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ANALYSIS OF GOODS AND TRANSPORT AGENCY SECTOR UNDER GST
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ANALYSIS OF GOODS AND TRANSPORT AGENCY SECTOR UNDER GST
SUBMITTED BY - MS.
MAARIA LAKDAWALA (A017)
YEAR:
BBA-LLB 4TH YEAR, SEMESTER-VIII
RESEARCH PAPER SUBMITTED
TO
THE SVKM’S NMIMS, NAVI MUMBAI
KIRIT
P. MEHTA SCHOOL OF LAW
FOR
BBA LLB [HONS.]
DECLARATION
I, MAARIA LAKDAWALA, hereby declare
that this submitted to the Kirit P. Mehta, School
of Law represents my original work
and has not been previously submitted for academic or publishing purposes.
Furthermore, this paper represents my own opinions and conclusions. The
materials/sources utilized in this paper are given their due credit.
ABSTRACT
This research paper examines the
Goods Transport Agency (GTA) service under the Goods and Services Tax (GST)
regime in India. The paper provides an overview of the legal framework
governing GTA services, including the interpretation of GTA as per
notifications and case laws. It analyzes the provisions related to rate of tax,
input tax credit, and nature of taxation (forward charge vs reverse charge)
applicable to GTA services.
The paper also examines specific
issues like the tax treatment of sub-contractors in the road transportation
sector and services provided to unregistered persons and government
departments. It discusses the mandatory requirement of issuing consignment
notes for a service to qualify as a GTA service.
The impact of GST on the logistics
sector is analyzed, including benefits like streamlined taxation, lower
logistics costs, and increased tax compliance. However, issues like increased
compliance burden for small transporters due to e-way bills are also
highlighted.
Overall, the paper provides a
comprehensive understanding of the GST provisions applicable to Goods Transport
Agencies and how it has impacted the road transportation and logistics sector
in India.
CHAPTER I: INTRODUCTION
In India, roads are a crucial form of
transportation. At the end of March 2020, India's road network was over
6,215,797 kilometres long. The world's second-largest road network is located
here. Over 71% of India's freight traffic is transported on its roads, making
them the country's main mode of transportation. As a result, there are a number
of legal requirements related to the transportation of products by road under
GST laws. First, an e-waybill needs to be issued for each movement of items
whose value exceeds Rs. 50,000. E-waybills, however, have a complete different
set of jurisdiction to look into. Second, either the transporters or the
beneficiaries must pay tax on the transportation services on a forward charge
basis or a reverse charge basis.
Under the Goods and Services Tax (GST) system in
India, a Goods Transport Agency (GTA) is a person or a business that provides
services for the transportation of goods by road. GTA’s can be an individual or
a company that provides transport services to other businesses or individuals. Under
the GST regime all services are exempted from GST except the service of Goods
Transport Agency defined as “any person who provides service in relation to
transport of goods by road and issue consignment note, by whatever name called”[1] and
Courier Agency[2].
Issuance of consignment note is mandatory for the
goods transport service by road to fall under taxability criteria, consignment
note although a key element has not been
verbatim defined anywhere in the goods and Services Act, 2017 nor in Central
Tax (Rate) Notification dated 28.06.2017, however we do find a viable
definition under Rule 4B of Service Tax
Rules, 1994.
GST
System is a systematic maze concocted by the government where reading just the
notification, act, law, rules standalone will not lead to any conclusion rather
all of them have to be read in harmony to derive the best possible
understanding.
Consignment Note the document includes information
such as the serial number, consignor and consignee names, registration number
of the goods carriage in which the goods are transported, information about the
goods being transported, information about the place of origin and destination,
and the person who will be responsible for the service tax that must be paid by
the consignor, consignee, or the GTA.
CHAPTER II: LEGAL FREAMEWORK INTERPRETATION OF
GOODS TRANSPORT AGENCY IN GST.
The imposition of service tax on road
transportation services has historically been divisive. Service Tax was imposed
beginning on November 16, 1997, by the Finance Act, 1997, although it was later
repealed following a nationwide boycott.
After that, starting on September 10,
2004, the Finance (No. 2) Act of 2004 levied service tax on commodities
transported by road by a goods transport agency. The levy was, however, once
again postponed until further notice due to the transporters' strike. Following
the formation of a committee to address the matter, the Government issued
Notification Nos. 32 to 35/2004 - ST, all dated 03-12-2004, imposing a tax on
the transportation of goods by road with effect on January 1, 2005.
Under the GST regime, the legal
framework currently in place for the Service Tax is maintained. Even under the
GST system, road transportation services (apart from GTA services) are still
exempt. In terms of GTA services, under the reverse charge system, the tax
burden is placed on the recipients of those services (of Goods Transportation)
if they belong to certain classes of people.
Except for the services of the Goods
Transport Agency and courier agencies, service for the transportation of goods
via road. However, because consignment notes are even issued by transport
owners, the law creates confusion by defining the GTA[3] ” According
to the Rule of Interpretation of Tax Statutes established by the Honorable
Courts, whenever a legislation causes trouble, it can be resolved by referring
to the mover's speech delivered on the floor of the legislature.
Finance Minister Shri P. Chidambaram
in his Budget Speech[4]
reiterated the position of law stating “58 services have been brought
under the net so far. I propose to add some more this year. I may clarify that
there is no intention to levy service tax on truck owners or truck operators.
Nor, as was clarified by my predecessor, is there any intention to levy service
tax on the savings part of the premium collected by an insurer. It is clear
from the above speech, the tax was imposed only on goods transport agency and
not on transport owners.”
In the case of C.C.E. & C.
GUNTUR VERSUS KANAKA DURGA AGRO OIL PRODUCTS PVT. LTD. [5]the
Tribunal upheld the same position. wherein the Tribunal found that the claims
made by the transport booking agents alone that they were protected by the
Goods Transport Agency service and that the service tax paid for using the
services of specific truck drivers was refundable.
In Paragraph 2 Clause (ze) , “any
person who provides service in relation to transport of goods by road and issue
consignment note, by whatever name called”[6]
the terminology and makes it clear that according to interpretation of
statues consignment note is a mandatory criteria for taxability and not a
supplementary addition to the clause.
In the case of “Nandganj Sihori
Sugar Co. vs. CCE”[7]
it was established that there is stark difference between bill issued for
transportation of goods and the same cannot be utilised vis-a-vi as consignment
note. Additionally
The consignment note that GTA issues
reflects its responsibility to:
(a) transport the shipment that has
been given to it to its destination;
(b) make the delivery to the
consignee; and
(c) hold the shipment in transit.
Furthermore, a bill issued merely for the purpose of transporting goods cannot
be considered a consignment note. If the transporter does not issue such a consignment
note, the service provider will not fall under the purview of the goods
transport agency. When a consignment note is issued, it means that the
transporter has acquired the items' lien and has taken on responsibility for
them up until their safe delivery to the consignee. Only those GTA services
that take on agency functions have been included in the GST network.
Individual truck/tempo drivers are not covered
within the meaning of the term GTA if they do not issue any consignment notes.
As a result, the services rendered by these individual transporters who fail to
produce a consignment note would be covered by the entry at s.no.18 of
Notification 12/2017 - Central Tax (Rate) dated June 28, 2017, which is free
from GST.
CHAPTER III: RATE MECHANISM AND NATURE OF
TAXATION.
Input Tax Credit – “
When the GST is paid at the time of the purchase of a
good, it is called 'Input Tax' and then the trader collects the GST during the
sale which is called 'Output Tax'. During the time of GST payment to the
government, the input tax is deducted from the output tax and this deduction is
'Input Tax Credit'.”
iTC on Inputs and Capital Goods: GTAs
are eligible for claiming input tax credit for taxes paid on inputs and capital
goods used in the course of providing their services.
Inputs refer to goods and services that are
used by GTAs in their day-to-day operations, such as fuel, lubricants, spare
parts, and maintenance services.
Capital goods refer to assets used by GTAs to
provide their services, such as vehicles, trailers, and containers. The ITC can
be claimed by the GTA for taxes paid on inputs and capital goods that have been
used exclusively for providing GTA services.
Transportation services offered by
the GTA are taxable, whereas those offered by non-GTA providers are not. There
was ambiguity as to whether GTA Services fall in the purview of HSN 9965 OR 9967 it was cleared by
notification[8] that only
GTA services are to be classed as SAC 9965, while "Support services in
transport" are to be classified as SAC 9967.[9] “It is now mandatory to
follow HSN 9965 for GTA services and HSN 9967 no longer applies to GTA services
and only to transport services taxable @18%.
Services
provided by a goods transport agency, by way of transport in a goods carriage
of:
(a) agricultural
produce;”
(b) goods,
where consideration charged for the transportation of goods on a consignment
transported in a single carriage does not exceed one thousand five hundred
rupees;”
(c) goods,
where consideration charged for transportation of all such goods for a single
consignee does not exceed rupees seven hundred and fifty;”
(d) milk, salt
and food grain including flour, pulses and rice;”
(e) organic
manure;”
(f) newspaper
or magazines registered with the Registrar of Newspapers;”
(g) relief
materials meant for victims of natural or man-made disasters, calamities,
accidents or mishap; or”
(h) defence or
military equipments”.
Taxation Rate and Forward Charge
Mechanism The GTA's
rate of taxation on transportation services and the method by which it would be
levied are linked. The GTA can be paid as tax using a forward
charge or a reverse charge system.
The following alternatives are
available to the GTA if he chooses to pay tax using the forward charge
mechanism: 1. Tax at 12% with ITC - Under this option, the GTA will impose a
12% GST on all invoices and offer ITC for those eligible inbound supplies that
it receives.
2. Tax at 5% without ITC - In
this case, the GTA will invoice 5% GST but won't claim any ITC for its
inbound supplies. The GTA may choose to pay tax on a forward charge basis
by filing a declaration in Annexure V by the 15th March of the prior fiscal
year, i.e., by the 15th March 2024 for the FY 2023–24. The aforementioned
declaration may be made by August 16, 2022, for FY 2022–2023.
Reverse Charge Mechanism When the GTA
decides against forward charge taxes, and follows reverse charge mechanism the
recipient of transportation services will be responsible for paying tax using a
reverse charge method. The recipient must pay tax at a rate of 5% as per sec
9(3) CGST Act [10]and
claim an input tax credit for that tax. There will be no ITC available to the
transporter for its incoming supplies.
CHAPTER IV: ANALYSING THE CASE OF SUBCONTRACTORS IN ROAD TRANSPORTING
SECTOR.
In the business, the primary
contractor GTA bills the client who actually receives the service, while
the subcontractor GTA bills another GTA for subcontracting service. It is
frequently observed that the primary contractor will charge tax to the
subcontractor, who is actually providing transportation services on behalf of
other GTA, even if this appears to be an exempt supply. As this is an abstract
scenario it can be best understood with a simple illustration.
Factory Z requested bulk
transportation services from "A" in the aforementioned transaction.
Transporter "A" subcontracts transporter "B" to complete
any remaining tasks because it is unable to do so fully. It should be
highlighted that because A received the contract, A—not B—will be the one to
issue the consignment note.
As registered businesses,
"A" and "B" are using the input tax credit option and
charging 12% GST using the forward charge method. In the aforementioned
transaction, GTA-B has the option to issue a taxable invoice and claim 12% tax
back from GTA-A. We'll see.
It is very evident from the
definition of GTA provided above that a person issuing a consignment note will
be regarded as a goods transport agency. In the aforementioned scenario,
"A" issues the consignment note, making "A" the GTA for the
transaction. According to the entry of notification that was mentioned in the
explanation above, any services for the transportation of goods by road
outside of the GTA would be exempt supplies. In the present illustration,
"B" is merely acting in the capacity of a truck owner to GTA
"A" and not as a GTA, which is mostly covered by the notification's
exemption entry. As a result, A & Z will be the only taxable supply and the
transaction between A & B will be an exempt supply.
Can transporter "B" issue
another consignment note to "A" for the same transaction and keep the
GTA designation for the exchange? A consignment note serves as documentation
for the handling of items during relocation and shipping. There can only be one
consignment note for a single transaction and the same movement of items. As a
result, there will only be one consignment note for the movement of goods.
In light of the foregoing discussion,
we have discovered that the services of major carrier contractor "A,"
who issues consignment notes, are taxable, whereas those of contractor
"B," are exempt.
As stated in rules 42 and 43 of the
GST Operate, transporters who occasionally act as "GTA" and as
subcontractors (merely as truck owners who deliver goods) must reverse the
input tax credit.
From the acquisition of trucks and
chassis, which are capitalised in the books of accounts, these transporters
benefit significantly from the Input tax credit.
Throughout the year, the transporters
buy and sell trucks and fleets according on their requirements and the age of
the vehicle. For the entire sector, it becomes very difficult to comply with
Rule 43 regarding the availability and reversal of ITC on capital items.
As far as we are aware, rule 43
compliance necessitates the reversal of credit for 60 months following the date
of the invoice,
which necessitates the requirement to continually prepare working and
reconciliation documents to support the same. If an asset that was capitalised
and for which an input tax credit was claimed is sold before the stipulated
five-year period, Rule-44 of the Act will also come into play. In light of Rule
42, 43, and 44's provisions, all these compliances present obstacles for the
sector's proper utilisation and reversal of input tax credit. The
transportation sector, which has always had some level of flexibility when it
comes to creating and maintaining records, is currently having difficulty
keeping ITC records pertaining to the availibility and reversal of the same.
CHAPTER V: ANALYSING THE CASE OF SERVICE
PROVIDED TO UNREGISTERED PERSON, GOVERNMENT DEPARTMENT etc.
Persons who are unregistered are exempt from GST by
Notification[11],
In short, the recipient is responsible for
paying tax under reverse charge when GTA provides a service to a factory,
society, corporation, partnership firm, or registered person. However, GTA is
exempt from GST while providing services to people who are not registered.
Additionally, where a government
department, local government, or government agency is registered under GST only
for the purposes of TDS under Section 51 of the CGST Act [12]
and 10/2017 -IT(Rates), both dated 28.06.2017 and inserted with effect from
1.01.2019], the provision of reverse charge in the case of a registered person
under Notification No. 13/2017-CT(Rates) .
This means that for services provided
to a government department, local authority, or government agency, GTA is not
required to pay GST under the forward charge mechanism. Even if they are just
registered under GST for the purpose of TDS under GST, they will be treated as
an unregistered person for the purposes of exemption to GTA services.
The Government Department, Local
Authority, or Government Agency will be required to pay GST under reverse
charge if they obtain GTA service if they are registered under GST for a
purpose other than TDS. As a result, starting on October 13, 2017, the GTA will
never be liable to pay taxes on its own, unless it chooses to do so using a
forward charge of 12% [6% plus 6%]. Finally, up to October 13, 2017, GTA was
obligated to pay GST in the following circumstances: a) when the service
recipient is an unregistered individual person. b) the shipment of household
items when the freight is covered by an unregistered private individual. c)
services rendered to a person outside of the taxable area when the receiver is
paying the freight, such as transportation to Bangladesh, Nepal, or Bhutan.
CHAPTER VI: IMPACT OF GOODS TRANSPORT AGENCY.
- Streamlined Taxation: GST has replaced multiple indirect
taxes such as central excise, service tax, and value-added tax (VAT),
which were levied at various stages of the supply chain. This has
streamlined the taxation process and reduced the burden of compliance and
administrative costs.
- Reduction in logistics cost: GST has reduced the logistics
cost for businesses, as the tax on the transportation of goods has been
rationalized. The introduction of e-way bills has also helped in reducing
the time and cost of transportation. The reduction in logistics cost has
led to an increase in the competitiveness of Indian businesses, making
them more attractive to foreign investors.
- Boost to the e-commerce sector: The e-commerce sector in
India has grown significantly since the introduction of GST. The removal
of multiple taxes and the introduction of a unified tax system has made it
easier for e-commerce companies to transport goods across the country.
This has led to an increase in the number of e-commerce companies and has
boosted the overall growth of the sector.
- Increased tax compliance and accountability : The
introduction of GST has made tax compliance easier for Goods Transport
Agencies, as they are now required to register and file their returns
under a single tax system. This has increased tax compliance and has
helped in the formalization of the economy.
- Impact on small transporters: While the impact of GST on
the transport sector has been mostly positive, small transporters have
been adversely affected by the introduction of the e-way bill system. The
e-way bill system requires transporters to generate a bill for each
consignment, which has increased the compliance burden on small
transporters.
CHAPTER VII: CONCLUSION
In conclusion, the impact of Goods
Transport Agency in GST has been mostly positive for the economy. GST has led
to an increase in the efficiency of the transportation of goods, a reduction in
logistics cost, and a boost to the e-commerce sector. However, the impact on
small transporters has been mixed, with some facing increased compliance
burden. The introduction of GST in 2017 had
a significant impact on the transport sector in Maharashtra, including the GTA.
It led to a uniform tax structure and removed state-level taxes, making it
easier for transporters to move goods across different states.
The GTA in Maharashtra faces tough
competition from other transporters, both within the state and from
neighbouring states like Gujarat and Karnataka. There is a need for Goods
Transport Agency (GTA) in India under the GST system. The logistics and
transportation sector plays a crucial role in the economy, and GTAs provide an
essential service for the movement of goods by road.The GST system in India
aims to bring transparency and efficiency in the tax treatment of goods and
services. Before the implementation of GST, the tax treatment for
transportation services was complex and varied across different states. There
were multiple taxes, including entry taxes, octroi, and other state-specific
taxes, which added to the cost of transportation. This led to inefficiencies
and delays in the movement of goods, and businesses had to bear the additional
tax burden. Under the GST system, GTAs are required to pay tax on their
services, and they can claim input tax credit for taxes paid on goods and
services used in the course of providing their services. This simplifies the
tax treatment and reduces the burden on businesses. Furthermore, the
consignment note issued by GTAs serves as proof of the services provided, and
this helps businesses claim input tax credit on the transportation services
received. This brings transparency and accountability in the tax treatment and
ensures that businesses are not burdened with unnecessary taxes. Overall, GTAs
play a crucial role in the transportation of goods, and the GST system provides
a streamlined and efficient tax treatment for their services.
BIBLOGRAPHY
·
Central
Goods and Services Tax, 2017.
·
Institute
of Chartered Accountants of India.
·
Gazette
of India.
·
Central
Board of Indirect Taxes an Customs.
·
GST-
changes related to transport sector, CA Nikhil. M. Jhanwar.
·
GST
Implications on transportation of goods by road and GTA, CA Deepak Jain
[1] clause (ze) in para 2 of
Notification No.12/2017-Central Tax (Rate) dated 28.06.2017.
[2] clause (u) in para 2 of
Notification No.12/2017-Central Tax (Rate) dated 28.06.2017.
[3] "Notification 12-2017 dated
28 June 2017 Paragraph 2 Clause (ze)
[4] 8/7/2004 (Para. 149)
[5] [2009 (15) S.T.R. 399 (Tri. -
Bang.)],
[6] clause (ze) in para 2 of
Notification No.12/2017-Central Tax (Rate) dated 28.06.2017.
[7] 2014
[8] CGST Notification (Rate) No.
11/2017 dated 28.06.2017.
[9] CGST Notification (Rate) No.
11/2017 dated 28.06.2017.
[10] Notification No. 13/2017-CT(Rates)
[11] Notification No-32/2017(CGST
Rate), dated 13.10.17
[12] [Proviso to Sr. No. 1 of
Notification Nos. 13/2017-CT(Rates)
Article Information
ANALYSIS OF GOODS AND TRANSPORT AGENCY SECTOR UNDER GST
Authors: MS. MAARIA LAKDAWALA
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/10/26
- Issue 7
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International Journal for Legal Research and Analysis
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