Goods Transport by Road – GST liability of the recipient and the difficulties

Authored by CA Vikas Shenoy

GST is an indirect tax based on the concept of value added tax, where tax is levied at each stage of supply on the value addition and the tax is ultimately borne by the final consumer of goods or services. As such, a person registered under the GST law is usually liable to pay tax on the outward supplies effected by him in the course or furtherance of his business. However, in certain cases, the law requires a registered person to pay tax on his inward supplies instead of the supplier of such supplies paying tax thereon. This mechanism is referred to as the reverse charge mechanism (‘RCM’) and the liability is colloquially referred to as RCM liability.

This article touches upon the GST implications in case of goods transportation by road and certain issues with respect to RCM liability of the recipient of such supplies.

Tax on Transportation of Goods by Road – A Legal Perspective

It is observed that, even after a period of three years from the implementation of GST, most taxpayers are not yet informed enough about the GST liability under RCM in case of services rendered by Goods Transport Agency (‘GTA’). In other cases where the taxpayers are aware of such a liability, there is a common misconception among the trade that all services of transportation of goods are leviable to GST. 

Given that a registered person is required to discharge RCM liability in case of GTA services irrespective of him being an individual or otherwise, the issue becomes more relevant.

In this respect, it is noteworthy that the legislative competency to levy tax on carriage of goods was historically with the States as per the List II – State List of Seventh Schedule of the Constitution. Accordingly, in the pre-GST regime, no service tax was levied on the services of transportation of goods by road. Given that the concept of RCM and taxability of services have been majorly borrowed from the Service tax regime into the GST law, the provisions of GST law have also been similarly drafted.

Notwithstanding the amendment to the Constitution to provide special powers for levy of a combined Goods and Services Tax vide Article 246A, the exemption from tax on transportation of goods by road has been carried forward in the GST regime. Thus, no GST is payable, by the supplier or by the recipient, on the services of transportation of goods by road.

The above being said, it may be noted that the law has distinguished between the services of transportation of goods itself and the services of GTA in relation to such transportation. Further, a GTA has been defined to mean any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called. What is to be noted is the requirement to issue a consignment note by a transporter for it to qualify as a GTA. A consignment note is a document issued by a GTA, giving the details of the consignment, so as to establish the possession of the subject goods and pin the responsibility thereof. It is crucial in case of a GTA service that such a document is issued.

As such, what is indispensable for a person to qualify as a GTA is that the lien of the goods is transferred and that the GTA becomes responsible for the goods till it’s safe delivery to the consignee. This was also made clear in a recent order of the Rajasthan Appellate Authority for Advance Ruling (‘AAAR’) against an advance ruling in the case of M/s K M Trans Logistics Private Limited^[1]. In this case, however, the AAAR went a step further to state that issuance of consignment note, or its non-issuance, does not make any difference so far as the nature of the activity carried out by them is concerned.

On the other hand, it has been held by the Courts that services in relation to transportation of goods by owners of trucks or other vehicles, on their own account, would not amount to GTA services and no GST is to be paid on the same.

It was observed by the Hon’ble Mumbai Tribunal in the case of CCE & ST vs Jaikumar Fulchand Ajmera^[2] that during the transportation stage, the respondent transporter did not acquire any lien on the goods which would be implicit in the issue of a consignment note. Thus, the services so provided did not qualify as GTA services.

While the above cases are from the erstwhile Service tax regime, the principles and ratio of judgements are squarely applicable under GST regime as well. This is because the provisions of law with respect to taxation of GTA services are similar under both the regimes.

To conclude, it can be safely said that even under the GST law, what is taxable is the services rendered by Goods Transport Agencies in relation to transportation of goods by road and not the transportation services rendered by Goods Transport Operators/Owners.

Taxation of GTA services

The next issue that is fogging the mind of the industry with respect to GTA services is the taxation of such services. It is observed that in some cases GTA service providers charge GST at the rate of 12%, whereas in other cases they do not charge GST at all. Further, a tax consultant would urge a recipient of GTA service to pay GST at the rate of 5% only.

Here, it is to be noted that the law has given an option to the supplier of GTA services to either opt for GST at the rate of 12% with availability of input tax credit (“ITC”) or opt for the rate of 5% without ITC. In case of the latter option, the GST is to be paid by the recipient. In simpler terms, where GST at 12% is not charged by the supplier of GTA services, automatically the same becomes payable by the recipient of such services at the rate of 5%. Like any other service that is under the ambit of RCM liability, GST is required to be paid in cash, ie ITC may not be used for such payment.

Also, the law provides for certain exemptions in case of GTA services, whereby no GST is payable. Among other exemptions, no GST is payable on account of exemption in the following cases:

1. Where consideration charged for the transportation of goods on a consignment transported in a single carriage does not exceed Rs 1,500/-;

• Where consideration charged for transportation of all such goods for a single consignee does not exceed Rs 750/-.

Input tax credit of GST paid

Under the GST law, any GST paid on inward supplies is available to such recipient as ITC subject to restrictions in case of some specific inward supplies. Since no restriction is imposed on services of GTA and since these services are utilised by the recipient in furtherance of its business, ITC of GST paid on such services would be available to it for utilisation against its GST liability on outward supplies.

When the above is stated, a question arises as to the restriction imposed in case of the option of paying 5% GST without ITC. Since the rate notification provides that no ITC should be taken if the concessional rate of 5% is opted for, does it not mean that the recipient taxpayer who discharges RCM liability on GTA services at 5% is not eligible to take the ITC of the same.

In this regard, it must be noted that the said restriction of not availing ITC is imposed on the supplier of such services, ie GTA in this case. Accordingly, where a GTA opts for the concessional rate of 5%, he would not be eligible to take ITC on the inward supplies utilised in effecting such GTA services. However, this does not mean that the recipient taxpayer who is discharging GST on such services under RCM will not be eligible for ITC of such GST paid under RCM.

Time limit for availing input tax credit

Generally, the GST law allows a taxpayer to avail ITC based on a tax invoice or a debit note pertaining to such tax invoice within the due date for filing monthly return for the month of September following the end of the year to which such tax invoice/debit note pertains or the date of filing annual returns, whichever is earlier.

The specific weightage on “tax invoice” for availing of ITC in the law compels us to analyse whether the same provisions would apply in case of GST paid under RCM. It may be noted that “tax invoice” is specifically defined under the law to mean an invoice issued under section 31 of the CGST Act. Further, a self-invoice which is required to be issued in case of RCM liability, is also an invoice under the same section 31.

Accordingly, even in case of GST paid under RCM, the ITC of the same may be taken only before the abovementioned time limit based on the date of invoice on which such tax is paid.

Based on the above brief analysis, since the document on which ITC is taken in case of RCM payment is the self-invoice issued in this respect, there is a very dicey position being envisaged by tax experts that even if RCM liability is discharged for earlier years in the current year, the same should be available as ITC based on the self-invoice issued in the current period. While this position is not recommended to be adopted given the clear intention of the law to permit ITC only within prescribed time limit, the judicial view on the above position is yet to be known.

At this juncture, it would not be out of place to mention that the Supreme Court in the case of ALD Automotive Private Limited vs Commercial Tax Officer^[3], has ruled that that conditions including time limit can be imposed for claiming ITC and the same does not violate the Constitution.

Conclusion

In view of the complexities accompanying the compliance of provisions pertaining to RCM liability, one would wonder if reverse charge is actually charging the businesses in reverse direction. As such, while the Government is doing a lot in educating the industry of the compliances under GST law, there is yet more to be clarified and simplified.

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^[1] 2020 (4) TMI 668 – APPELLATE AUTHORITY FOR ADVANCE RULING RAJASTHAN

^[2] 2017 (48) S.T.R. 52 (TRI. – MUMBAI)

^[3] [2018] 99 TAXMANN.COM 202 (SC)

This article was published in September-October 2020 issue of the KCCI Journal