REPORT OF THE COMMITTEE FOR THE PURPOSES OF LOOKING INTO APPROPRIATE MECHANISM/MODALITIES FOR COLLECTION AND PAYMENT OF SERVICE TAX ON GOODS TRANSPORT AGENCY

OCTOBER 2004

COMMITTEE

Chairman

Shri S.K. Bhardwaj, Member, Central Board of Excise and Customs

Members

1. Shri S.S. Bedi, Chief Commissioner of Central Excise, Chandigarh
2. Shri S.K. Singhal, Chief Commissioner of Customs, Patna
3. Shri O.P. Aggarwal, Chairman, All India Motor Transport Congress
4. Shri Baba Saheb Dhumal, President, All India Motor Transport Congress
5. Shri Mahendra Arya, representing All India Motor Transport Congress

PREFACE

In terms of the minutes of meeting held on 27th August, 2004 between the representatives of the Transport Industry (represented by President, All India Motor Transport Congress) and the Department of Revenue (represented by the Revenue Secretary, Government of India) a Committee to look into appropriate mechanism/modalities for collection and payment of service tax on Goods Transport Agency was set up vide order No. 341/18/2004-TRU (Pt), dated 10th September, 2004, consisting of Chairman and 12 members. Later the committee was re-constituted (Vide order No. 341/18/2004-Tru (Pt), dated 14th October, 2004) to consist of Chairman and Members as above. Orders relating to constitution of Committee along with Terms of reference' and Terms and Conditions' are at Annexure 'A' to this report.

The Committee deliberated on the issues before it and discussed relevant issued with the various stake holders. While firming up the recommendations, it took into account the ground realities, the trade practice, the genuine difficulties of various stake holders and legal requirements. The Committee is of the view that if its recommendations are accepted and implemented as a package, it would help in achieving the desired objectives.

The Committee is grateful for the help rendered during its deliberations, by the Members of the Trade, various experts in the field of transport sector and by the Department Officers, for their support, co-operation and valuable suggestions which has helped the Committee to reach its conclusions.

RECOMMENDATIONS

1. Scope of levy of service tax on Goods Transport Agency (GTA)

1.1 The Committee observes that as per the provisions of the Finance (No. 2) Act, 2004, any service provided to a customer, by a goods transport agency, in relation to transport of goods by road in a goods carriage is a taxable service and that a goods transport agency means any commercial concern which provides service in relation to transport of goods and issues consignment note, by whatever name it is called. As per the Finance Minister's Budget Speech 2004, there is no intention to levy service tax on truck owners or truck operators.

1.2 For the sake of clarity and for the purposes of implementation of the service tax levy, the Committee recommends the following definitions and principles. The terms used in this report shall be construed accordingly,

(a) Goods Transport Agency :

Any commercial concern which (is common carrier under the Carriers Act, 1865 and) books the goods for transportation by road, issues consignment note and provides value added services over and above the mere carriage of the goods be called the goods booking agency. The Committee is of the view that it can appropriately be called as 'Transporter or Transport Company' and thus, recommends that suitable changes in the nomenclature, in the Act, may be considered at the appropriate time.

For this purpose value added services means, any services provided for the material being transported under consignment note over and above the mere carriage of goods. These services include activities such as booking & delivery, handling, temporary storage, consolidation, packing support, documentation, logistics support or any other service for which payment is made as part of the gross freight by the consignor/consignee.

(b) Consignment note :

This is the document issued against the receipt of goods, to the sender of the goods and contains the details of (a) the material being booked; (b) transportation (from/to) thereof & (c) the indication of the onus of liability of payment of service tax to the government i.e. whether on (i) Consignor or consignee or (ii) Goods transport Agency. The Committee recommends that the issuance of this document should be made mandatory for booking of material for transportation by road under the Carrier Act and that this document should be serially numbered. However, till such time the said Act is modified, the requirement can be provided under the service tax laws or by way of instructions.

(c) Truck Owner :

Any organization/person who possesses the vehicle by virtue of ownership, under lease/hire agreement etc and is responsible only for affecting the carriage of goods and is not required to issue the consignment note. The truck owner can alternatively be called the truck operator also.

(d) Truck Broker :

Any person or organization that acts as a conduit between the transport company and truck owner. The truck broker may alternatively be called the introducer or supplier. His services are part of the gross services provided by the Goods Transport Agency.

(e) Booking/Delivery Agent :

Any concern/person who is acting as agent of the transport company in lieu of a branch to carry out the functions of the booking or delivery or both on basis of some consideration. His services are part of the gross services provided by the Goods Transport Agency.

(f) Gross Freight :

The total charges payable by the consignor/consignee to the goods booking agency for any service provided for the material being transported.

(g) Mere Freight :

It is the major component of gross freight which accounts for the mere carriage of the goods and does not include the charges for the other services.

(h) Central Office : The head office or regional accounting offices of the goods transport agency where all the necessary documents and records are available for the accounting purpose for all the branches under it. The jurisdictional central excise/service tax office where such central office of alls under shall be the registering office for service tax purposes.

(i) Billing document : This is the document on which the consignor/consignee pays the gross freight to the goods transport agency. This document to be issued by goods transport agency, should clearly show the consignment note number/numbers on which the material/materials has /have been transported, gross freight and also the service tax applicable. This document can be delivery receipt or bill/invoice or money receipt or any other document depending upon the nature of transportation as per the accounting system/procedure followed by a goods transport agency.

2. The modalities of service tax collection

2.1 The Committee takes note of the fact that transport sector faces problems of illiteracy, unorganized nature, involvement of multiple players etc. It has also observed that in majority of cases, transportation by road is of commercial goods and that in many cases the consignor or/ and the consignee of such goods are in the organized sector. Being indirect tax, service tax burden is ultimately borne by either the consignor or the consignee (whosoever bears the freight cost). Therefore, the Committee is of the view that in case the consignor or the consignee, bearing the freight, is in the organized sector, the burden of tax payment can be shifted on to such persons paying freight charges and the same can be collected directly from them. This would lessen the responsibility of tax collection and payment and observance of procedural formalities, of operators in the transport sector to a large extent, while it would not cast any additional burden on the consignee, who in any case has to bear the burden of the tax. Such consignors/ consignees, being in the organized sector, the level of tax compliance is also expected to be high Considering all these facts, the Committee recommends that in case of such transport of goods by road where either the consignor or the consignee falls under one of the following categories, the liability to pay service tax should not be on the goods transport agency but should be on the person (i.e. consignor or the consignee) making payment towards freight charges, -

Any Factory registered under or governed by the Factories Act, 1948
Any company established by or under the Companies Act, 1956;
Any corporation established by or under any law;
any society registered under Societies Registration Act, 1860 or under any law corresponding to the Act in force in any part of India;
Any co-operative society established by or under any law;
Any dealer of excisable goods, who is registered under the Central Excise Act, 1944 or the rules made thee under; and
Any body corporate established or a partnership firm registered by or under any law.

2.2 As for the transportation involving such consignors or consignees, the Committee recommends that the liability to collect and deposit service tax should be on the 'goods transport agency'.

3. Registration

3.1 The Committee notes that it is a legal requirement under the service tax law for the person liable to pay service tax to get himself registered. Thus, it recommends that it should be clarified by the Ministry/Department that persons liable to pay service tax (as per para 2) should only get themselves registered with the jurisdictional authorities. for example, if a goods transport agency, transports goods that are mentioned in para 2.1 only (and thus, no tax liability is cast on such transporter), it need not get itself registered with the Department.

3.2 In case the goods transport agency has Central Office/Offices, it can register itself centrally for that office or such offices, which maintain the accounts. The Committee recommends that instructions should be issued to the jurisdictional Commissioners to invariably allow such registration, in terms of rule 3A of the Service Tax Rules, 1994.

4. Documentation.

The Committee notes that in term of rules 4A of the Service Tax Rules, 1994, every person providing taxable service is required to issue invoice bill. The Committee recommends that for transport of goods by road, the Billing document should be treated as such invoice, bill or challan.

5. Movement of goods

5.1 The Members from the transport sector brought it to the notice of the Committee that the truck owners and especially the truck drivers are exposed to checking and resulting harassment en route. One of the main fears in the minds of the transporters is that imposition of service tax would aggravate this problem and that the vehicles would be stopped on the way to check the service tax payment/invoice. The transporters are also apprehensive of the fact that all their regional/branch/sub-ordinate offices have to be registered with the authorities and all such small offices would be exposed to visits, questioning and harassment by the officers. They also fear that authorities would ask for past details of business transactions and would book the transporters for penal action for their bona fide errors and omissions. Some of the members felt that in cases where the activity of transportation is sub-contracted to other parties, there should be clear directions that on the principle transporter undertaking to pay service tax, the sub-contractor should not be fastened with duty liability for the same consignment.

5.2 The Committee is of the opinion that the goods transport sector should be given adequate assurance that the imposition of service tax would not cause harassment. The cases of infringements of tax compliance and procedural infractions should be given a sympathetic view unless they are on account of fraud, misstatements and suppression of material facts. Thus the Committee makes the following recommendations to ensure smooth movement of transport of goods by road.

a) Government should issue instructions that unless there is information/intelligence about deliberate evasion of service tax, no vehicle should be stoped en route for verification of service tax compliance. Such verification if at all carried out, should be under explicit authorization, on case to case basis from an officer not below the rank of a Commissioner. In such cases, the vehicle and the goods should be released immediately after obtaining photocopy of transport documents. Further verification of service tax compliance should be made with the office registered with the Department.

b) In case the central office of a transport company is registered with the department for payment of service tax, no independent enquiries, verification or audit checks should be carried out of the subordinate offices of such goods transport agency, unless it is based on information/intelligence about deliberate evasion, and such checks/verification etc. is authorized by an officer not below the rank of a Commissioner. All queries, notices or scrutiny of records, if required, should only be made at the registered office by the departmental office/offices having jurisdiction over such central office. The registered offices, would however, be subjected to audit checks as per the guidelines of the government.

c) The service tax authorities shall not call for/verify record pertaining to period prior to imposition of service tax levy on goods transport, unless the same are in connection with cases booked under customs or central excise laws against some customers of the transporters. It should also be clarified that no service tax is leviable for goods transport services provided by the goods transport agency for the period prior to imposition of service tax levy.

d) In case of omission in payment of service tax or procedural lapses by persons liable to pay service tax on goods transport by road, committed before 31st December, 2005, the consequences should be limited to recovery of tax with interest payable thereon. No penalty should be imposed on such defaulters unless the default is on account of deliberate fraud, suppression of facts or misstatement.

e) There should be explicit clarification to the effect that if service tax due on transportation of a consignment has been paid or is payable by the principal, service tax should not be charged for the same consignment from any other person, such as the Booking/Delivery Agent, Truck broker, Truck owner or the Sub-contractor of such principal, on the ground that the actual act of providing service (or collection of freight charges) has been performed by such persons.

f) It may be clarified that there is no need for any departmental authentication of any document.

6. Taxable value

The Committee noted that transport sector has to bear a number of taxes for running the vehicles and for carrying goods by road. In addition fuel, spares etc. are the main running expenses. While credit of excise duty paid on excisable inputs can be availed for payment of service tax, practically it is not possible for the transport sector to avail of such credit. Further, no set off is available towards the other taxes borne by the transporters. Also the truck owners/operators are not liable for the payment of service tax and cannot avail Cenvat credit on inputs and capital goods. In this regard the Committee recommends that whosoever is liable to pay service tax on transport of goods by road, should be allowed abatement towards items such as, fuel/spare parts, toll taxes/local taxes etc. Taking into account all the cost elements and the abatements given to sectors providing similar services, the Committee recommends an abatement of 75% on the gross freight amount charged. The abatement would, however, be subject to condition of non-availment of Cenvat credit on input goods and capital goods, and non-availment of exemption to goods sold during the course of provision of service etc. The credit of taxable services would, however, be available to the assessee claiming such abatement.

7. Exemption to transport of certain goods

The Committee has taken note of the fact that certain goods and certain consignments like local movements of goods to be kept out of service tax net. In this regard the Committee recommends that in the following cases services provided by the goods transport agency may be exempted from service tax :

(a) where the gross freight chargeable on consignments carried in a vehicle does not exceed Rs. 1500 or where the gross freight in respect of individual consignment does not exceed Rs. 750 ;

(b) any consignment of fruits, vegetables, eggs, milk and sand (without any value limit)
Such exemption would however not apply in cases where the liability to pay service tax is on the consignor/consignee who have to pay the service tax directly, as recommended earlier in para 2.1

8. Implementation of levy : The government has announced that the levy of service tax on transport of goods by road would come into effect after the rules and the notifications are framed taking into consideration the recommendations of this Committee. The Committee is of the view the government should take into account the fact that transport sector (which includes players in the organized sector as well as unorganized sector) and the other stake holders may require some time for adjusting themselves to face the levy and the procedural requirements. Considering these facts, the Committee recommends that a reasonable time, say two months, should be allowed to the transport sector and other persons who become liable to pay the tax, after such rules and notifications are issued. In effect, the Committee recommends that the service tax levy should come into effect after reasonable period of the rules/notifications are issued in this regard.

9. Other issues raised by individual members but were not recommended by the Committee

There were few issues which were raised by individual members but were not accepted for recommendation by the Committee for various reasons which are recorded here under.

a) Few members of the Committee suggested for the inclusion in the category of "Any person who is registered. "Any person covered under the statutory audit in terms of the Income tax law" under the list of the category of the consignor/consignee who are required to pay the service tax directly as defined in the paragraph 2.1. They felt that this would eliminate to the large extent the possibility of any tax evasion and also eliminate the need for the small transporters/Goods transport agency to get registered in the service tax. However, the Committee appreciated the practical problems in implementing the same and decided not to recommend the inclusion of this category for payment of service tax directly.

b) Few members suggested that Good Transport agency should only be taxed for the value added service provided by them, which are services over and above the mere carriage of goods. The mere freight which is exempted in the hands of the truck owners/operators, should be excluded from the gross freight payable to the Goods Transport agency for calculation of the service tax value. They Presented data and examples to show that this service constitutes, on an average, only 5% to the gross freight. However, the Committee observed that the law allows abatement for the input costs like fuel/spare part or taxes and the recommendation for abatement for the same has already been given.

c) All the members of AIMTC were of the strong view that vehicle owners having up to 4 vehicles should be exempted from the service tax even if they book the goods (except for the categories of consignor/consignee which pay the service tax directly as defined in the paragraph 2.1). They felt that this would give relief to small truck owners who undertake booking as well as carriage of goods. However, the committee decided that the recommendations contained in paragraph 1 to 8 of this report adequately address the issue and there is not need to make further recommendations in this regard the alternative suggestion of the AIMTC members was prescription of a reasonable threshold limit of value of turnover, below which there should be service tax exemption. The Committee pointed out that threshold exemption based on value of turnover is not given under the present service tax provisions in general and thus cannot be considered at this stage for transport sector. However, if and when government decided to give exemption based on threshold for service tax in general, the same should be extended to the transport sector also.

d) Some members also wanted that the goods, which are fully exempted in sales tax/Vat in the state of booking station, should be exempted from service tax. It was felt that by the same logic by which the Government has exempted these categories from the sale tax, these materials should also be exempted from the service tax. This will tremendously help the small traders. However, the Committee felt that this type of exemption would be difficult to administer and therefore cannot be recommended.

(S.K. BHARDWAJ)
(CHAIRMAN OF THE COMMITTEE)

(S.S. BEDI)
(MEMBER OF THE COMMITTEE)

(O.P. AGARWAL)
(MEMBER OF THE COMMITTEE)

(S.K. SINGAL)
(MEMBER OF THE COMMITTEE)

(BABA SAHEB DHUMAL)
(MEMBER OF THE COMMITEE)

(MAHENDRA ARYA)
(MEMBER OF THE COMMITTEE)

Dated : October 27, 2004.

F.No. 341/13/2004-TRU (Pt)

Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs

Dated : September 10, 2004

ORDER

Subject : Committee to look into appropriate mechanism/modalities for collection and payment of service tax on Goods Transport Agency-reg.

In terms of the minutes of the meeting between representatives of Transport Industry and Department of Revenue, held on 27th August, 2004, the Ministry of Finance, Department of Revenue, has decided to set up a Committee for the purposes of looking into appropriate mechanism/modalities for collection and payment of service tax on Goods Transport Agency which has been imposed vide the Finance (No. 2) Bill, 2004. Accordingly, the Committee is constituted as under :

To identify "commercial concerns" which will be liable to collect and pay service tax.

To suggest draft rules and notification to give effect to the modalities for collection and payment of service tax

To suggest suitable methods (by way of abatement, credit etc.) for arriving at the taxable value of the services.

Suggest any other measure for smooth and effective implementation of service tax on goods transport agencies.

3. The proposed Terms and Conditions of the Committee are as follows

The Committee shall submit this report/recommendations on issues referred to in the 'terms of references' as early as possible, but not later than 26th October, 2004, to the Secretary (Department of Revenue), Ministry of Finance, New Delhi

During its deliberations, the Committee can, with the approval of the Secretary-General, make field visits, consult, take opinion or discuss relevant issued with the stake holders and other persons as deemed fit.

The Committee can interact with departmental officers, field formations. In case interaction with the Central Board of Excise & Customs is required during deliberations or finalisation of report/recommendations, the Committee may do so through the Members (Service Tax), Central Board of Excise and Customs New Delhi, who would be the nodal officer for this purpose.

The modalities of holding deliberations, meetings, visits required for the functioning of the Committee would be decided by the Committee itself, preferably during its first meeting.

The non official members of the Committee would be entitled to TA/DA as per norms.

(Anupam Prakash)
Under Secretary to the Government of India

F.No. 341/18/2004-TRU (Pt)

Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs

Dated : October 14, 2004

ORDER

Subject : Committee look into appropriate mechanism/modalities for collection and payment of service tax on Goods Transport Agency-reg.

Undersigned is directed to refer to the order issued from F.No. 341/18/2004-TRU (Pt) dated 10th September, 2004 constituting a committee to look into appropriate mechanism/modalities for collection and payment of service tax on Goods Transport Agency.

2. The constitution of the Committee, as mentioned in the said order, stands amended as under :

The 'Terms of Reference and the 'Terms and Conditions' shall remain as enumerated in order dated 10th September, 2004.

(Anupam Prakash)
Under Secretary to the Government of India