who is liable to pay freight.
In above case, can I recover the amount from buyer showing it separately as ‘service tax’, so that he can avail Cenvat credit ?
If you pay freight, you cannot recover any amount representing service tax. If you do so, department may take a view that you are liable to pay it to Government again, as per section 11D of Central Excise Act, which has been made applicable to service tax also [Of course, the issue is arguable, but risk is not worth taking].
The main issue is that if you recover an amount representing ‘service tax’, the same amount will be shown as ‘service tax’ in invoice of GTA as well as your invoice. Theoretically, it is possible that two persons may avail Cenvat credit of same service tax, which will be highly improper.
Even if you have agreement with customer that he has agreed to bear service tax, a private agreement cannot override a statutory provision.
Department vide para 5.7 of its circular No. 341/18/2004-ST dated 17-12-2004 has clarified as follows, ‘If service tax due on transportation of a consignment has been paid or is payable by a person liable to pay service tax, service tax should not be charged for the same amount from any other person, to avoid double taxation’.
This also supports the view that you cannot recover any amount from your customer showing it as service tax.
In aforesaid case, if the service tax cannot be passed on to the customers, whether the supplier himself can avail the credit immediately on payment of service tax? If so, what is the document based on which such credit can be availed by the supplier?
Supplier who has paid service tax can avail Cenvat credit on basis of invoice of GTA issued by him under rule 4A(1). If the supplier intends to avail Cenvat credit, it would be advisable to recover only net amount from the buyer. In any case, such amount should not be recovered showing it as ‘service tax’.
If he recovers gross amount from customer (i.e. inclusive of service tax), in addition to problems under service tax, he may face problem of valuation in section 4 of Central Excise. As per valuation rule 5, only ‘actual cost of transportation’ is allowable as deduction. A view is possible that service tax charged is not ‘actual cost of transportation’, particularly if he has availed Cenvat Credit of such service tax.
We are purchasers. Our purchase is on F.O.R. basis. For convenience, we pay on behalf of supplier and debit his account. In such case, who will be liable to pay service tax ?
As per rule 2(1)(d)(v), any person who pays or is liable to pay freight either himself or through his agent is liable to pay service tax. In this case, since you are paying the freight, you will get covered under the words ‘who pays’. You will be liable to pay service tax. Then you may recover the amount from the seller, but that is a separate transaction.
You cannot recover the amount showing it as ‘service tax’. Otherwise, you will have to pay it again to Government. As explained above, if you intend to avail Cenvat, it is advisable that you should recover only net amount from your customer.
If invoice and consignment note of GTA is in name to supplier, you can take a stand that you are paying as his agent. In that case, the supplier will be liable for payment of service tax. However, there should be clear agreement on this behalf, as discussed above.
Quantum of service tax payable
Normally, service tax is payable @ 10% plus 2% education cess on service tax i.e. total 10.2%. However, there is partial exemption and as per exemption notification No. 32/2004-ST dated 3-12-2004, actually service tax is payable on 25% of gross amount charged from customer by goods transport agency. Thus, service tax payable will be 2.5% of gross amount charged plus 2% education cess i.e. total 2.55%.
It is necessary to show education cess separately in invoice/challan. In the TR-6 challan also, the education cess is required to be shown separately under different account head.
Tax @ 25% is payable only if (a) the credit of duty paid on inputs or capital goods used for providing the taxable service has not been taken under the provisions of the Cenvat Credit Rules, 2004; or (ii) the goods transport agency has not availed the benefit under the notification No. 12/2003-ST dated the 20th June, 2003 [As per this exemption notification, if the service provider supplies certain goods while providing service, he is not required to pay service tax on the value of goods supplied]. It is apparent that these conditions for exemption are required to be fulfilled by goods transport agency and if he fulfils those conditions, the consignor/consignee paying service tax will also be eligible for this concession.
How consignor/consignee paying service tax would know whether the GTA fulfils these conditions ?
If the goods transport agency charges only 25% service tax in his invoice/challan, it can be taken as his declaration that he is fulfilling the conditions of exemption. Assessment of tax is his responsibility. However, wherever possible, it may be advisable to get a certificate from him annually that he is fulfilling the conditions of exemption, to avoid possible disputes.
The GTA has paid octroi, entry tax etc. on my behalf. Is service tax payable on such amounts also ?
No. As per section 67 of Finance Act, 1994, the service tax is payable on gross amount charged by service provider for taxable service rendered. Thus, tax is only on amount charged for taxable service and not for other services.
If the goods transport agency pays some amount ‘on behalf’ of customer, that amount is not part of service provided by him for transport of goods. In short, service tax is payable on value of services rendered for transport of goods. Thus, no tax will be payable on expenses incurred on behalf of customer and got reimbursed from customer. This was made clear in respect of some other services earlier, and the same principle will apply here also.
Is the tax payable on demurrage charges collected by GTA ?
Demurrage charges are levied when goods are not cleared within stipulated period. These are penal in nature. The charge is not for providing transport service, which alone is taxable. Moreover, these are never shown on the Consignment Note/Invoice of GTA. These cannot be included for purpose of service tax on service of GTA.
Notification No. 32/2004-ST exempts service provided in relation to transportation of goods upto 75% of total charges. Is this exemption available only if the transporter opts to pay the service tax, or it is available even if the consigner/Consignee pays the service tax ?
The condition for exemption is to be fulfilled by GTA and not by consignor/consignee. In his Invoice, he is required to show service tax separately. If he shows 2.55%, the liability of consignor/consignee is only 2.55%. Assessment of tax and showing it in invoice is responsibility of GTA, only payment is responsibility of consignor/consignee.
Exemption from service tax
In following cases, service tax is exempt.–
(a) Transport of fruits, vegetables, eggs or milk by road (as exempt under notification 33/2004-ST dated 3-12-2004) or
(b) Gross Amount charged on consignments transported in a goods carriage does not exceed Rs 1,500 (as exempt under clause (i) of notification No. 34/2004-ST dated 3-12-2004) [This is total of all consignments carried in a goods carriage at one time] or
(c) Gross Amount charged on individual consignment transported in a goods carriage does not exceed Rs 750 (as exempt under clause (ii) of notification No. 34/2004-ST dated 3-12-2004). - - ‘An individual consignment’ means all goods transported by a goods transport agency by road in a goods carriage for a consignee. [The intention is that the transporting agency should not split the consignment, so that transport charges of individual consignment remain below Rs 750].
The intention seems to be to exempt transporters carrying small consignments at short destinations. Interestingly, there is no exemption for transport of food grains, cotton, sugarcane, oil seeds or other agricultural produce.
The word used are ‘or’. Hence, service tax is exempt if either condition of clause (b) or condition of clause (c) are satisfied.
I would request you to kindly throw some light as to the limits of Rs 750 /- and Rs 1,500 /- as specified in the notification No. 34/2004-ST dated 3-12-2004. When would the limit of 750 and when the limit of Rs 1,500 has to be taken into consideration ?
The limit of Rs 750 is kept so that a consignment is not split, e.g. if total bill is Rs 2,100, goods transport agency may split one consignment into three consignments. He will make three invoices of Rs 700 each and then avoid service tax. Hence, ‘individual consignment’ has been defined as all goods transported in a goods carriage for a consignee.
Limit of Rs 1,500 applies in case of full load i.e. there may be more than one consignments to more than one consignees, but total freight for all consignments together should not exceed Rs 1,500.
Exemption is available if any one of the conditions is satisfied.
I agree that some confusion is likely. It is also not clear how department is going to check such Billing.
We are availing services of GTA. Our annual billing will be certainly less than Rs four lakhs per annum. Are we exempt from payment of service tax?
I am sorry to say that the general exemption available to small service providers under Notification No. 6/2005-ST dated 1-3-2005 is not applicable in cases where the service receiver is liable to pay service tax as per provisions of section 68(2) read with rule 2(1) of Service tax Rules. Thus, the exemption is not applicable to receiver of services of goods Transport Agency. However, the exemption is available to Goods Transport Agency.
One of my assessee is a partnership firm. They are in the wholesale business of kerosene. Daily they receive tankers of kerosene from the company and then sale it. For the tankers they have to pay the freight of Rs. 950/- per tanker. Daily the company receives around 10 tankers. Can the company take the exemption of Rs 1,500/- and therefore not liable for service Tax ? The whole tanker belongs to the assessee.
I think what you mean by 'whole tanker belongs to assessee' is that the kerosene in tanker belongs to assessee and not the tanker. If so, I agree that exemption will be available if whole consignment freight is less than Rs 1,500.
Cenvat Credit of Service Tax
Can the person paying service tax avail Cenvat credit of service tax paid by him ?
Consignor/consignee will be eligible if the service falls under the definition of ‘input service’ as defined in rule 2(l) of Cenvat Credit Rules, 2004. The invoice, bill or challan issued by goods transport agency will be a valid document to avail Cenvat credit.
Can I avail Cenvat credit on basis of TR-6 challan by which I have paid service tax ?
Since 16-6-2005, TR-6 challan has been made an eligible document to avail Cenvat credit.
Can we avail credit of service tax on transport charges paid by us ?
The service tax paid by you on good transport is obviously used in activities relating to business and hence, you can avail Cenvat credit on basis of invoice of GTA.
The definition of ‘input service’ as per rule 2(l) of Cenvat Credit Rules uses the words ‘outward transportation upto place of removal’. However, we incur expenses on outward freight from factory/depot also. Can we avail Cenvat of service tax paid on such freight ?
The words used in the definition of ‘input service’ in rule 2(l) are ‘activities relating to business, such as’. ‘Such as’ means all the examples given in the definition are only illustrative. They do not limit the definition. Use of words ‘upto place of removal’ does not mean that other transport charges are not allowable. Any service relating to your business will be ‘input service’ and will be eligible. Thus, outward freight even after place of removal will be eligible, as long as it is in relation to your business.
Who can avail credit of Service Tax paid by us on freight on finished excisable goods dispatched to our depots / stockyards? Is it the parent factory (Consignor) or the depots/stockyards (Consignee)? What is the document on which such credit can be availed?
If freight is paid in factory, consignor i.e. factory can avail Cenvat credit. If depot has paid service tax, it will have to register as 'Input Service Distributor' and then raise monthly invoice/challan on factory. Factory can avail Cenvat credit on basis of such invoice/challan. The depot will also have to register under Service Tax for purpose of payment of service tax.
Factory may apply to Commissioner for permission for central registration and payment of service tax under rule 4(3A) of Service Tax Rules. If such permission is obtained, the depot need not register under service tax provisions and need not pay service tax.
Whether service tax paid by the supplier on finished goods dispatched to their customers can be passed on to their customers; i.e. whether the service tax on Goods Transport Agency paid by the supplier can be collected from the customers separately? Is such collection permissible under Service Tax Act/Rules? Whether the element of Service Tax and Educational Cess can be indicated separately in the Rule 11 Invoice (prescribed under Central Excise Rules) for collection from customers?
There is no such provision. You cannot recover any amount representing service tax from your customer. This cannot be done as you are not ‘Goods Transport Agency’. However, Cenvat credit of service tax paid can be availed by you.
I have paid freight on behalf of my customer. Can I endorse the invoice of GTA, to enable my customer to take Cenvat credit ?
There is no such provision in law, though there is no specific prohibition. Note that as per rule 9(2) of Cenvat Credit Rules, credit cannot be denied even if name of user is not shown in the Invoice.
If you are risk taking and fighting type, you can legally do it. However, considering the way adjudication and appeal mechanism works in excise department, final success cannot be assured.
Hence, to avoid complications, it is advisable that you avail Cenvat credit yourself.
Payment of Service Tax
Can we pay the service tax on goods transport through Cenvat credit available with us ?
This is slightly risky. If you are not providing any service and not manufacturer, you can as well utilise your Cenvat credit (of telephone, courier etc.) for payment of service tax on GTA (possibly restriction of 20% of tax payable on output services may apply). If you are manufacturer or service provider, it is safer and better to pay service tax through TR-6 challan. You can avail its envat credit, since it is your 'input service'.
When the liability to pay service tax arises ?
Liability to pay service tax arises when you make payment of freight to Goods transport Agency. This is on the principle that as per rule 6(1), service tax is payable on ‘value received’.
We have few branch offices in India and they are not registered with Central Excise. The branch offices are meant for performing coordination work for factories situated in a far off place. These branch offices make payment of freight charges for movement of our raw materials from Port to factory. In this regard, the following points need clarification: (a) Whether the Branch Office is required to take registration for payment of Service (b) Centralised payment of Service Tax can be made at the factory in respect of freight payment made by the branch office? (c) In case, such Centralised payment of Service Tax at factory is not possible, whether the Service Tax so paid by the branches can be distributed by the Branch Offices to the factory?
The branch office is required to be registered if the freight is paid by branch. If service tax is paid by branches, same can be transferred to main factory by issuing Invoice/Challan as ‘Input Service Distributor’.
Centralised payment of service tax will be permissible only if you apply and get specific permission from Commissioner under rule 4(3A). If such permission is obtained, the branch office need not pay service tax and need not register under service tax provisions.
If payment of freight itself is done directly from factory/head office, then service tax can be paid by factory/head office.
Sample Consignment Note
Considering requirements of Service Tax Rules, a sample Consignment Note is given below. The form given above may be changed to suit individual requirements of Goods Transport Agency.
XYZ Goods Carriers
2245, Kamla Market, New Delhi – 110 002
Tel – (011) 25991401
Service Tax Regn No. AXMPZ128KST001
Consignment Note cum Invoice No.
Date
Name and Address of Consignor -
Name and Address of Consignee -
Delivery of Goods at -
Contents as declared by consignor
Number of Packages and marks
Weight Kgs
Details of Charges
Amount Rs
Actual
Charged
Freight
Labour Charges
Freight –
To pay by consignee/
To pay by consignor/
Paid by consignor
Stationery Charges
Consignor’s Challan No. and date
Value as declared by consignor(Rs)
Miscellaneous
Total
Details of Service Tax
Service tax Payable by –
Consignor/ Consignee/ Goods Transport Agency (GTA)
Service Tax
Education Cess
Remarks -
Total
Goods are carried at owner’s risk, unless specified otherwise. Subject to Delhi jurisdiction. Other conditions as overleaf.
For XYZ Goods Carrier
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