Logistics industry has a critical role to play in the manufacturing industry and trading activities. It is considered as backbone of the economy. In simple words logistics can be considered as movement of goods from point of origin to point of consumption. After raw materials cost, transportation cost is major one to play critical role in fixing the price. Logistics activities involves loading, unloading, packing, storage, warehousing and transportation. The new tax reform GST reduces the transportation cycle times, enhance supply chain & turnaround time, lead to consolidation of warehouses, etc. Removal of inter-state check posts is most advantageous to the industry to improve the efficiency in terms of transportation and reaching destination. It has already been 3 years since the introduction of GST in India. In this article, the author explains the basic understanding on taxation of transportation sector and addresses the critical issues being faced by the Logistics Industry under GST regime.
For better understanding approximate cost elements or breakup of cost involved for one trip of transportation are as follows (4018 Trailer, capacity 45MT taken as base) :-
|Cost elements for trip||% of cost (100)|
|Direct Manpower driver & cleaner salary, food, boarding||15-20|
|Depreciation, Spares, Maintenance of vehicle||10|
|Any other expenditure||3|
Taxability of important transportation services under GST are as follows:-
|Nature of service||Rate||Condition|
|Transportation of goods by rail||5%||ITC on goods can’t be utilised|
|Transport of goods in containers by rail by any person other than Indian Railways.||12%||ITC can be availed|
|Transportation of goods by vessel||5%||No ITC on goods. ITC can be availed only on vessels, ships, etc.|
|Transportation of goods by road where consignment note is issued (i.e. GTA services) (RCM)||5%||No ITC on goods and services|
|Transportation of goods by road where consignment note is issued (i.e. GTA services) (Forward Charge)||12%||ITC eligible|
|Multimodal transportation of goods||12%||ITC eligible|
|Loading, unloading, storage and warehousing/cargo handling services||18%||ITC eligible|
|Other supporting, incidental or ancillary services||18%||ITC eligible|
Various exemptions available to transportation industry are as follows:-
|Nature of service|
|Transportation of specified goods by rail like agriculture produce, milk, salt and food grain including flours, pulses and rice|
|Transportation of specified goods by GTA like agriculture produce, milk, salt and food grain including flours, pulses and rice|
|Hiring of motor vehicle to GTA as means for transportation of goods|
|Transportation of goods by road where consignment note is not issued|
|Services by way of transportation of goods by a vessel from India to Foreign Country|
|Transportation of goods by an aircraft or vessel from custom station of clearance in India to a place outside India|
|Services by way of transportation of goods by an aircraft from a place outside India upto the customs station of clearance in India.|
|Specific exemptions in relation to loading, unloading, storage and warehousing of rice & storage & warehousing of cereals, pulses, fruits, nuts, vegetables, etc.|
|Services provided by a goods transport agency to an unregistered person other than specified category like factory, Body corporate, etc.|
|GTA services provided to Government and its departments|
Issues facing by Logistic Industry in GST regime:
1) Major raw material for the logistic industry is petrol and diesel. Taxes (i.e. ED, VAT and CST) being paid on petrol and diesel is becoming cost to the industry as those are out of the purview of GST.
2) Both the State & Central Governments despite crude oil prices reduced drastically, increasing the both VAT & Excise Duty on petrol & diesel enormously to augment revenue.
3) Either the Governments should reduce VAT & Excise Duty on petrol & diesel considering the reduction in Oil prices or should bring the petroleum products into GST net. This will reduce lot of burden on this industry and saves some cash flows to industry.
4) Enforcement authorities treating every transportation as GTA services ignoring the ‘GTA’ definition in GST Law and demanding the GST. It is clear in GST Law that wherever consignment note is not required to be issued as per Industry practice or where consignment is not issued such transportation is not liable for GST. CBIC should sensitize the field formations about this issue, as their understanding is going contrary to legislative provisions & issue is well settled by many judicial precedents though there are contrary views.
5) Hiring of vehicle to another GTA service provider is specifically exempted from GST. However, industry practice requires the hirer to charge the consideration per Kilometre per ton basis. This is to ensure safe delivery, no loss of goods and convenient mode for calculating the consideration. The GST department since the consideration charged on per kilometre basis, they are not treating the service as hiring service and issuing the show cause notices.
6) GTA service is covered under reverse charge, thereby service provider is not eligible for credits due to deeming fiction in draconian definition of ‘exempt service’ in Section 17 of GST Act, 2017. On one hand Government is levying GST on the GTA service though under RCM on the other hand denying the credit to supplier. Service providers incurring lot of GST on purchase of vehicle, spare parts, insurance, repair & maintenance services and other office overheads. This is leading to huge cascading effect.
7) Recently GST officers started the investigation on levy of GST on life taxes, all India permits, and other permits paid by transporters to Government. This is also leading to huge cascading effect. Both the State & Central Government, Statement of reasons & objects in Constitutional Amendment Bill for GST assured removal of cascading effect with introduction of GST. However, Celebrations in special session of Parliament on launch of said tax regime mean nothing to assesses if the Government imposing the tax on tax.
8) Though the Board Circulars & various court decisions are vogue, GST officers are treating transportation service coupled with loading & unloading as cargo handling and demanding the GST @18% instead of 5%.
9) Loading & unloading services part & parcel of transportation services and liable for [email protected]%. Waiting time charges, detention charges, bonus and any other incidental charges are also liable for tax @5%.
10) There is an option for transportation service provider to charge GST @12% for all his transportation services & avail the ITC. Since some of industries like liquor, power & petroleum products not been covered in GST, these buyers are not allowing the transporters to charge GST @12% accordingly transporters who opted for 12% rate, they are losing the business opportunities. The Government should identify some solution for this problem. Solution could be lesser rate of tax say 5% for transportation services provided to above sectors.
11) The Government through their enforcement is milking more revenue from those service providers who are paying the full tax honestly to Government. There are transporters availing the full ITC and charging GST @12% to customers. Whenever the ITC exhausts, such transporters are issuing the invoices showing liability under reverse charge. This is complete disregard of legislative provisions. With this, honest transporters who are complying the law are losing the business and it is affecting their economic standing and throughout from business due to high competitive marketing.
12) Typically, all service providers in this industry would involve in providing small portion of exempted supplies (i.e. transportation of goods without issuing consignment note, transportation of agriculture produces…. etc). GTA service @5% itself is treated as exempted service in GST. Resultantly ITC availed on goods and services would become common ITC and compliance of Rule-42 & 43 will arise. Compliance with Rule-43 would be needed much efforts, beyond competence of average intelligence person and time consuming.
13) Further mockery of mobile squad officer when there is discrepancy or typographical error in E-way is causing lot of problem to transporter because vehicle is halted and required to wait for hours.
14) Sometimes officers are seizing the vehicle also for legal violations of seller & buyer of goods. This penalty is not commensurate with technical non-compliances (Ex:-non-production of a lorry receipt by the person in-charge of vehicle) made by transporter.
15) GST paid on transportation under RCM is eligible for credit though it is paid under RCM.
16) Place of supply for Storage services would be as per Section 12 (2) of IGST Act and not as per Section 12 (3) of IGST Act i.e. Storage service can’t be treated as a service which has direct relationship with immovable property.
17) Sale of customer’s abandoned goods (even under auction) would be covered under the definition of supply and GST liability needs to be discharged.
18) GTA opting for GST rate of 5% under RCM for transportation services do not absolve the GST liability on sale of used trucks. However, with respect to sale of old trucks concessional rates prescribed under notification no 08/2018-CGST (Rate).
19) Credit can be availed on the passenger transport vehicles modified and used for goods transportation. For example, Innova used for transportation of medicine which requires refrigeration.
20) It is suggested to allocate the capital assets to State-wise. Issue would arise if the capital asset invoiced to one State, registered in other state and actual usage happens in some other State.
21) Care should be taken with respect to cross billing in case single invoice raised to ultimate customer for the various services provided by various branches.
22) Exemptions are provided for the transportation of specified categories of goods provided by rail and road. Entry for multimodal transportation was inserted in the rate notification later on but no such corresponding entry has been made in the exemption notification. This could lead to the interpretational issues and exemption could sought to be denied to multimodal transporters (providing rail +road) citing that the exemption is eligible only when such services are provided separately.
23) Once the transporter chooses to charge tax @ 12%, he is not allowed to charge tax @ 5% for future supplies. There could be many instances where the customers could be different where some of those could prefer supply @ 12% whereas others could be willing to pay tax under RCM @ 5%. Transporter should be given freedom to charge tax at either rate based on the customer requirement on case to case basis instead of blanket requirement of charging only at single rate. Reversal of ITC could be made under Rule 42/43 w.r.t. supplies made under RCM.
24) Restriction in making supplies both under forward charge (12% with ITC) as well reverse charge (5% without ITC) is not available. However, the restriction whether qua vehicle or qua registered person or qua person at PAN level has been haunting entire industry.
25) Transporters engaged in providing services from multiple States face challenges as to the location from where invoices should be raised. They should be provided option to raise invoice from single State as there are divergent practices followed across industry as to choosing States for raising invoice and sometime the selection is made at their convenience.
26) Vehicles taken from other transporters for temporary purposes but normally the trade practice does not entail maintenance of any agreement/contract between the parties. There is always interpretational issues as to whether vehicles supplies by such other transporter is covered under exempted services “services by way of giving on hire to a GTA, a means of transportation of goods” or “services of transportation of goods by road except the services of GTA” (covered under entry no. 22 and 18 of exemption notification respectively). Considering the prevalent trade practice in the unorganised sector, blanket exemption should be provided for providing vehicles by any mode between two transporters so that there is no need to determine RCM liability for recipient in all cases.
27) Indian Railway had been charging tax (till Sep 2019) on the transportation of agricultural produce etc on the understanding that the transportation undertaken by them is in the nature of transportation of containers. This was leading to the unnecessary cost for the industry. Indian Railway should give credit note to the customers wherever within time limit. In other cases, the transporters should be allowed refund of tax wrongly charged by Indian Railway without bureaucratic hurdles.
28) Indian Railway has still taken stand to charge tax on some of the components of the rail transportation of agri commodities disregarding the concept of composite supply resulting in cost escalation. It should be relooked to ensure that the benefit is actually passed on.
29) Transporters do not have proper documented understanding with the consignor and consignee for raising of E-way Bill. This create dispute between them in case the vehicles/goods are seized or confiscated.
30) Transporters located across multiple States have been facing serious challenges of cross charge (if applicable) considering that the recipient location has invariably exempted supplies (for ITC purpose) and this creates the valuation issues and increased cost for business.
31) The place of supply for the cargo meant for export has been made the place of destination of such goods. However, the recipient of such services located in India makes payment in INR and thus the services may not get covered in the definition of export of services. This is leading to suppliers charging tax on all such supplies even after amendment and thus defeating the objective of the amendment. Such services should be made zero rated to avoid accumulation of ITC (or possibly denial being POS different from that of recipient State) with the exporters.
32) GTA services provided to importer through CHA poses question as to the person liable to pay tax under RCM. This could lead to unintended non-compliance at both the ends.
33) The definition of agricultural produce is very vague under GST law and subject to interpretation. It may not be accepted from the transporters to understand the complexity of the definition. Error in understanding the definition could have serious consequences for transporters especially paying tax under FCM.
This transportation industry is facing operational difficulties like high unskilled labour turnover, inconsistency in diesel pricing, continuous increase in toll charges, excessing regulations & heavy penalties by Motor Vehicle Authorities, pathetic conditions of roads in India leads to high maintenance cost. This transportation industry is providing lot of employment in the unorganized sector. Also contributing to Government huge quantum of taxes in form of procurement of diesel and GST on vehicles etc. CBIC should take the above sector on priority basis, train the field formulation on GST provisions & its intent & issue suitable circulars clarifying various issues. So that officers follows law & procedure, collects only legitimate taxes and unnecessary litigation will reduce.