The Hindu Business Line : Truckloads of confusion

THERE is much confusion on the liability to pay service tax on goods transport agency services. There is a lack of clarity on the person responsible to pay service tax, the utilisation of 75 per cent abatement on freight charges and the reckoning of the eligibility for exemption on small-value consignments.

While it is the service provider, that is, the goods transport agency (GTA) who is liable to pay in certain circumstances, it is the service receiver who has to pay service tax in most cases.

To understand who is liable to pay service tax and the precautions to be taken in order not to be hauled up for failure to pay service tax, one needs to sieve through the notifications.

Where service receiver is liable

Notification 35/2004 dated December 3, 2004, amends Rule 2(1)(d) of the Service Tax Rules, 2002 to make the service receiver who pays freight liable to pay tax where either the consignor or consignee is one of the following categories:

a) factory registered under or governed by the Factories Act, 1948;

b) company established by or under the Companies Act, 1956;

c) corporation established by or under any law;

d) society registered under the Societies Registration Act, 1860 or under any law corresponding to that Act in force in any part of India;

e) co-operative society established by or under any law;

f) dealer of excisable goods, who is registered under the Central Excise Act, 1944 or the rules made there under; or

g) body corporate established, or a partnership firm registered, by or under any law.

For the sake of brevity, these entities are referred to as `specified entities'.

Implication: Where the transport is between the specified entities, the person paying the freight is liable for tax (see table). Where the consignor or consignee is a specified entity and consignee/consignor is, say, an individual whether or not carrying on any business and pays freight, the liability is on the individual for the sole reason he has paid the freight.

This means that any one, be it an individual or a trader, who is not one of the specified entities and who pays freight as a consignor/consignee of goods to/from the specified entities, the individual or trader will have to register and pay tax if the freight charges are above the minimum limit of exemption discussed herein below.

The intention could not have been to make a non-specified entity such as an individual not carrying on any business liable to tax.

To avoid hardship to a common man who may receive even one consignment only to pay basis from a specified entity the Notification needs to be amended to make the GTA liable to pay tax where either the consignor or consignee is not one of the specified entities.

Where the GTA is liable

The GTA is liable to pay tax where both the consignor /consignee is not one of the specified entities. An instance where the GTA would be liable is where an individual sends a consignment to a trader not being a specified entity and freight is paid by either one of them.

Exemption for small-value consignments: Notification No. 34/2004-Service Tax, dated December 3, 2004, exempts the taxable service provided by a GTA to a customer from the whole of service tax, in such cases where:

i) the gross amount charged on consignments transported in a goods carriage does not exceed Rs 1,500; or

ii) the gross amount charged on an individual consignment transported in a goods carriage does not exceed Rs 750.

Explanation to the notification clarifies that "an individual consignment" would mean all goods transported by a GTA by road in a goods carriage for a consignee.

Implication: The limit specified in the notification is with reference to goods booked for a "consignee" in a "goods carriage".

Therefore, the consignee, when liable to pay tax, will have to add up the consignment notes received to check for the individual limit and aggregate limit for receipt of consignment received in a goods carriage before utilising the exemption.

One of confusions in the notification is the applicability of the limits to goods carried in a "goods carriage". A goods carriage is a single vehicle and, therefore, how would the GTA/consignee reckon the applicability of the limits specified?

A practical solution appears to be to reckon the limit with reference to goods booked for a consignee from one booking office of the GTA.

The GTA, when liable to pay tax will also have to check daily the applicability of limit per consignee to determine his liability to pay tax.

(To be concluded)

(The author, a Madurai-based chartered accountant, is the editor of www.servicetaxindia.com)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Urea ready for more reforms

Great Budget expectations — Helping the economy take wings

Admin needs more than minimum attention

Truckloads of confusion

On shore, but at sea

Tax implications of software sale

In the aftermath of a disaster

Squeeze water off Chinese data, add a dash of guesswork