A Quick Understanding on Reverse Charge Mechanism (RCM) on Goods Transport Agency (GTA) Services
It has been more than a couple of years since GST was launched on 1st July 2017 but the organisations are yet to get settled down and adopt it with full clarity. Since the time GST was rolled out, there have been numerous amendments and also there is a fair amount of lack of clarity in the interpretation of some of the provision of the Act; the provision related Reverse Charge Mechanism (RCM) on Goods Transport Agency (GTA) is one of such subjects on which taxpayers have queries all the time even now.
Though the subject of Reverse Charge Mechanism (RCM) on Goods Transport Agency (GTA) is not new, still in this article we would try to discuss & understand this topic in a layman manner so that we can have the requisite clarity about the related provisions of the Act.
What are the GTA Services?
As per Notification No. 11/2017- Central Tax (Rate) dated 28th June, 2017, “goods transport agency” or GTA means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called. This means, while others might also hire out vehicles for goods transportation, only those issuing a consignment note are considered as a GTA. Thus, a consignment note is an essential condition to be considered as a GTA.
Applicability of Reverse Charge Mechanism (RCM) on GTA Services
We know that GST is application of freight paid for the transportation of goods on reverse charge basis. But before we go into the detailed discussion lets list down few of the queries which come to our mind whenever there is the question of the applicability of RCM of GTA services:
1. Cases when RCM is applicable and applicable on freight for the transportation of goods and when it’s not applicable?
2. When GST is payable on freight for the transportation of goods on forward charge basis?
3. When GST is not applicable on freight charges?
Now to make the understanding of the subject, let’s us go through into the related provisions step by step. First of all, lets refer to the Notification No. 13/2017 of Central Tax (Rate) dated 28th June 2017 as amended from time to time which deals with the Reverse Charge Mechanism RCM). The item 1 of this notification states that the whole of GST leviable on under section 9 of CGST Act 2017, shall be paid on reverse charge basis by the recipient of supply of services by a goods transport agency (GTA) in respect of transportation of goods by road to:
1. any Factory registered under or governed by the Factories Act, 1948
2. any Registered Society
3. any Co-Operative Society established by or under any law; or
4. Any Company
5. any Partnership Firm.
6. Association of person.
7. any GST registered person.
So, if the GTA services are provided to person mentioned above (a-g), the recipient of the such DTA services would be liable pay GST on Reverse Charge basis. It’s to be noted that Individuals & HUF recipients are left out from the applicability of RCM unless they are registered under GST Act.
The rate of tax on such GTA Services under RCM basis would be 5%.
When the tax payable on GTA Services is under RCM basis, the supplier of such services is not eligible to avail any input tax credit in relation to the provision of such services and it had created a huge issue immediately after the roll out of GST in 2017. These suppliers themselves get a large amount of taxable supplies and also capital goods etc chargeable to GST at the rate as high as 28%. The goods transport industry representatives requested the government to allow GTA to charge GST on forward charge basis as well and on their representations the government issued the Notification No. 20/2017-Central Tax (Rate) 22nd August, 2017. This notification provides that if the goods transport agency opts to pay the tax on forwards charge basis then, such GTA would be liable to pay central tax @ 6% on all the services of GTA (including used household goods for personal use) supplied by it. So, the tax rate on GTA services on forward charges basis was fixed @12% (6% CGST & 6% SGST).
If GTA opts to charge tax on forward charges basis then the service provider & services recipient, both would be eligible to get the input tax credit.
Now let’s us go through into provisions related to GTA service when it would be exempt from any GST levy and for this, we have to refer to the Notification No. 12/2017 of Central Tax (Rate) dated 28th June 2017. The entry number 21 of this notification states that freight charges in India is would be exempt from GST for the followings:
1. Transport of agricultural produce
2. Transport of milk, salt, food grains including rice, flour, pulses
3. Transport of organic manure
4. Transport of newspapers or magazines registered with the Registrar of Newspapers
5. Transport of relief materials for victims of natural or man-made disasters, calamities, accidents or mishaps
6. Transport of defence or military equipment
7. Transport of any goods, where the gross amount charged for transportation for a consignment transported in a single carriage does not exceed Rs. 1,500.
8. Transport of any goods, where consideration charged for transportation of all such goods for a single consignee does not exceed Rs. 750.
One more exemption was allowed vide Notification No. 28/2018- Central Tax (Rate) (a) dated 31st December 2018 which states that freight charges in India is would be exempt from GST for the followings:
1. Department or Establishment of the Central Government or State Government or Union territory; or
2. local authority; or
3. Governmental agencies
which has taken registration under the Central Goods and Services Tax Act, 2017 (12 of 2017) only for the purpose of deducting tax under Section 51 and not for making a taxable supply of goods or services.
There are large number of business & organisation who either deals in exempt goods only or don’t have to get themselves registered. If such entities avail any GTA services where the amount consideration charged for transportation exceeds the limit of Rs. 1500/Rs.750 as the case may be, then such service recipients should try to avail services from GTA who charges GST under forward charge basis, otherwise they would be liable to get the GST registration and pay GST under RCM.
One very frequent query is that a taxpayer is liable to pay GST on GTA services on RCM basis, how should it treat such supply, inter-state or intra state i.e. What should the taxpayer charge under RCM CGST+SGST or IGST? For this we should know that ‘Place of Supply” for such services. To know this, we have to refer to Section 12 of IGST Act which says that the Place of Supply for services by way of transportation of goods, including by mail or courier would be as follows:
|Recipient||Place of Supply|
|Registered Person||Location of Registered Recipient|
|Unregistered Person||Location where such goods are handed over for the transportation|
Effective from 01st February 2019 an amendment has been brought in Section 12(8) of IGST Act 2017 and the amendment has inserted the following proviso:
Provided that where the transportation of goods is to a place outside India, the place of supply shall be the place of destination of such goods.
We can understand the above with few simple examples given below.
Example 1- Satyam Electronics registered in Delhi hires ABC Carriers, a goods transportation company based in Delhi for the transportation of goods.
Place of supply: Delhi (the location of registered person)
GST Applicable under RCM: CGST+ SGST (intra-state)
Example 2- Satyam Electronics registered in Delhi hires ABC Carriers, a goods transportation company based in Mumbai for the transportation of goods.
Place of supply: Delhi (the location of registered person)
GST Applicable under RCM: IGST (inter-state)
Example 3: Amit on his transfer from Chennai to Delhi, handed over his household items to ABC Carriers, a goods transportation company based in Chennai to transfer such materials to Delhi.
Place of supply: Chennai (Location at which such goods are handed over for their transportation)
GST Applicable under RCM: CGST+SGST.
Example 4: A registered person M/s ABC Limited in India during the export of goods to Bangladesh has entered into a contract with a GTA located in India to transport goods by road.
Place of Supply: Post the amendment to Section 12(8) of IGST Act, the place of supply for service provided by the GTA shall be the destination of goods i.e. Bangladesh and not the location of M/s ABC Limited or the location of the supplier of M/s ABC Limited in India.
Accordingly, because the place of supply of service is outside India and supplier is located in India, it shall be treated to be a supply in the course of inter-state trade or commerce [Section 7(5)(a) of IGST Act].