13 July 2012
My Client is a Pvt. Ltd Company, it deals in supplying Iron-ore which it procures from other companies.
The company doesn't have a service tax registration.
My problem is that, the company is not deducting any amount of service tax from the payment made to the Transporter. For additional information, the transporter is providing the consignment note with all the details filled up and the freight amount is not shown separately, the consignment note only contains the quantity and the Invoice amount.
Further the transporters has not provided any Bill for the year FY 11-12, but a lump sum amount on an ad-hoc basis has been paid and final settlement along with the bill is pending.
I was auditing its account and this thing has came to my notice and the accountant says that this is their every year practice and no one has raised any objection till now.
If the above treatment is correct then can anybody please explain me why ?
And if its not correct what can be the possible solution to it.
Thanking you in advance, your concern will be highly appreciated.
13 July 2012
Mr Mayank Saroagi, As soon as the service provider,ie.the transporter,completes the service,he should raise an invoice on such services within 14 days and ST becomes payable at that time . If the service provider receives any advances,during and after the service,before an invoice has been submitted,such receipts become taxable immediately(see rule 3 and rule 6 ST rules) for reference.Here the procedure followed by the company in not making tds is wrong and it attracts penalty and interest also.See www.aces.gov.in for more details.
13 July 2012
Thank you sir for replying, indeed even my opinion too was that this procedure followed by the company is wrong, but before coming to any conclusion i wanted to get confirmed, thinking may be i am missing out on some points. And the company is not deducting TDS because the transporter has furnished its PAN, so is it okay ?
04 August 2024
It appears that your client, a Pvt. Ltd Company dealing in iron ore, is not deducting Service Tax on freight inward and is also not deducting TDS on payments to transporters. Here’s a detailed explanation regarding the issues raised:
### **1. **Service Tax on Freight Inward:**
#### **Legal Requirements:**
- **Service Tax Applicability:** Service Tax on freight (transportation services) is governed by the Finance Act, 1994. Typically, service tax on transportation services is the responsibility of the service provider. However, the rules can vary based on whether the service provider is registered or not.
- **Reverse Charge Mechanism:** Under the reverse charge mechanism (RCM), the recipient of the service (i.e., your client) is liable to pay service tax instead of the service provider. This applies when the service provider is not registered or the service is provided by a transporter.
#### **Considerations:**
- **Service Tax Registration:** Even if the company does not have a service tax registration, it is still liable to pay service tax under RCM if applicable.
- **Freight Inward:** If the transporter is providing services that are covered under the reverse charge mechanism, the company should have paid the service tax directly to the government.
#### **Possible Solutions:**
- **Determine Applicability:** Verify if the services provided by the transporter are covered under RCM and if the company is liable to pay service tax under this mechanism.
- **Payment and Documentation:** If applicable, the company should have paid the service tax on freight inward and documented it properly. Since the transporter did not provide a bill, the company should still compute and pay service tax based on the amount of freight paid.
- **Rectification:** If service tax is applicable, the company should rectify this by paying the service tax amount and filing the necessary returns, including Form ST-3 for service tax.
### **2. **TDS on Payments to Transporters:**
#### **TDS Provisions:**
- **Section 194C:** Under Section 194C of the Income Tax Act, TDS is required to be deducted on payments made to contractors or subcontractors for carrying out any work, including transport contracts. This is applicable if the payments exceed the threshold limit.
#### **Considerations:**
- **PAN Furnished:** Even if the transporter has provided their PAN, TDS needs to be deducted if the payments exceed the specified limit and the transporter is not covered under any exemption.
#### **Possible Solutions:**
- **Verify TDS Requirements:** Check the threshold limits for TDS on payments to transporters under Section 194C and ensure compliance.
- **TDS Deduction and Payment:** Deduct TDS at the applicable rate and deposit it with the government. Issue a TDS certificate to the transporter.
### **Summary and Actions:**
1. **Service Tax:** - **Confirm Liability:** Check if the reverse charge mechanism applies to freight services. - **Pay and Document:** If applicable, pay the service tax and document it properly. File the necessary returns.
2. **TDS:** - **Verify TDS Requirement:** Ensure that TDS should be deducted based on the payments made and applicable limits. - **Deduct and Deposit TDS:** Deduct TDS as required, deposit it with the government, and issue a TDS certificate to the transporter.
### **Additional Points:**
- **Consultation with a Tax Expert:** Given the complexity of service tax and TDS regulations, consulting with a tax professional or chartered accountant is advisable for accurate compliance.
- **Record Keeping:** Maintain thorough records of payments, service tax payments, and TDS deductions to avoid future issues.
By addressing these issues promptly, you can ensure compliance with tax regulations and avoid potential penalties.
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