S. Sridharan summarises the notifications and circulars on service tax impacting goods transport agencies
Rebate of 75 per cent of the freight charges: Notification No. 32/2004 of December 3, 2004, exempts service tax on 75 per cent of the gross amount charged in respect of taxable service provided by a GTA to a customer, provided that:
i) Credit of duty paid on inputs or capital goods used for providing such taxable service is not taken; and
ii) Benefit of Notification No. 12/2003 of June 20, 2003, is not utilised by the GTA. (Notification 12/2003 permits deduction of value of goods and materials sold by the service provider to the recipient of service and where the charges for such goods and materials are specified separately in the service bill.)
This exemption applies to all those liable to pay service tax, whether it be the GTA or the service receiver.
Where the GTA is liable to pay service tax, the GTA can utilise the 75 per cent abatement benefit on fulfilling the conditions.
Where the service receiver is liable to pay tax, the condition that credit of duty paid on inputs or capital goods used for providing such taxable service is not taken creates confusion on the utilisation of the 75 per cent abatement.
Obviously, the service receiver would not have taken credit of duty paid on inputs or capital goods used for providing GTA services.
While the second condition states that the GTA should not have utilised the benefits of Notification 12/2003, the first condition generally states that credit of duty paid on inputs or capital goods used for providing such taxable service is not taken.
The condition has to be taken as non-utilisation of Cenvat credit and benefits by the GTA. How does the service receiver ensure that the GTA has not taken Cenvat credit and benefit under Notification 12/2003?
Safeguards by service receiver
To enjoy the benefit of rebate of 75 per cent, it is suggested that the service receiver who is liable to pay service tax takes an undertaking from the GTA that the latter has not taken Cenvat credit on inputs/ capital goods and benefit under Notification 12/2003.
This is possible where there is a contract with only a single GTA. How to ensure compliance by the GTA where a service receiver receives/books consignment through large number of GTAs?
One possible solution is for the GTAs to print in the Consignment Note, the utilisation or non-utilisation of Cenvat credit/ benefits in Notification 12/2003.
Safeguards by the GTA
How does the GTA ensure that either the consignor or consignee is not one of the specified entities?
The only possible (but not practical) solution is to take an undertaking from the consignor or consignee who pays freight that he is not one of the specified entities. Care needs to be taken to obtain the correct name and address.
Even where the consignor or consignee is one of the specified entities, the GTA may have to take an undertaking that they are one of the specified entities and that they shall discharge the liability to pay service tax.
The suggestion for obtaining undertakings, though impractical and difficult, appears to be the only way to ensure that the GTA and service provider remain on the right side of law.
Should GTAs utilise Cenvat credit?
A major question that may confront the GTA is to whether or not to take Cenvat credit on inputs and capital goods.
Utilising Cenvat credit may not be advisable in the interest of specified entities that will have to pay 10.2 per cent instead of 2.55 per cent (see Table) after utilising the 75 per cent abatement.
It may also not be very beneficial to the GTA. If Cenvat credit is taken, the GTA will have to pay tax at 10.2 per cent on the value of taxable service.
If the GTA transports fruits, vegetables, eggs or milk or utilises the exemption on value of consignments on which freight is less than Rs 750, and the GTA does not maintain separate records for utilisation of inputs/input services for taxable and exempt services, the GTA may have to utilise Cenvat credit only to the extent of 20 per cent of the output tax payable.
Cash outflow of 80 per cent tax on the value of taxable service would be higher than the tax payable on 25 per cent of the value of taxable service if Cenvat credit is not taken.
Practical way out
To avoid unnecessary paperwork, cost of compliance and cost of ensuring compliance, a practical solution would be to make the 75 per cent rebate absolute and disentitle utilisation of Cenvat credit and benefit of Notification 12/2003 in respect of GTA services.
Condonation of minor lapses
To ensure smooth implementation, minor lapses will be condoned till December 31, 2005. The ministry has issued Circular No. F.No.341/18/2004-TRU (Pt.) dated December 17, 2004, advising that:
No vehicle should be stopped en route for verification of service tax compliance unless there is specific information/intelligence about deliberate evasion of service tax under authorisation of the Commissioner.
The vehicle should not be detained; copies of documents may only be taken for further verification.
Goods transport agencies, which are not liable to pay any service tax, are not required to be registered under the service tax rules.
Centralised registration of GTA to be permitted unless there is a substantial reason to believe that it would lead to evasion of service tax.
Any verification to be only at centralised office unless there is intelligence of evasion at other offices.
In case of omission in payment of service tax or procedural lapses by persons liable to pay service tax on the goods transport by road, committed before December 31, 2005, only tax and interest to be levied.
No penalty unless the default is on account of deliberate fraud, collusion, suppression of facts or wilful misstatement or contraventions of the provisions of service tax with intent to evade payment of service tax.
It is hoped that the Government would provide relief to GTAs from the service tax tsunami by simplifying the levy, and also removing the liability to tax on the non-specified entities.
(Concluded) (The first part of this article appeared on January 8)
(The author is a Madurai-based chartered accountant.)