Difference between freight collected and paid to transportar

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

01 December 2014
Dear Sir

We are manufacturar of Porcelain Insulators and Supply to Government Electricity Board.
There is difference between freight collected from buyers and paid to transporter.
we are paying Service Tax on Freight paid to Transportar.

In our unit Service Tax Audit Department has taken Objection and Pressurise us to pay Service TAX on Full Rate on Diffrence Amount what WE have received. They are consider under Business Support
Service / Business Auxilary Service.

WHAT WE SHOULD DO IN THIS MATTER PLEASE SUGGEST If any Judgement Suggest me Sir.

Thanks & Regards
Jayendra Patel
Prime Insulators Pvt.Ltd.

Querist : Anonymous

Querist : Anonymous (Querist)

04 December 2014 DEAR SIR

WE ARE WAITING FOR YOUR REPLY

THANKS
JAYENDRA PATEL

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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21 July 2024 In your situation, it appears there is confusion between "freight collected" and "freight paid to transporter," and how Service Tax (now GST) applies to these transactions. Let's clarify the differences and address the concerns raised by the Service Tax Audit Department:

### Freight Collected vs. Freight Paid to Transporter

**Freight Collected:**
- This refers to the amount you charge your customers (buyers) for transporting the goods (Porcelain Insulators) from your manufacturing unit to their location or destination.
- Essentially, it's the transportation cost included in the invoice issued to your customers.

**Freight Paid to Transporter:**
- This is the actual amount you pay to the transporter (logistics provider) for transporting your goods from your manufacturing unit to the buyer's location or designated point of delivery.

### Service Tax (GST) Implications:

**Service Tax/GST on Freight Paid to Transporter:**
- According to Indian tax laws, service tax (now GST) is applicable on the services provided by transporters. As a manufacturer, when you pay freight charges to the transporter for delivering your goods, you are liable to pay service tax/GST on these transportation services.

**Service Tax/GST on Freight Collected:**
- If you charge freight separately to your customers (freight collected), this amount is considered part of the value of taxable goods/services supplied by you. Therefore, service tax/GST is applicable on the freight collected from your customers.

### Issues Raised by Service Tax Audit Department:

Based on your description, the Service Tax Audit Department is challenging the treatment of the difference between freight collected and freight paid to transporter. They may view this difference as an amount charged for business support services or business auxiliary services. However, it's important to clarify the following points:

1. **Nature of Charges:** Ensure that the difference between freight collected and freight paid to transporter is clearly documented as freight charges on invoices to customers and as payments to transporters.

2. **Legal Position:** Consult with a tax advisor or legal expert to understand the specific provisions under GST related to freight charges and any clarifications or rulings (such as judgments or notifications) that apply to your situation.

3. **Documentation:** Maintain detailed records, invoices, and agreements with transporters and customers to substantiate the nature of these transactions.

### Action Steps:

1. **Review and Clarify:** Review the service tax/GST provisions applicable to freight charges in your transactions. Ensure you understand how GST is applied to freight collected and paid to transporter separately.

2. **Consultation:** Seek advice from a qualified tax consultant or legal advisor who can provide guidance based on the specifics of your case and any relevant judgments or notifications.

3. **Response to Audit Department:** Prepare a detailed response to the Service Tax Audit Department, explaining how you have treated freight charges in compliance with GST regulations. Provide supporting documents and legal interpretations, if applicable.

### Conclusion:

It's crucial to differentiate between freight collected and freight paid to transporter in your accounting and taxation practices. Ensure compliance with GST regulations and address the concerns raised by the Service Tax Audit Department with clarity and documentation.

If you need specific judgments or rulings related to similar cases, your tax advisor can assist you in researching and referencing relevant legal precedents or notifications. This approach will help you navigate the audit process effectively and resolve the issue in compliance with applicable tax laws.

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