Appropriate GST tax on GTA service under Reverse charge

AN ANALYSIS ON ISSUE OF APPLICABILITY OF IGST/CGST/SGST ON GOODS TRANSPORTATION SERVICES BY GOODS TRANSPORT AGENCY UNDER REVERSE CHARGE MECHANISM UNDER GST LAW

Case : A goods transport agency (GTA) registered in Maharashtra state (hereinafter referred to as GTA-Maharashtra) accepts booking of goods from local person for delivery of such goods to a person registered in Rajasthan state on to-pay freight basis. GTA-Maharashtra issues a consignment note and transport such goods to a another GTA, registered/unregistered in Rajasthan (hereinafter referred to as GTA-Rajasthan)  for delivery of goods to concerned recipient in accordance with the terms agreed between them. GTA-Rajasthan issues a invoice in the name of recipient and collects freight from the recipient on actual basis in terms of consignment note issued by the GTA-Maharashtra. GTA-Rajasthan, in addition to freight charges, also recovers delivery charges or whatever name it may be called and CESS from the concerned recipient towards delivery of goods.    

Issues : Which GST tax will be applicable on total payment made to GTA-Rajasthan comprising freight in terms of consignment note (bilty) issued by GTA-Maharashtra and additional delivery charges, Cess etc against an invoice raised by him under reverse charge mechanism?

Or

Whether SGST and CGST will be applicable on total amount paid to GTA-Rajasthan; or

whether only IGST will be paid on total amount paid to GTA-Rajasthan; or

Whether IGST would be payable on freight and CGST/SGST on balance amount being delivery charges, CESS etc under reverse charge mechanism in the hands of recipient.  

 (Note: Here, we are not discussing the inclusion of Cess in taxable value and also applicable GST rate on total amount charged by a GTA-Rajasthan under both forward and reverse charge mechanism under GST Law which will be discussed through separate paper on these issues.)

Analysis: The given case is based on most general practice followed by goods transport agencies in the course of supplying its Goods transportation services. Involvement of one more Goods transport agency as to accomplishment of said service has created a lot of confusion in the mind of practitioners as well as tax payers regarding applicability of appropriate tax under the GST law. An attempt has been made by the author to analyze the given practical situation in the light of current provisions of GST law and implication thereof in regard to payment of appropriate goods and service tax being IGST,CGST and SGST.

First of all, let us understand the position of GST law in respect of applicability of IGST/CGSTS/SGST on Goods transport agency services.

As per the section 5(1) of IGST Act, 2017, IGST would be levied on all inter-state supply of goods or service or both. Further as per section 9(1) of CGST/SGSTS Act, 2017, CGST/SGST would be levied on all intra-state supply of goods or service or both. What would constitute a supply as inter-state supply or intra-state supply? This matter has been dealt in the provision of section 7 and section 8 of IGST Act, 2017 which define the Inter-state supply and intra-state supply respectively.

As per section 7(3) of IGST Act, 2017, in case of supply of service, where location of supplier and place of supply are in two different states or in two different union territories or one in a state and other in union territory, such supply would be regarded as inter-state supply and accordingly IGST would be applicable. Conversely, in terms of provision of section 8(2) of IGST Act, 2017 if location of supplier of service and place of supply are in the same state or in same union territory, then such supply would be treated as intra-state supply and accordingly CGST and SGST would be charged.

Here two terms are very important, first is ‘location of supplier’ and second is ‘place of supply’ in case of supply of service. Both terms have been defined under IGST Act, 2017. Section 2(15) defines the term ‘Location of supplier’ which means, inter alia, where supply is made from place of business for which registration has been obtained, such place of business will be the location of supplier. Section 12 of the IGST Act, 2017 provides the criteria for determining the place of supply where location of supplier and recipient is in india (which is the given case). Sub section 8 of section 12 specifically provides manner of determination of place of supply in case of transport of goods services. According to it, in case of supply of transportation of goods to a registered person, location of such person shall be the place of supply.

If we apply above criteria in the given case, location of place of business of GTA-Maharashtra being registered in Maharashtra would be the location of suppliers. Section 2(93) of CGST/SGST Act, 2017 also defines the term “recipient” of supply of goods or services or both which means, inter alia, where consideration is payable for the supply of goods or services of both the person who is liable to pay consideration. In given case, goods are transported on to-pay basis and freight is actually paid by the recipient of goods registered in Rajasthan. The recipient of goods is therefore recipient of service and his location being registered in Rajasthan would be the place of supply.

In order to analyze the applicability of particulars tax, we need to break up the given transaction/supply in to two different supplies. One is supply of GTA service by GTA-Maharashtra to recipient of goods through another GTA-Rajasthan. Second one is supply of service of delivery of goods which is ancillary to GTA service by GTA-Rajasthan to recipient of goods.  It may be better understood through table given below:-

In first entry, since location of supplier and place of supply are in two different state, hence IGST would be applicable in accordance with the provision of section 7(3) of IGST Act, 2017. In second entry, both location of supplier and place of supply are in the same state, CGST and SGST would accordingly be applicable by virtue of provision of section 8(2) of IGST Act, 2017.

This view is also supported by the mechanism of filing of returns under GST law. In first entry GTA-Maharashtra would declare its outward interstate supply to recipient registered in Rajasthan attracting reverse charge in GSTR-1 which is reflected as it is as inter-state inward supply of recipient of goods in GSTR-2A. It would thus being interstate inward supply be liable for IGST under reverse charge mechanism in the hand of recipient of goods registered in Rajasthan. In second entry, presuming GTA-Rajasthan is also registered in Rajasthan and accordingly liable for filing of returns under GST law, GTA-Rajasthan would declare his outward intra-state supply only to the extent of services of Goods handling and delivery thereof to the recipient of goods attracting reverse charge in GSTR-1 which would in same way be reflected as intra-state inward supply in GSTR-2A making recipient liable for payment of CGST and SGST as applicable on such supply under reverse charge mechanism.

In the opinion of author, it is advisable to discharge liability of IGST/CGST/SGST as discussed hereinabove in details otherwise wrong payment of tax would not only make person liable for payment of appropriate tax leading in unnecessarily blocking of fund but also require to go through the process of claiming of refund of tax wrongly paid provided same is not adjustable against the liability in future. 

 – By CA Lalit Talesara

Disclaimer: The content of this document are solely for informational purpose. It does not constitute any recommendation of author. the author does not accept any liabilities neither for any loss or damage of any kind arising out of any information in this document nor for any actions taken in reliance thereon. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. No part of this document should be distributed or copied (except for personal, non-commercial use) without our written permission.

Our views expressed herein above are based on the facts and personal interpretation of law. No assurance is given that the revenue authorities/courts will concur with the view expressed herein. Author’s view are based on provision of GST law and its interpretation, which are subject to change from time to time. We do not assume any responsibility to update the view consequent to such changes.