Service tax on gta - doubt

Queries 924 views 3 replies

Sidhardh

Sr. Manager - Accounts

178 Points Joined June 2009

Dear Readers,

One of my client companies say M/s. X is a Paper (News Print in Reels) Manufacturing Company. The company receives raw material (old / waste news paper) from its creditors.

Lorry freight on purchase of goods is being paid by the company as follows.

Case 1. The company pays Lorry Freight Amount and adjust the same with amount payable against purchase invoice. i.e., Item rate in Purchase Invoice is inclusive of freight. Case

2. The company pays lorry freight amount and recorded in the books as Carriage inwards which is debited to P&L A/c. i.e., Purchase Invoice will not include any freight amount.

Please guide me what is the applicability of Service Tax Payable, as the company is registered under "Transport of Goods By Road" Service in following two cases.

Case 1. The lorry owner is individual and is not provided any LR / bill and not charged any service tax.

Case 2. The lorry owner is a registered Transporter and charging service Tax @ 10.3% on 25% of LR value.

Thanks in advance for your valuable reply.

With Regards,

Sidhardh

Replies (3)

CA Prabhat Gupta

Manager (Indirect Taxes)

821 Points Joined January 2011

Please refer to Rule 2(1)(d)(v) of Service Tax Rules, 1994. Liability to pay Service Tax has been fixed upon any person who pays or is liable to pay freight either himself or through his agent for the transportation of such goods by road in a goods carriage. As your client is a Company manufacturing of Excisable goods, it will be covered by Rule 2(1)(d)(v)(b). What matters is the status of Service Recepient, not the service provider. Rule here does not specify the status of service provider. It only specifies that person who pays or is liable to pay freight will be liable to pay service tax.

Hence, the manner in which payment is made and the status of the service provider does not make any difference as far as this rule is concerned. Your client will be liable to pay Service Tax in Both cases above.

Your client can ofcourse claim CENVAT Credit of Service Tax so paid on Freight inwards and, in case of freight outwards, only upto the place of removal, if it is different from the place of production.