GST on Transportation of Goods by Road

Transportation of goods by road are done by transporter or courier agency. Here, we are discussing transporter. Transporter can be of two types: 

a. Goods Transport Agency (GTA) - like VRL Logistic or TCI XPS

b. Transport (i.e. Vehicle) Owners

The real difference between GTA and Transport Owners, GTA are not fleet owners. They provide service of transportation by using the fleet of others.

Why we are trying to differentiate GTA & Transport Owners?

Because of the following exemption - 'Notification 12-2017 dated 28 June 2017 Paragraph 1 Serial No. 18 - Service by way of transportation of goods by road except the services of Goods Transport Agency and courier agency.' 

However, law has mischief by defining the GTA as 'Notification 12-2017 dated 28 June 2017 Paragraph 2 Clause (ze) - any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called', because consignment note is even issued by transport owners.

As per Rule of Interpretation of Tax Statutes given by Hon'ble Courts, whenever law has mischief, to suppress such mischief one can refer the speech of mover given on the floor of Parliament.

Finance Minister Shri P. Chidambaram, in his Budget Speech on 8-7-2004 (Para 149) has stated as follows:

149. 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; intellectual property services other than copy right; brokers of forward contracts; pandal and shamiana contractors; outdoor caterers; independent TV/radio programme producers; construction services in respect of commercial or industrial constructions; and life insurance services to the extent of the risk premium. I may clarify that there is no intention to levy service tax on truck owners or truck operators. Nor, as was clarified by my predecessor, is there any intention to levy service tax on the savings part of the premium collected by an insurer.

It is clear from the above speech, the tax was imposed only on goods transport agency and not on transport owners.

The definition and taxability of transportation of goods in GST are identical to as it was in 2005 (Positive Regime of Taxation in Service Tax) and 2012 (Negative Regime of Taxation in Service Tax). Also, the current Finance Minister Mr. Arun Jaitley while deciding the rate and exemption on services on 19 May 2017 at the GST Council Meeting have said that they are following grandfather approach in deciding taxability of services in GST regime.

Registration:

The next question which needs to be answered, 'When GTA is required to take registration?'

Section 22(1) of CGST Act, 2017 'Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees'

It means once aggregate turnover of a GTA exceeds Rs. 20 Lakh, he is compulsorily required to take registration. The said limit of Rs. 20 Lakh will be reduced to Rs. 10 Lakh if a GTA is having business in any of the special category states such as north-eastern states or hilly states.

Case: If a GTA is providing transportation service from Uttar Pradesh and Uttarakhand, then when he is required to take registration?

Ans: If his accumulated turnover from both states exceeds Rs 10 Lac, then he needs to take registration in both the state.

No Registration required for person whose supplies are in Reverse Charge:

In terms of Notification No. 5/2017- Central Tax dated 19/06/2017, 'In exercise of the powers conferred by sub-section (2) of section 23 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government hereby specifies the persons who are only engaged in making supplies of taxable goods or services or both, the total tax on which is liable to be paid on reverse charge basis by the recipient of such goods or services or both under sub-section (3) of section 9 of the said Act as the category of persons exempted from obtaining registration under the aforesaid Act'

Thus, a person is not required to obtain registration if he is exclusively supplying goods or services, the total tax on which is required to be paid by the recipient under reverse charge basis even if his aggregate turnover exceeds Rs. 20 Lakh.

Reverse Charge:

In terms of Sr. No. 1 of paragraph 1 of Notification No. 13/2017- Central Tax (Rate) dated 28.06.2017, Central Government has notified the applicability of reverse charge on GTA as follows:

'Supply of Services by a goods transport agency (GTA) in respect of transportation of goods by road to-

(a) any factory registered under or governed by the Factories Act, 1948(63 of 1948); or

(b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or

(c) any co-operative society established by or under any law; or

(d) any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or

(e) any-body corporate established, by or under any law; or

(f) any partnership firm whether registered or not under any law including association of persons; or

(g) any casual taxable person.'

Thus, if the recipient of supply of GTA is a person covered under aforesaid 7 categories i.e. (a) to (g) [hereinafter called as specified category recipient], then GST needs to be discharged by the recipient.

Explanation (a) to the aforesaid notification defined the recipient as:

'The person who pays or is liable to pay freight for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the person who receives the service for the purpose of this notification'

The person who is liable to pay will be the service recipient and he may be either the consigner or the consignee.

Thus, if the liability of payment of freight to GTA is of Supplier of goods (Consigner), then that supplier/ Consigner will be treated as the recipient and if he is covered under aforesaid (a) to (g) category, then that supplier needs to discharge GST on reverse charge basis.

On the other hand, if the liability of freight payment lies with the recipient of goods (Consignee), then that recipient/ Consignee will be treated as the recipient and if he is covered under aforesaid (a) to (g) category, then that recipient needs to discharge GST on reverse charge basis.

Case 1:

A GTA is providing services exclusively to the Specified category recipient. His turnover for the year is Rs. 50 Lakh. Whether he is required to take registration?

Since in this case, the person is engaged exclusively in making taxable supplies, the tax on which is required to be paid by the recipient, thus in terms of Notification No. 5/2017- Central Tax dated 19.06.2017, the GTA is not required to be registered.

Case 2:

A GTA is providing services to both the specified category recipient and others. Details are summarized in following table:

No Registration required for person whose supplies are fully exempted:

Section 23(1) of CGST Act, 2017 the following person is not required to take registration:

'any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the Integrated Goods and Services Tax Act.'

Exemptions available in case of Transportation of Goods by GTA:

1. Exemption to Specific Services provided by GTA:

Notification 12/2017- Central Tax dated 28 June 2017 Paragraph 1 Serial No. 21:

Services provided by a goods transport agency, by way of transport in a goods carriage of -

(a) agricultural produce;

As per Notification 12/2017- Central Tax dated 28 June 2017 Paragraph 2 Clause (d) - 'agricultural produce' means any produce out of cultivation of plants and rearing of all life forms of animals, (except the rearing of horses), for food, fibre, fuel, raw material or other similar products, on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market.

(b) goods, where consideration charged for the transportation of goods on a consignment transported in a single carriage does not exceed one thousand five hundred rupees;

(c) goods, where consideration charged for transportation of all such goods for a single consignee does not exceed rupees seven hundred and fifty;

Illustrations on aforesaid Clause (b) and (c):

(d) milk, salt and food grain including flour, pulses and rice;

(e) organic manure;

Organic fertilizers are fertilizers derived from animal matter, animal excreta (manure), human excreta, and vegetable matter. (e.g. compost and crop residues). Naturally occurring organic fertilizers include animal wastes from meat processing, peat, manure, slurry, and guano.

(f) newspaper or magazines registered with the Registrar of Newspapers;

(g) relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; or

(h) defence or military equipment.

2. Exemption to GTA receiving means of Transport on Hire:

Notification 12/2017- Central Tax dated 28 June 2017 Paragraph 1 Serial No. 22(b): Services by way of giving on hire - to a goods transport agency, a means of transportation of goods.

Compulsory Registration:

Section 24 of CGST Act, 2017 'Notwithstanding anything contained in sub-section (1) of section 22, the following categories of persons shall be required to be registered under this Act:

(i) persons making any inter-State taxable supply
(ii) persons who are required to pay tax under reverse charge

Case: Whether GTA of Chhattisgarh is required for registration, if he is providing transportation service to the following?

a. Factory registered under Factory Act - Rs 15 lakh
b. Individual registered in GST - Rs 50000
c. Individual not registered in GST - Rs 70000
d. Transportation of rice to individual registered in GST - Rs 3 lakh
e. Transportation of coconut to partnership firm in Madhya Pradesh - Rs 10 lakh

He also received legal service from an individual advocate of Rs. 35000 in relation to Income Tax Act.

Ans: The GTA is required to take registration because of the following reason:

i. He is providing service to individual not registered in GST on which reverse charge is not applicable.
ii. He procured legal service from an individual advocate on which he is required to pay tax on reverse charge basis. And

His aggregate turnover is Rs 29.20 lakh which exceeds Rs 20 lakh.

Place of Supply:

As we all know, in GST there are four types of taxes i.e. CGST, SGST, UTGST & IGST. Now, when CGST & SGST/UTGST or IGST will be levied needs to be answered:

As per Section 7 of IGST Act, 2017, Where the Location of Supplier and Place of Supply are in:

(a) two different States;
(b) two different Union territories; or
(c) a State and a Union territory,

Then such supply will be treated as 'Supply in the course of Inter-state trade or commerce'

On the other hand, where the location of the supplier and the place of supply of goods are in the same State or same Union territory, then it shall be treated as intra-State supply as per Section 8 of IGST Act, 2017.

Location of Supplier of Service: location from where supply has been made and

• If that location is registered place of business then place of business will be location.
• If that location is fixed establishment then that establishment will be the location.
• If supply is made from more than one establishment then establishment more concerned with the supply.
• If that location is neither place of business nor fixed establishment then usual place of residence.

Rule for determination of Place of Supply in case of Transportation of goods by road by GTA:

• If that supply is to a registered person, place of supply will be 'location of such person'
• If that supply is to a person other than a registered person, place of supply will be 'location at which such goods are handed over for their transportation'
• However, where the location of supplier of services or the location of recipient of services is outside India, place of supply of services of transportation of goods by GTA shall be the 'place of destination of such goods'.

Case 1: A GTA (located in CG) provides transportation service to person registered in GST (located in C.G) transporting goods from M.H to Gujrat.

Ans.:  Location of supplier - CG, Place of Supply - Location of registered person i.e. CG. So, it is an intra-state supply and CGST & SGST will be payable by registered recipient on reverse charge basis.

Case 2: A GTA (located in CG) provides transportation service to person unregistered in GST (located in C.G) transporting goods from M.H to Gujrat.

Ans: Location of supplier - CG, Place of Supply - Location from where goods have been loaded i.e. MH. So, it is an inter-state supply and IGST will be payable by GTA. There will be no threshold in this case as GTA is making Inter-state supplies.

Case 3: A GTA (located in CG) provides transportation service to person registered in GST (located in C.G) transporting goods from M.H to Gujrat by using fleet of another person who is located in MH.

Ans:  Location of supplier - CG, Place of Supply - Location of registered person i.e. CG. So, it is an intra-state supply and CGST & SGST will be payable by registered recipient on reverse charge basis.

Applicable Tax rates and eligibility of Input Tax Credits:

Paragraph 1 of Notification No. 11/2017- Central Tax (Rates) notifies central tax rates for services subject to condition mentioned there in the notification.

Sr No. 9(iii) of that para prescribes 2.5 % Central Tax rate for Services of goods transport agency (GTA) in relation to transportation of goods (including used household goods for personal use) with the condition that 'credit of input tax charged on goods and services used in supplying the service has not been taken'.

Hence, the rates applicable for payment of GST on freight payment to GTA are as follows:

(a) CGST = 2.5% and SGST = 2.5% in case of Intra-state supply
(b) IGST= 5% in case of Inter-state supply.

The same rate will also apply in case of Reverse Charge Liability of GST on Freight Payment.

Case 1: X ltd is taking the transportation of goods by road service of GTA, for which it is paying freight amounting to Rs. 10,000. Who is liable to pay GST? Can ITC be availed by the person paying GST?

Ans: In this case, tax needs to be paid by X ltd on reverse charge basis. After paying the requisite tax, X Ltd can avail the ITC of the tax paid by it. GTA can not avail the ITC of input, capital goods and input services used for providing this service.

Case 2: Mr. X (Unregistered person) is taking the transportation of goods by road service of GTA, for which it is paying freight amounting to Rs. 10,000. Who is liable to pay GST? Can ITC be availed by the person paying GST?

Ans: In this case, tax needs to be paid by the GTA which he will collect from Mr. X in his invoice. GTA can not avail the ITC of input, capital goods and input services used for providing this service. Mr. X is also not eligible to avail ITC of GST paid on freight payment as he is unregistered.

Is Composition Scheme available for Transportation?

As per Section 10(2) of CGST Act, 2017, 'The composition scheme in case of the service provider is available only in case of Restaurant or catering service'. Therefore, the composition is not available for goods transport agency.

What Accounts & Records needs to maintained by GTA?

As per Section 35(2), every transporter, irrespective of whether he is a registered person or not, shall maintain records of the consigner, consignee and other relevant details of the goods in such manner as may be prescribed.

If a Transporter is not registered, then he shall submit the details regarding his business electronically on the common portal in FORM GST ENR-01 and upon validation of the details furnished, a unique enrolment number shall be generated and communicated to the said person.

Any person engaged in the business of transporting goods shall maintain records ofgoods transported, delivered and goods stored in transit by him along with the GSTIN of the registered consigner and consignee for each of his branches.

What Invoices / Consignment Note will require to be issued by GTA?

Where the supplier of taxable service is a goods transport agency supplying services in relation to transportation of goods by road in a goods carriage, the said supplier shall  issue a tax invoice or any other document in lieu thereof, by whatever name called,  containing the:

(a) gross weight of the consignment,
(b) name of the consigner and the consignee,
(c) registration number of goods carriage in which the goods are transported,
(d) details of goods transported,
(e) details of place of origin and destination,
(f) Goods and services Tax Identification Number of the person liable for paying tax whether as consigner, consignee or goods transport agency, and
(g) Other general information which are also applicable for normal invoices.

Residual Case Studies

We have discussed how a transport service provider will meet his obligation in GST. Now, it's time to squeeze the law to find out suitable interpretation where complex transactions are undertaken-

Case 1: Supply of goods on FOR or Ex-Factory basis along with transportation of same and single price is charged or separate price is charged.

Ans: There are two supplies, one is supply of goods and another is supply of transportation service. These two supplies are naturally bundled and supplied in conjunction to each other in ordinary course of business and hence it is composite supply and the principal supply is supply of goods. Rate of principal supply will be applicable to the entire consideration.

Case 2: Supply of more than one different goods (having different rate of tax) on FOR or Ex-Factory basis along with transportation of same and single & separate price is charged for transportation?

Ans: It is a composite supply, where supply of goods and supply of transportation service are naturally bundled in ordinary course of business, however supply of two different goods are not composite supply. In such case, both rate of tax of goods will be applied on the proportionate value of transportation proportionate on the basis of value of goods.

Disclaimer: This write-up is based on the understanding and interpretation of authors and the same is not intended to be a professional advice.

The authors are Chartered Accountants and can also be reached at goyalcanitin@gmail.com and aniket.m.goel@gmail.com