Plz provide me complete details & obligation of Service tax etc. on Freight (All FOR, to be billed , to pay ) circumstances
CA Unnikrishnan Nair N
(Chartered Accountant)
(2083 Points)
Replied 28 December 2011
Service tax on freight is payable on reverse taxing. ie. payer of freight is liable for tax. abatement of 75% is available.
CA Prabhat Gupta
(Manager (Indirect Taxes))
(821 Points)
Replied 28 December 2011
Rule 2(1)(d), (v) of Service Tax Rules, 1994:
In relation to taxable service provided by a goods transport agency, where the consignor or consignee of goods is,-
(a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948);
(b) any company 6[formed or registered under] the Companies Act, 1956 (1 of 1956);
(c) any corporation established by or under any law;
(d) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India;
(e) any co-operative society established by or under any law;
(f) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder or;
(g) any body corporate established, or a partnership firm registered, by or under any law,
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.
Circular 97/8/2007 dated 23.08.2007
(b) ISSUE: Whether a consignee can take credit of the amount paid as service tax either by himself (as consignee) or by the consignor or by the Goods Transport Agency?
COMMENTS: As per Rule 3 of the CENVAT Rules, 2004, CENVAT Credit of, inter alia, service tax leviable and paid on any ‘input services’ can be taken. The rule does not distinguish as to who (i.e. the GTA, the consignor or the consignee himself) has paid the aforesaid tax. The only condition required to be satisfied is that the consignee must be a manufacturer of excisable goods or a provider of taxable service and the service must be in the nature of ‘input service’ for such activity. In case of inward transportation of inputs or capital goods, such service (being specifically mentioned under the definition of ‘input service’) would qualify to be called as ‘input service’ and, thus, the service tax paid (by any of the persons mentioned above) on it would be eligible as credit to the receiver if he is either a manufacturer of excisable goods or a provider of taxable service.
(c) ISSUE: Up to what stage a manufacturer/consignor can take credit on the service tax paid on goods transport by road?
COMMENTS: This issue has been examined in great detail by the CESTAT in the case of M/s Gujarat Ambuja Cements Ltd. vs CCE, Ludhiana [2007 (006) STR 0249 Tri-D]. In this case, CESTAT has made the following observations:-
“the post sale transport of manufactured goods is not an input for the manufacturer/consignor. The two clauses in the definition of ‘input services’ take care to circumscribe input credit by stating that service used in relation to the clearance from the place of removal and service used for outward transportation upto the place of removal are to be treated as input service. The first clause does not mention transport service in particular. The second clause restricts transport service credit upto the place of removal. When these two clauses are read together, it becomes clear that transport service credit cannot go beyond transport upto the place of removal. The two clauses, the one dealing with general provision and other dealing with a specific item, are not to be read disjunctively so as to bring about conflict to defeat the laws’ scheme. The purpose of interpretation is to find harmony and reconciliation among the various provisions”.
Similarly, in the case of M/s Ultratech Cements Ltd vs CCE Bhavnagar 2007-TOIL-429-CESTAT-AHM, it was held that after the final products are cleared from the place of removal, there will be no scope of subsequent use of service to be treated as input. The above observations and views explain the scope of the relevant provisions clearly, correctly and in accordance with the legal provisions. In conclusion, a manufacturer / consignor can take credit on the service tax paid on outward transport of goods up to the place of removal and not beyond that.
8.2 In this connection, the phrase ‘place of removal’ needs determination taking into account the facts of an individual case and the applicable provisions. The phrase ‘place of removal’ has not been defined in CENVAT Credit Rules. In terms of sub-rule (t) of rule 2 of the said rules, if any words or expressions are used in the CENVAT Credit Rules, 2004 and are not defined therein but are defined in the Central Excise Act, 1944 or the Finance Act, 1994, they shall have the same meaning for the CENVAT Credit Rules as assigned to them in those Acts. The phrase ‘place of removal’ is defined under section 4 of the Central Excise Act, 1944. It states that,-
“place of removal” means-
(i) a factory or any other place or premises of production or manufacture of the excisable goods ;
(ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be stored without payment of duty ;
(iii) a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory;
from where such goods are removed.”
It is, therefore, clear that for a manufacturer /consignor, the eligibility to avail credit of the service tax paid on the transportation during removal of excisable goods would depend upon the place of removal as per the definition. In case of a factory gate sale, sale from a non-duty paid warehouse, or from a duty paid depot (from where the excisable goods are sold, after their clearance from the factory), the determination of the ‘place of removal’ does not pose much problem. However, there may be situations where the manufacturer /consignor may claim that the sale has taken place at the destination point because in terms of the sale contract /agreement (i) the ownership of goods and the property in the goods remained with the seller of the goods till the delivery of the goods in acceptable condition to the purchaser at his door step; (ii) the seller bore the risk of loss of or damage to the goods during transit to the destination; and (iii) the freight charges were an integral part of the price of goods. In such cases, the credit of the service tax paid on the transportation up to such place of sale would be admissible if it can be established by the claimant of such credit that the sale and the transfer of property in goods (in terms of the definition as under section 2 of the Central Excise Act, 1944 as also in terms of the provisions under the Sale of Goods Act, 1930) occurred at the said place.
As already posted abatement is 75%.
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