[Opinion] GST on Goods Transportation Agency (GTA) – A Guide

Dipak Nandkumar Joshi – [2022] 140 taxmann.com 375 (Article)

1. Introduction

The levy of Tax on Goods Transportation Agency (GTA) services has always remained subject matter of uncertainty and litigation. The Finance Act, 1997 levied Service Tax on Goods Transport Operators w.e.f. 16-11-1997 for the first time. However, after the nation-wide strike, levy of service tax was withdrawn by the government. Levy of service tax was imposed on Transport of Goods by Road service rendered by any goods transport agency with effect from 10-09-2004. However, the levy was again postponed in view of transporters strike. The Government thereafter constituted a committee to study the matter and finally levy of tax on Transport of Goods by Road was made effective with effect from 01-01-2005. However, the liability to pay the tax was shifted on the head of the service recipient who is receiving such service and paying freight. Paradigm of taxation was changed from the selective list of services to negative list w.e.f. 01st July, 2017. Service Tax law provides abatement on the payment of service tax of 70% i.e. Service Tax was payable only on the 30% value of GTA services. GST law was introduced w.e.f. 01st July, 2017 with the blend of Central Excise, Service Tax and VAT law. During the initial period, tax on GTA services was subject to payment of tax under reverse charge mechanism. However, w.e.f. 22-08-2017 an option to pay tax at the rate of 12% [6% plus 6%] with input tax credit has been given to the GTA. The paradigm of taxation on GTA services is set to be change w.e.f. 18th July, 2022.

2. Meaning of GTA Services

The terms GTA has not been defined under GST Act, 2017, GST Rules. It is presently defined under the Notification No. 12/2017-Central Tax (Rate) and Notification No. 9/2017-Integrated Tax (Rate) both dated 28-6-2017. According to para 2 of said notification “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. However, the term consignment note is not defined under the said Notification. As the entry brought from the erstwhile service tax law, reference of the consignment can be taken therefrom.

As per Explanation to Rule 4B of Service Tax Rules, 1994; 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. It is worth to note that mere bill issued for transportation of goods cannot be treated as a Consignment Note. In the case of Nandganj Sihori Sugar Co. v. CCE [2014] 47 taxmann.com 92/46 GST 570 (New Delhi – CESTAT), it was held that consignment note issued by GTA represents its liability to – (a) transport consignment handed over to it to destination (b) undertake delivery of same to consignee and (c) temporarily store till delivery.

Goods transport operator (GTO) are kept outside the purview of GST. GTO is a self-employed person/driver either by taking vehicle on rent from other or as owner of one or two vehicles, he does not issue any consignment note. Exemption is given to GTO vide Notification No 12/2017 Central Tax (rate) dt 28th June, 2017.

3. Present system of taxation of GTA

Presently, GST is leviable on GTA services under both reverse charge mechanism and forward charge mechanism at the option of GTA. GTA service is classified under land transport services of goods by road under SAC code 996511 and GST is payable at the rate of 5% without ITC or 12% with ITC. Originally, supply of services by goods transportation agency were subject to the payment of tax under RCM vide Notification No. 13/2017-CT (Rates) and 10/2017-IT (Rates) both dated 28-6-2017, effective from 1-7-2017. However, w.e.f. 22-08-2017, GTA has allowed to pay tax at the rate of 12% under the forward charge mechanism. Option to pay GST at the rate of 12% is normally exercised by those GTA, who are having good amount of ITC or by a freight forwarder who in addition to GTA services providing composite services such as packing, clearing and transportation from source to destination basis. In all other cases, liability on transportation of goods by GTA is born by the recipient. Liability to pay tax under reverse charge mechanism is defined under Notification No. 13/2017-CT (Rates) and 10/2017-IT (Rates) both dated 28-6-2017. According to said Notification liability to pay tax under RCM is in the hands of recipient in case supplier of service is GTA and supply of services by a GTA by way of transportation of goods by road is given to –

(a) any factory registered under the Factories Act, 1948
(b) any society registered under the Societies Registration Act, 1860 (21 of 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) any body corporate established, by or under any law; or
(f) any partnership firm whether registered or not under any law including association of persons; or
(g) any casual taxable person.

The provision of reverse charge by registered person is not applicable where Government department, local authority or Government Agency is registered under GST only for purposes of TDS under section 51 of CGST Act. Notification No 12/2012 CT (Rate) and Notification No 09/2017 IT (Rate) also provide for certain exemptions in case of transportation of goods by road by GTA as follows-

(a) agricultural produce
(b) goods, where consideration charged for the transportation of goods on a consignment transported in a single carriage does not exceed Rs. 1,500
(c) goods, where consideration charged for transportation of all such goods for a single consignee does not exceed rupees seven hundred and fifty
(d) milk, salt and food grain including flour, pulses and rice
(e) organic manure
(f) newspaper or magazines registered with the Registrar of Newspapers
(g) relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; or
(h) defence or military equipment

Apart from the above, GTA services provided to the Government department, local authority or Government Agency where registration by said entity is taken only for purposes of TDS under section 51 of CGST Act are also exempted from the payment of GST.

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