22 June 2016
A ltd is purchasing raw materials from" B traders"... and B charges cost of freight in its invoice... Also B issues a excisable invoice under rule 11 of CER 2002..
Now who is liable to pay ST and TDS on such frieght ?
02 August 2024
When dealing with freight charges in the context of a purchase of raw materials and an excise invoice issued under Rule 11 of the Central Excise Rules, 2002, both Service Tax (ST) and Tax Deducted at Source (TDS) considerations come into play. Here's how these are typically handled:
### **1. Service Tax on Freight**
**Liability to Pay Service Tax:**
- **Nature of Service Tax:** Service tax on freight is applicable if the freight charges are related to the transportation of goods and fall under the taxable services category.
- **Excise Invoice under Rule 11:** Rule 11 of the Central Excise Rules deals with the issuance of an invoice by an excise manufacturer. If B Traders issues an excise invoice including freight charges, this invoice is used to claim credit for excise duties.
- **Responsibility:** As per the service tax rules, if the freight charges are included in the invoice, then **A Ltd** (the buyer) is liable to pay the service tax on those freight charges if the service tax is applicable.
### **2. Tax Deducted at Source (TDS) on Freight**
**TDS Applicability on Freight Charges:**
- **TDS under Income Tax Act:** TDS on freight is governed by Section 194C of the Income Tax Act, which deals with payments to contractors. Freight charges are often covered under this section when the payment is made to a transporter or contractor for providing transportation services.
- **Responsibility for TDS:** In this case, **A Ltd** (the purchaser) is required to deduct TDS on freight charges if the payment for the freight is made to a transporter or contractor who is providing transportation services.
- **Threshold Limit:** TDS is applicable if the freight charges exceed the threshold limit specified under Section 194C. The TDS rate is typically 1% (if the transporter is an individual/HUF) or 2% (if the transporter is a company).
- **Deduction:** **A Ltd** must deduct TDS at the prescribed rate and deposit it with the government. The deducted amount should be reflected in the TDS certificates issued to the transporter.
### **Summary of Responsibilities:**
- **Service Tax:** - **Liable to Pay:** **A Ltd** (the purchaser) must pay service tax on the freight charges if service tax is applicable. - **Invoicing:** The service tax on freight should be mentioned in the invoice issued by **B Traders**, and **A Ltd** needs to ensure that this service tax is paid as per the applicable rates.
- **TDS:** - **Liable to Deduct and Deposit:** **A Ltd** is responsible for deducting TDS on the freight charges if it is paying the freight to a transporter or contractor. This deduction is made as per Section 194C of the Income Tax Act. - **Rate of TDS:** TDS rate is 1% or 2% depending on the status of the transporter. Ensure to check the current threshold limits and rates applicable for the financial year.
### **Action Points for A Ltd:**
1. **Verify Service Tax Applicability:** Confirm whether service tax is applicable on the freight charges and ensure payment is made as required.
2. **Deduct TDS:** Deduct TDS on the freight charges as per the Income Tax Act provisions and deposit it with the government. Issue TDS certificates to the transporters or contractors.
3. **Documentation:** Maintain proper documentation of the service tax payments and TDS deductions for compliance and audit purposes.
For specific advice tailored to your case and to ensure compliance with the latest regulations, consider consulting a tax professional or legal advisor.
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