Clarity Regrading the Applicability of RCM on Freight
The applicability of RCM on Freight has brought a great deal of confusion for some people in understanding exactly in what situations the RCM liability under Section 9 (3) of the CGST and SGST Act and under Section 5 (3) of the IGST Act arises and in which cases this Section is not applicable and accordingly the Services Provided are under the Category of Exempt Services as Services by way of transportation of goods by road except the services of(i) a goods transportation agency (ii) a courier agency are exempt from GST - Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7- 2017.
It becomes quite significant as whether GST is required to be Charged or not as where it falls under Exempt Category or Not.
The Following needs to be understand by first understanding the Applicability of RCM under GST.
Reverse charge under notification - Section 9(3) of CGST and SGST Act and section 5(3) of IGST Act state that Government can specify categories of supply of goods or services or both, the tax on which is payable on reverse charge basis. The tax thereon shall be paid by the recipient of such goods or services or both. All the provisions of this Act shall apply to such person as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
Services like Advocate services, Goods Transport Agency Services (GTA), insurance agent services. Import of services are notified for reverse charge under these provision. Some goods are also covered under reverse charge.
GTA Charging 12% Tax Under Forward Charge
It is quite clear already that if the Supplier of Services is:-
Supply of Services by a goods transport agency (GTA) in respect of transportation of goods by road to - (a) any factory registered under or governed by the Factories Act, or
(b) any society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India; or
(c) any co-operative society established by or under any law; or
(d) any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or
(e) anybody corporate established, by or under any law ("Body Corporate"
And the GTA charges GST in his tax invoice and pays IGST @12% [or CGST @ 6% plus SGST/UTGST @ 6%], the recipient is not liable to pay GST under reverse charge w.e.f. 22-8-2017.
GTA who are having their own vehicles and have huge Input Tax Credit on capital goods may find the option useful. This option may also be suitable for freight forwarders who are providing composite services of packing, clearing and transportation from source to destination basis.
These might be most prominent situations where GTA will opt for this option.
This is the Concept where GTA is opting to pay Tax under Forward Charge.
GTA is unregistered or does not charge GST in his invoice
If GTA is unregistered or does not charge GST in his invoice, the recipient is liable to pay IGST @ 5% [or CGST @ 2.5% plus SGST/UTGST @ 2.5%]
As explained above this is the General Understanding however the lack of Clarity exists when it comes to understanding as to what constitutes as a GTA. This needs to be understood after obtaining Clarity by understanding the Word GTA as defined as per the Relevant Law.
As per Section 65B (26) of the Finance Act, 1994; "Goods Transport Agency means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called". Therefore, in the Service Tax regime, issuance of Consignment Note (C/N) was integral and mandatory requirement before any road transporter could be brought within the ambit of GTA.
GTA has been defined as per the GST law as "Goods transport agency" means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called - para 2 of Notification No. 12/2017-CT (Rate) and No. 9/2017-IT (Rate) both dated 28-6-2017, effective from 1-7-2017.
However the emphasis needs to be made on the Word Consignment note is neither defined in the Act nor in the notification no.12/2017-Central Tax (Rate). Guidance can be taken from the meaning ascribed to the term under the Explanation to Rule 4B of Service Tax Rules, 1994. In terms of the said rule, consignment note means a document, issued by a goods transport agency against the receipt of goods for the purpose of transport of goods by road in a goods carriage, which is serially numbered, and contains the name of the consignor and consignee, registration number of the goods carriage in which the goods are transported, details of the goods transported, details of the place of origin and destination, person liable for paying service tax whether consignor, consignee or the goods transport agency.
This leads to the Misconception that The issuance of a consignment note is the sine-qua-non for a supplierof service to be considered as a Goods Transport Agency. If such a consignment note is not issued by the transporter, the service provider will not come within the ambit of goods transport agency. If a consignment note is issued, it indicates that the lien on the goods has been transferred (to the transporter) and the transporter becomes responsible for the goods till its safe delivery to the consignee.
However as the case law of K.M. Trans Logistics (P.) Ltd, it was held that consignment note is only a document by which responsibilities and rights are reduced in writing and its non-issuance does not affect rights of parties, hence GST on services provided by Goods Transport Agency cannot be avoided by mere non-issuance of consignment note.
BRIEF FACTS OF THE CASE
The appellant M/s. K.M. Trans Logistics (P.) Ltd., Jaipur, Rajasthan are registered under GST Law with GSTIN 08AACCK0420F1Z4 and engaged in providing transport services to various manufacturers of motor vehicles for carrying their vehicles from the factory to the various cities in India where the authorised dealers are located.
The appellant is having registered office at Jaipur. The appellant stated that the goods will be transported using its own vehicles/lorries under E-way Bill Rules but there will be no generation of consignment note and therefore, is claiming that the services are out of the purview of GST and will categories as non-taxable service.
The appellant filed an application dated 12-6-2019 before the Rajasthan Authority for Advance Ruling and sought Advance Ruling on the following questions:—
- Does Transportation by own vehicles on the basis of Invoice(s) and E-way Bill without issuing the consignment note by the Appellant Transporter will covered under exempted supply/non-GST supply.
- (ii) Does rule 42 of the CGST Rules, 2017 will also apply in case where there is GST and Non-GST Supplies and there is a common consumption of input and input services? 3.3 The Rajasthan Authority for Advance Ruling, vide Advance Ruling No. RAJ/AAR/2019-20/19, dated 29-8-2019, have decided the aforesaid application, wherein it has been held that— (i) The appellant is a registered GTA Service provider under GST and is not exempted from paying GST. (ii) Where the goods or services or both used by the registered person partly for effecting taxable supplies including zero-rated supplies and partly for effecting taxable supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies as per provisions and procedure prescribed under section 17(2) of GST Act read with rule 42 of GST Rules, 2017.
- Aggrieved by the aforesaid Ruling (i) above, the appellant has preferred the present appeal before this forum.
BRIEF EXPLANATION ABOUT THE IMPORTANT ASPECTS OF THE CASE
As mentioned under Notification No. 11/2017-Central Tax (Rate) dated 28-6-2017 (as amended from time to time) "goods transport agency" (GTA) means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called. We find that, a consignment note is a document issued by a GTA against the receipt of goods for the purpose of transporting the goods by road in a goods carriage. Where a consignment note is issued, it implies that the lien on the goods has been transferred and the transporter of the goods becomes responsible for transportation of the goods till its safe delivery to the consignee. In such a situation, consignment note or any other document, by whatever name called, is simply a document showing the responsibility of the transporter and the rights of the persons for whom the goods are transported. By implication, it means that the transporter undertakes the responsibility to transport the goods and promises safe delivery of the goods at the destination. A consignment note is only a document by which the responsibilities and rights are reduced in writing and, therefore, existence or for that matter, absence of the said document cannot have any adverse effect on the responsibilities or rights as agreed between the parties.
We find that the appellant is claiming on its official website (www. kmtrans.in) that they are serving about 90% of car makers viz. Maruti Suzuki, Toyota, Tata, Hyundai, Mahindra etc., are having Fleet Size of 1250, 35 branch offices, 32 loading stations, 80 service support. From this, it is clear that the appellant transporter is not from unorganized sector of transporters and has a vast network all over India for transportation of goods. They are providing services to various manufacturers of motor vehicles involving transportation of motor vehicles which are carried from the factory to the various cities in India where the authorised dealers are located. In this process of transportation, two types of services either by way of activity described as goods transport agency services or by way of rental services of transport vehicles can be provided. In the instant case of the appellant, if the lien of the goods is transferred and the appellant becomes responsible for the goods till its safe delivery to the consignee, the services will be classifiable as goods transport agency services and issuance of consignment note or its nonissuance does not make any difference so far as the nature of the activity carried out by them is concerned. Mere non-issuance of the consignment note in such cases does not make them entitled for exemption from payment of GST.
In view of the above discussion, we find that the services to be provided by the appellant will be liable to payment of GST as specified under Notification No. 11/2017- Central Tax (Rate) dated 28-6-2017 (as amended) read with exemption Notifications, under the services relating to transportation of goods or rental services of transport vehicle including supporting service, depending upon the exact nature of activity to be carried out by them.
This creates a huge impact on the interpretation as now each and every case will have to be judged on the relevant facts individually and a general understanding that not raising the Consignment note leads to not becoming a GTA will not be applicable.
DISCLAIMER: The views expressed are strictly of the author and SAMYAK R JAIN AND ASSOCIATES. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.
The author can also be reached at acasamyakjain@gmail.com
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