TDS and Service Tax

This query is : Resolved

CA Nitin Wadhwani (Querist)
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24 April 2009 A Partnership Firm is purchasing chemicals from a limited company which is sold in transit to another entity i.e sec.6(2) sales the format of invoice is follows:

Basic Price xxxxxx
Excise xxxxx
Education Cess xxxxx
H.E.C xxxxx
Sub-Total xxxxxxxxxxxxx
CST xxxx
Sub-Total xxxxxxxxxxxxx
Freight xxxx
Grand Total xxxxxxxxxxxxx

The Freight is paid by the buyer.

There are two questions:
1.Whether Tax is to be deducted u/s 194C for the freight paid?
2.Whether the buyer being not the consignee is liable to pay service tax under Transport of goods by road as a service receiver.

Dayal

Dayal (Expert)
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26 April 2009 1. How can you deduct TDS, freight is part of the sale cost and not a service.

2. It is the person who is paying freight is liable for service tax.

It is either the consignee or consignor, who is liable to pay under the provisions, here the onus is on the buyer as he is paying the freight, please ensure this from the buyer or it may be left out to you........

CA Nitin Wadhwani

CA Nitin Wadhwani (Querist)
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26 April 2009 Dayal, here freight does not form part of sale price since CST is levied ex-freight.
So that's why i am in confusion that whether tax should be deducted or not?
If instead of showing freight in the invoice itself, if it's shown or collected through a separate invoice or debit note then tax is deducted or not?
If yes, then tax should be deducted also if the freight is shown in invoive ex-VAT or CST.

CA Nitin Wadhwani

CA Nitin Wadhwani (Querist)
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27 April 2009 .

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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27 July 2025 This is a nuanced issue involving **TDS under Section 194C**, **Service Tax** (as applicable back in 2009), and the **treatment of freight** in a **CST Sec. 6(2) sale** transaction.

Let’s address both your questions with clear reasoning and relevant references:

---

## 🔍 Background:

You're dealing with:

* A **transit sale (Section 6(2) of CST Act)**.
* The invoice includes **freight separately**.
* **Freight is paid by the buyer**, who is **not the consignee**.
* You’re questioning:

1. TDS applicability under **Section 194C** on freight.
2. Service tax liability on **GTA (Goods Transport Agency)** service.

---

## ✅ 1. **TDS under Section 194C on Freight:**

### 💡 Key Rule:

Section 194C requires TDS **only when payment is made to a contractor** for carrying out any work, including **transportation**.

Now consider these two scenarios:

---

### **Case A: Freight is part of purchase invoice (as in your case)**

* Freight is mentioned in the **seller’s invoice**.
* The seller has either **arranged the transport** or passed the cost.
* Payment is made **to the seller**, not directly to the transporter.

👉 In this case:

* The **contract for transport is between seller and transporter**, **not you and transporter**.
* You are **not liable to deduct TDS under 194C**, because **you are not making payment to the contractor (transporter)**.

✅ **Conclusion**: **No TDS** under Section 194C in this case.

---

### **Case B: Freight is billed separately (via debit note or separate invoice)**

* If the **freight is charged separately** by the transporter to you (i.e., you hired the transporter yourself),
* Or if the **seller acts only as a pass-through**, forwarding the freight cost separately (not as part of sale),
➡️ Then it is considered a **contractual payment to transporter**.

👉 In this case:
✅ **TDS under Section 194C is applicable**, if the payee is **individual, firm, or HUF**, and the amount crosses threshold (₹30,000 per payment or ₹1,00,000 aggregate per year in 2009).

---

## ✅ 2. **Service Tax on GTA (Goods Transport Agency)**

### 👇 Old GTA Rules (Pre-GST / 2009):

* **Service Tax on transportation of goods by road (GTA)** was under **reverse charge mechanism**.
* **Service tax is payable by the consignor or consignee**, **who pays the freight**.

Now your case:

* **Buyer is paying freight**, but is **not the consignee**.
* The transporter may be issuing consignment note in the **seller’s or final buyer’s name**.

👉 As per Rule 2(1)(d) of Service Tax Rules:

> Service tax liability is on **person who pays freight**, **only if he is either consignor or consignee**.

🟰 Since in your case, **the buyer is paying**, but **not the consignee**, and **not shown in consignment note**,
✅ **Buyer is NOT liable for service tax** under reverse charge.

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### ✅ Summary:

| Issue | Answer |
| -------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **1. TDS on freight under 194C** | ❌ Not applicable if part of seller's invoice and not directly paid to transporter. ✅ Applicable only if **you** hire/pay transporter or are billed separately. |
| **2. Service tax liability** | ❌ Buyer is not liable **unless he is the consignee** in consignment note. Liability stays with consignor or consignee. |

---

### 🔁 Practical Suggestion:

* If you want to **avoid TDS complications**, make sure **freight is part of seller’s invoice** and not billed separately.
* Maintain clear documentation about who **hired the transporter**, who is **named in the consignment note**, and who **actually paid the freight**.

Let me know if you'd like a sample entry or invoice breakdown for clarity.

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