Service tax on freight charged in invoice

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

27 June 2012 Dear Experts

I have a query:

Our suppliers are charging freight from us for the material being supplied by them.
There is a single invoice for price of materials on which they charge VAT/CST and then they add freight amount to it.

This is an ad-hoc amount as agreed by us and it can be more or less than the actual amount spent by our supplier in sending us the material. No lorry receipt/RR etc is attached by the supplier to his invoice.

Please guide me as to who is liable to pay service tax.

rgds

Pankaj

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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28 June 2012 The service recipeint is liable to pay service tax only if the service has been availed from a Goods Transport Agency.

In this case, the freight amount has been charged by the vendor and accordingly, the buyer is NOT liable to pay service tax on such amount.

Querist : Anonymous

Querist : Anonymous (Querist)

28 June 2012 Can the supplier rely on the dominant nature test and take a plea that since the dominant nature of the transaction is sale and the freight amount is negligible_the transaction should be considered as sale.

rgds

Pankaj

Querist : Anonymous

Querist : Anonymous (Querist)

04 July 2012 ............................................

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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24 July 2025 Your question relates to **service tax liability on freight charged in a single invoice along with sale of goods**, where the supplier is billing for goods (with VAT/CST) and also adding freight (without a transport document like Lorry Receipt).

Let’s break this down clearly:

---

### ✅ **Key Facts of the Case:**

* Supplier charges **freight on the invoice** (not separately via a transporter).
* No **Goods Transport Agency (GTA)** is named or transport document attached.
* **Freight is ad hoc**, agreed between buyer and seller.
* Entire transaction billed as a **sale**, with VAT/CST on goods.

---

### 🔍 **Analysis:**

#### 1. **Whether Service Tax Applies on Freight Charged by Supplier?**

No, **service tax is not applicable on the freight** in your case **because**:

* The **supplier is not acting as a Goods Transport Agency (GTA)**.
* He's simply charging an additional amount as part of the **sale consideration** for delivery.
* When **freight is part of a sale contract**, it is generally **considered part of the sale price**, and **VAT/CST** is levied on the entire amount (goods + freight).
* In such cases, the **dominant intention is sale**, and service tax is **not applicable** on the freight portion.

#### 2. **Is the Recipient Liable under Reverse Charge?**

Also **No**, because:

* **Reverse charge under Service Tax** for freight applies **only if freight is paid to a GTA**.
* Here, you're paying the **supplier**, not a GTA.
* **No consignment note or transport document** = Not a GTA.

> 📌 **Therefore, neither the supplier nor the buyer is liable to pay service tax** on this freight amount.

---

### 🧾 **About Dominant Nature Test:**

Yes, the **"dominant nature test"** supports your view:

* If the **principal supply is a sale of goods**, and **freight is incidental**, the entire transaction remains a **sale**, not a service.
* Hence, **only VAT/CST applies**, not service tax.

This position was also supported in case law and circulars:

* **CBEC Education Guide 2012** and various **CESTAT rulings** held that **freight charged in the course of sale (even separately)**, without acting as a GTA, **does not attract service tax**.

---

### ✅ **Conclusion:**

* **You (the buyer)** are **not liable to pay service tax** on freight charged by your supplier.
* The **supplier** is also **not liable**, as he's not a **GTA**, and the freight is part of the sale.
* **VAT/CST** on the full amount (goods + freight) is correct.

Let me know if you need a sample note or legal references to support this position in audits or correspondence.

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