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Taxability of Road Transport Services - taxation anomaly creeps in

SEPTEMBER 29, 2017

By B K Uppal and P K Bhatnagar, Consultants

THE service, its taxability and tax rate:

1. S. 9(1) of CGST Act as well as S. 5(1) of IGST Act provide for levy of GST on the value, determined u/s 15/ CGST Act, of supply of goods and services or both at rates notified by the Government. The GST is payable by taxable person {defined in S. 2(107) / CGST Act as a person who is registered or liable to be registered under S.22 or S.24 }.

2. The Government has notified GST rates on services vide Notifications No.8/2017-IT(R) dated 28.6.2017, as amended by notification No. 20/2017-IT(R) dated 22.8.2017. Notification 11/2017-CT(R) classifies, vide Sl. No. 107 of the annexure thereto, the goods transport services in heading 9965. Within this heading, land transport services of goods fall under group 99651 and road transport services of goods under service code 996511.

3. In accordance with the rates specified in the table appended to said notification 8/2017-IT(R), GST rates prescribed on service of goods transportation by road are as follows:

(A) Sl. No. 9 (iii) Services of GTA in relation to transportation of goods (including used household goods for personal use):

(a) 5% without ITC; or

(b) 12 % with ITC

(The entry makes it clear that if the GTA opts to pay tax @12%, then it will have to pay tax on all the services of GTA supplied by it @12%. In other words, it can't choose to pay tax both @ 5% and 12%).

(B) Sl. No. 9 (iv) service of transportation of goods by a courier agency 18% (by implication)

4. Further, according to exemption notification No. 9/2017-IT(R) dated 28.6.2017, (sl. No. 19), services of transportation of goods by road are chargeable to tax at nil rate except when these are supplied by a:

(i) goods transport agency (GTA); or

(ii) courier agency.

Thus, such services supplied by any other person - truck owners or truck operators etc or even goods suppliers themselves (unless the supply is a composite supply/mixed supply)-- are wholly exempt from payment of GST.

5. Also, if supplied for transport of the goods specified against Sl. No 22 of the table appended to Notification No. 9/2017-IT(R) dated 28.6.2017, such as agricultural produce, relief materials, defence equipment etc, even the GTA service is chargeable to NIL rate.

6. It is also to be noted that the GTA service supplied for transportation of goods by road to 7 recipients, specified in Notifications No. 10/2017-IT(R) dated 28.6.2017 (sl. No. 2 of the table) as amended by Notification No. 22/2017-IT(R) dated 22.8.2017, is chargeable to tax under reverse charge mechanism (RCM). However, the notification shifts tax liability to the recipient of the service from only that GTA " who has not paid integrated tax at the rate of 12%" . It is here that the anomaly, hinted in the title of this article, seems to have crept in.

7 Does the amendment imply that if a GTA has paid integrated tax @5% without taking ITC, the only other rate applicable to GTA service, RCM will also kick in? Will then the tax be payable twice over - once by GTA and then again by the recipient of service? Incidentally, S. (3) of CGST Act makes it mandatory for the recipient to pay tax under reverse charge on the supplies of notified categories of goods or services or both and the above noted notification No. 10/2017-IT(R) has been issued apparently in terms of S. 5(3).

8. The amendment made to Notification No. 10/2017-IT(R) by Notification No. 22/2017-IT(R) appears flawed, inasmuch as one and the same transaction of supply can't be charged, without express authority of law (which does not exist), to same tax both under the RCM and forward charge mechanism (FCM). Not only that it raises the tax burden on the GTA service to 10% without ITC. The effective tax rate is thus twice the prescribed tariff rate.

Who is liable to pay tax on the supply of GTA service?

9. Be that as it may, given the said anomalous amendment, the taxability of GTA service and liability to pay tax currently falls as follows. A supplier of GTA services in relation to transportation of goods by road shall be:

(i) required to pay no tax at all if it supplies exclusively GTA services:

(a) and only to specified 7 kinds of recipients who are liable to pay tax under RCM; or

(b) only in respect of transportation of specified goods (agricultural produce etc).

[In fact, a GTA will not be even liable to register in these two situations in terms of the provision of S.23(1)(a) and will thus not be a taxable person with respect to such supplies].

(ii) liable to register itself and pay tax @ --

(a) 5% without ITC ;or

(b) 12% with ITC ----

if it is engaged in the supply of:

(1) services of transportation of goods also or only to persons other than those mentioned in para 6 supra; or

(2) also or only the goods other than those referred to in para 5 supra.

In respect of these supplies, he will, subject of course to the exemption threshold u/s 22(1)/ cGST Act, be liable to register and will thus be a taxable person liable to pay tax.

10. As regards the recipients of GTA services liable to pay tax under RCM {being necessarily liable to register u/s 24(iii) and being, therefore, taxable persons}, they shall be required to:

(i) pay tax only @ 5% under RCM if the GTA is not registered (for an unregistered person can't take ITC), but such recipient will be entitled to take ITC thereof; or

(ii) pay tax @5% under RCM even if the GTA is registered and has already paid tax under FCM @ 5% and thus bear total tax burden of 10% without ITC ; or

(iii) receive the services against invoices issued by the GTA and take credit of tax paid thereon if the GTA is registered and has paid tax under FCM @12%. It is only in this situation that the recipient will not be liable to pay tax under RCM.

11. Clearly, the proposition spelt out in para 10(ii) above, flowing as it does from the said amendment, is untenable. To be sure, this is a drafting error which has resulted in the anomaly. Hiking the GST rate to 10% without ITC could not have been the intention behind the amendment carried out by Notification No. 22/2017-IT(R) as above. Nor is it consistent with the provisions of S.9(1) cGST Act or S. 5(1) of iGST Act - payability of tax on the same supply transaction of goods only once by " the taxable person ".

12. It is felt that the wording of the amendment should have been "who is not registered under S.22 or 24 of the CGST Act, 2017" instead of "who has not paid integrated tax at the rate of 12%". This would have logically addressed the legal issue involved here - payment of tax by the taxable person -- GTA where it is registered or liable to be registered, and by the recipient of GTA service under reverse charge where the GTA is not registered or not liable to be registered.

13. If this suggestion is acted upon, the RCM with respect to GTA services would operate in a lawful and rational manner as follows:

(i) the recipient will pay tax only @ 5% under RCM if the GTA is not registered (for an unregistered person can't take ITC). The recipient will of course be entitled to take ITC thereof; or

(ii) the recipient will receive the services against invoices issued by a registered GTA and take credit of the tax paid by the said GTA at either of the two applicable rates 5% or 12%.

14. The drafting error warrants an urgent relook.

(The authors are associated with GST axperts and the views expressed are strictly personal.)


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