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Vexatious Issues under Service Tax - Goods Transport Agency
Madhukar N Hiregange FCA, DISA(ICAI)

The service tax on the goods transport agency was imposed w.e.f. 1.1.2005. This was after a committee went into the difficulties faced by the small for the service providers like the truck owners and operators. The levy was restricted to the service providers in as much as specified categories of service receivers would be liable to pay the tax. Now therefore we have the GTA also liable and the receiver also liable.
The Finance Ministers speech on the floor of the house and subsequent clarification in this regard indicated that the truck owners and operators were not to be covered. This was not clearly enunciated in the actual definitions and numerous clarifications issued thereafter have not clarified the same.
The reality however is that there is great deal of ambiguity in the compliance with the service provider charging service tax even when not liable, service receivers who have been made liable for payment under Rule 2(1)(d) not registering or paying. Many service receivers have been availing the exemption of 75% without complying with the proof of non availment which has been done away with now.
The recent amendment to explanation of output services setting out that the service receiver who does not provide any other taxable services or manufactures excisable goods would not be eligible for set off of credit.
This state of affairs is expected to lead to a large number of disputes and the subsequent judgments may also add to the confusion. It would also result in service tax being paid for transportation by GTOs.
This article seeks to provide clarity on some of the thorny issues faced by the service providers as well as the service receivers.
It is also hoped that the revenue authorities would take a broader view in cases of doubt and not attempt to fasten the demand for cases where there is a doubt.

The maximum number of assessees liable to pay the service tax among the 100+  categories are no doubt the goods transport agencies as the service providers as well as the service receivers are liable to pay the service tax. Further the service receiver is not eligible for the small service provider exemption of Rs. 4/ 8/ 10 Lakhs under Notification 6/2005 dt. 1.3.2006.
The levy of service tax on GTAs has been in force for 42 months now and was brought into tax from 1st January 2005. In the calendar year 2005, relaxation from penalty was provided considering that the segment would require some time to comply with the provisions of the law. However there was neither amnesty for the payment of either service tax nor the interest thereon for the calendar year 2005.
This service receiver could be individuals, traders, charitable organizations, manufacturers, service providers and government departments ( state and central) government companies / corporations. Any person who pays transportation charges for transport of goods in a goods carriage other than an individual or unregistered firm or government department ( this is an interpretation) is required to register and discharge the service tax as long as there are no exemptions.
In this article we analyze the latest provisions, notifications and circulars as applicable on date.
Section 65(50b) ‘goods transport agency’ means any person* who provides service in relation to transport of goods by road and issues consignment note, by whatever name called.
·         Upto 1st May 2006 the defined person was “commercial concern”.
Section 65(105)(zzp) defines the taxable services as any service provided to a customer, by a goods transport agency, in relation to transport of goods by road in a goods carriage.
Section 65(50a) ‘ goods carriage’ has the meaning assigned to it in section 2(14) of Motor Vehicles Act 1988.(MVA)
Section 2(14) of MVA defines a ‘goods carriage’ as any motor vehicle constructed or adapted for use solely for the carriage of goods or any motor vehicle not so constructed or adapted by used for carriage of goods.
Section 2(28) of MVA defines ‘motor vehicle’ means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from external or internal sources and includes a chassis to which a body has not been yet been attached and a trailer; but does not include a vehicle running on fixed rails or vehicle of 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 25CC.
Current Common Issues/ Doubts and Possible Solutions
1.When is the GTA liable for paying the service tax?
The GTA is liable NOT to pay the service tax where the consignor or the consignee of the goods transported are the following:
(i) Factory registered under or governed by Factories Act,
(ii) Company established by or under the Companies Act,
(iii) Corporation established by or under any law,
(iv) Society registered under the Societies Registration Act or similar law,
(v) Company-operative society established by or under any law,
(vi) Dealer of excisable goods, registered under the Central Excise Law, or
(vii) Any body corporate established or partnership firm registered by or under any law.
Presumably the person who pays whether the consignee or the consignor whether in his own capacity or in the capacity as the agent of the other is the person whose status has to be examined.
The companies or corporations, which have been started/ owned by the government therefore would also be liable to pay the service tax as service receivers in their own right.
The GTA would have to pay where the payer is an individual (other than those who are a factory, excisable goods dealer,) HUF, unregistered partnership ( under any law), Government of India or State Government.
2. Is there a requirement for the service receiver who is not an individual or unregistered firm to register and pay the service tax if he were to receive the services of transportation of goods by road from a GTA? Would he be absolved if the GTA were charging the service tax in his bill?
The provisions relating to GTA allow a GTA to pay the service tax only if the recipient of the service is an individual or unregistered firm as per Rule 2(i)(d)(v). This means that if GTA were to collect the service tax from others, he would be doing so without authority of law. Section 73 A (2) sets out that any person who has collected any amount, which is not required to be collected as representing service tax, would be required to pay the amount to the credit of the central government.
The primary liability on the recipient however would not be discharged where the GTA pays the service tax so collected. The specified persons are required to pay the service tax on their own account. ( see question 1)
For the past the receiver may pay with the interest and the GTA could go for a refund.
3. Are the truck owners or transport operators who provide vehicles on contract basis and run the same as per the directions of the customer considered to be a GTA?
Section 65(50b) goods transport agency means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called. Prior to 1.5.2006, the service was only covered if provided by a “ commercial concern”.
These truck owners or transport operators have a mandate from the customer and are under the control of the customer. They maybe operating between the factory and the depots, factory and the sub contractors, mines to the ports, within the mines, local transportation of materials, factory to the customers on a regular basis. They would on a periodic basis raise a bill along with a trip sheet to prove the distances traveled or number of trips. Such a person may not be considered as a GTA since he does not issue a consignment note.
Rule 4B explanation defines the consignment note as a document, issued by a GTA against the receipt of the goods for the purpose of transport of the goods by road in a goods carriage. It should be serially numbered and contain the following particulars: name of consignee and consignor, registration of goods carriage, details of goods transported, details of place of origin and destination, person liable to pay the Service Tax.
As per the definition as well as in common parlance a trip sheet or listing of the number of trips or distance traveled may not be considered to be a consignment note. The Finance Minister after his budget speech of 2004 categorically stated that the lorry owners/ operators would not be covered under the levy. This indicates the intention of the legislature.
Consequently it appears that the truck owners and operators who do not issue a consignment note may not be liable under the levy. The departmental officers however have taken a stand that all freight is taxable. Representation made specifically asking for clarity on who is a GTO and who is GTA have been side stepped from day 1. Three and half years down the road, revenue wishes to have the issue being in debate. Large number of non compliances maybe in this sector unless the customer/ receiver is eligible for cenvat credit.
4. The Notification 1/2006 sets out that the GTA is eligible for 75% abatement on the transportation charges. Whether this abatement is only available to a GTA or even the receiver of transport service who has been made liable as service receiver?
Under Notification 1/2006 dt 1.3.2006 the abatement is available to the GTA who is not availing the cenvat credit on inputs, capital goods or input services and no deduction under Not. 12/2003 is claimed by him. The notification however does not restrict this deduction only to a GTA but the condition of non availment of the credits is to be fulfilled. The service receiver could obtain a declaration that the GTA is not availing the credits and no abatement under Not. 12/2003 is claimed then he also would be eligible for the 75% abatement. If he were able to prove that the GTA has not availed the credits then the abatement would be available and he would not have to pay the service tax on the gross amount of freight. Circular 334/1/2008 –TRU dt. 29.2.2008 clarifies this further explaining that the reciver of the service need not prove the non credit availment by the GTA.
5. Can the recipient of the GTA service who pays the service tax avail the cenvat credit for making the payment towards this liability?
The cenvat credit rules are clear that the recipient of services is not a provider of taxable services and therefore would not be admissible for the adjustment. Therefore the service receiver who is neither a manufacturer of excisable goods nor a taxable service provider would have to pay the service tax as receiver in cash. This would be a cost for him.
However the manufacturer under central excise or taxable service provider who is availing the cenvat credit on inputs, capital goods and input services would be eligible for availing the credit. Once the credit is availed there is no bar on the utilisation which is logical as otherwise he would pay cash and avail the credit again. If such a person were to choose to pay the same in cash he would anyway be admissible for the credit.
6. Whether the service tax paid as recipient of GTA services would be available as credit for the payment of central excise duty or service tax as the case maybe for a manufacturer of excisable goods or provider of taxable services?
The transportation service should be one, which is used for the provision of taxable services or used in or in relation to manufacture of excisable goods or for their clearance from the place of removal. As long as they are services used for business the credit would be available.
The revenue is however opposing the credits on the outward transportation on the basis that the same is not specifically set out unlike inward transportation. The definition only used the “ inward transportation” as an illustration by the use of the phrase “ such as” which only indicates only as an illustration. Further the like input services would also be admissible. Therefore the credit should be admissible.
7. Whether the exemption upto Rs. 4/ 8/10 Lakhs under Notification 6/2005 relating to small service provider would be available for this category of service?
The exemption is not available for any service recipient as the notification clearly excludes them. However the GTA himself would be eligible for the exemption provided he satisfies the other conditions of previous year less than Rs. 4/ 8 Lakhs of taxable services and providing of services other than branded and not availing the credits for capital goods, inputs or input services.
8. Whether the three wheelers are liable for service tax as GTA?
The definition of motor vehicle under the Motor Vehicles Act states that the four wheelers are only covered. Therefore three wheelers used for the purpose of transportation would not be under the levy.
9. Would the transport of agricultural commodities be liable?
The exemption under notification 33/2004 dt. 3.12.2004 sets out that only transport of fruits, vegetables, eggs or milk would be exempt. The liability for other agricultural produce like cereals, other dairy produce, plants, flowers, coffee. tea, spices would not be eligible for any exemption and the service tax would be fastened on the same. The transportation of vegetables and fruits, which are further processed would also not be exempted.
10. In certain cases the GTA himself discharges the ST though the liability is on the specified person. In this case whether there is a need for the specified person to pay the service tax?
A strict interpretation of the law leads to a conclusion that the GTA should go for a refund ( 1 year time limit would apply) and the specified person should discharge the ST along with interest for delayed payments.
If such person is eligible for credit then he would be admissible for the credit for what he pays without doubt. However for the payment of ST the credit should be allowed. Revenue required to clarify the same.
11.Whether the transporter under contract or one who owns the truck / operates a few trucks for transportation of commodities between specified locations should issue a consignment note?
The GTA is to issue a consignment note. If the transporter is a GTA then he has to issue the CN. However if he is a GTO then there does not require to issue the CN.
12.Whether the consignment/s sent in one truck to a specified location is exempted to the extent of Rs.750/- or Rs.1500/-?
As per the exemption notification which is to be read strictly, if meant for one consignee Rs.750/- is the limit. If many consignees then Rs.1500/-. There is a need to relook at the notification to avoid any dispute.
13.Whether the GTA is eligible for the Cenvat credit on the vehicles purchased and used for transportation?
The GTA is eligible but if he avail the credit the 75% abatement would be lost and he would have to pay on the gross amount as per the condition set out in Not.1/2006.
14.Whether the transportation of overburden/ underburden or from mine pithead to the factory for crushing is liable?
As per circular 232/2/2006 these are part of the mining activity. However if the same are moved outside the mine then it would be under cargo handling.  
15. What is the value to be considered where the GTA collects various small amounts on count of handling, loading etc.?
As per Section 67 the gross amount charged would be liable. The essential service if can be said to be of transportation this logic would prevail.
16. Why has a narrow coverage been provided for agricultural commodities transportation under not. 33/2004?
This defies reason. Under BAS the definition is much wider and covers most agricultural products excluding the processed agricultural products. This anomaly requires to be resolved to avoid disputes.
17. Whether the Government Departments who are consignors are required to pay the ST on reverse charge?
Notification 35/2004 which sets out the entities liable is silent on the Government authorities. In that case the GTA appears to be liable. However corporations, which provide utilities such as transportation storage, infrastructural support, PSUs etc are covered and would have to pay on reverse charge.
18. Whether time sensitive transportation of documents/ goods in a goods carriage is under courier or GTA?
As per the decision in Vijay Anand Roadlines and the per definition and sec. 65A the same should be classified under courier services. However Circular no.104/07/2008- ST dt. 6.8.2008 clarifies that it would be under GTA provided that the Consignment note has been issued. Since departmental circular binding on the revenue this option maybe examined.
19. Where the GTA also provides the services of packing as an integral part of the transportation what would be the classification?
Circular of 8th August above clarifies that if the service is provided by a GTA who issues a consignment note and amount charged is inclusive of packing then it would be under GTA. However if cargo handling is the essence transportation maybe incidental then it would be under cargo handling. This clarification may not stand judicial scrutiny. Further packaging services have also been included in the net which has not been examined in the circular though the service was already in vogue.
20.  In agricultural products trade the seller of the product ( rice, wheat etc) raises an invoice on the buyer indicating the price. In the same bill he directs the buyer to pay the lorry freight of a specified amount and deduct the same from the price. In these cases the lorry driver does not raise any consignment note nor a bill. Who would be liable?
In this case it appears that the transporter himself is not liable as he is not a GTA as defined. Further the buyer is not liable as he only pays on behalf of the seller. The entire cost is taken as cost of goods as far as the buyer is concerned.
The paper writer is concerned that the few clarifications issued by the DGST have not been comprehensive and may have been counterproductive. A proactive, practical comprehensive circular considering the intention of legislature of not making illiterate lorry owners/ operators liable, small service receivers kept outside the ambit, exemption for agricultural produce fully would go a long way in avoiding the pain to the common citizen.  

Published by

Madhukar N Hiregange
(Chartered Accountant)
Category Service Tax   Report

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