Query regarding Service Tax Notice

Hi Rakesh,

Your query about service tax on transport charges vs. goods value and whether it falls under composite or mixed supply is quite common. Here’s a detailed explanation:

🔎 Situation Recap:

• You are a goods dealer supplying to supermarkets/local shops.

• Your invoice separately shows the value of goods and transport charges.

• Supermarkets deducted TDS on the total invoice value (goods + transport).

• Service Tax department issued a notice based on difference between ITR turnover and Service Tax return, probably because transport charges are treated differently under service tax law.

🚩 Key Points About Service Tax & Transport Charges:

1. Service Tax Applicability on Transport Charges:

   • Transport of goods by road is taxable under the category ‘Goods Transport Agency’ (GTA) services.

   • However, if you are only supplying goods and transport is incidental and charged separately, transport charges may not always attract service tax if transport is by you (supplier) to deliver goods.

   • If transport service is provided by you as a GTA (i.e., you arrange for transport or transport is a separate service), then service tax applies on transport charges.

2. Section & Rules:

   • The relevant service tax provision is under Section 65(105)(zzzza) of Finance Act, 1994 for GTA services.

   • The concept of composite supply vs mixed supply is explained under service tax law to determine taxability.

🔍 Composite Supply vs Mixed Supply:

• Composite Supply: Two or more supplies naturally bundled and supplied in conjunction, one being the principal supply.

  • Example: Goods + transportation by the same supplier, where transport is incidental to goods supply.

  • Tax treatment: Entire value taxed as principal supply.

• Mixed Supply: Two or more supplies made together, but each can be supplied separately.

  • Tax treatment: Highest rate of tax applicable on the entire value.

🚩 What applies in your case?

• If transport charges are separately invoiced and you are not the transporter, then transport charges may be liable to service tax under GTA services.

• If transport is only incidental to goods supply by you (you deliver goods yourself), then transport charges are part of composite supply with goods, and service tax on the whole invoice may be payable.

• However, GST has replaced service tax since July 2017, but since your case is for FY 2015-16, service tax laws apply.

Section relevant to your question:

• Service Tax was applicable on the whole amount (goods + transport) if the transport is incidental and supplied by the same entity as composite supply.

• If the transport service is separately provided, service tax is only on transport charges under GTA.

Recommendations:

1. Check nature of transport service: Are you providing transport or charging on behalf of a transporter?

2. Review your invoices: Is transport charge only reimbursement or a service?

3. Clarify with department: Show breakup and explain your supply nature.

4. Composite vs Mixed Supply analysis: Generally, supply of goods + transport by same supplier is composite supply (service tax on entire value).