Option to GTA to discharge tax @ 5% 

The Government has always experienced resistance when it comes to levying an indirect tax on the transportation services supplied by a Goods Transport Agency (GTA). A smart way was therefore found in the pre-GST era by way of shifting the liability on the recipient of the services rather than collecting the tax from the provider of the services. By doing this the Government gets its revenue without any resistance from the GTA industry. In fact, GTA should be credited with the birth of the reverse charge regime in our country. With the implementation of GST, the old thinking of taxing the given services under reverse charge continued. However, to allow the GTA to avail of the input tax credits, an option was given to them to discharge tax @ 12% (with availment).

Now vide Notification No. 3/2022–CT (Rate) dt. 13.07.2022 an amendment has been made to the parent rate notification (NN 11/2017 – CT (Rate)) to provide an option to GTA to discharge the tax under the forward charge mechanism (FCM) by way of charging and collecting the tax through a tax invoice even @ 5% (without ITC). Hence w.e.f. 18.07.2022 the following options shall be available for discharge of the tax on the GTA services:

Changes Related To GTA - More Options And More Issues

Method of discharge of the tax Person   liable to pay the tax Rate  of tax Remarks
RCM Recipient 5% No change in the existing scheme. GTA cannot avail of any ITC if the recipient is made liable to pay the tax under RCM.
FCM GTA 12% GTA can continue to avail of the ITC
5% GTA cannot avail of any ITC

The amendments also contain the following important aspects:

1. The option by GTA to itself pay GST on the services supplied by it during a Financial Year (either @ 5% or 12%) shall be exercised by making a declaration in Annexure V on or before the 15th March of the preceding Financial Year. The said declaration is required to be submitted before the jurisdictional GST

2. The option for the Financial Year 2022-2023 shall be exercised on or before the 16th August, 2022. The invoice for the supply of the service charging the tax under FCM may be issued during the period from the 18thJuly, 2022 to 16th August, 2022 before exercising the option for the financial year 2022-2023 but in such a case the supplier shall exercise the option to pay GST on its supplies on or before the 16th August,

3. GTA exercising the option to discharge tax under FCM (5% or 12%) is required to state the following declaration in the invoice:

“Declaration 

I/we have taken registration under the CGST Act, 2017 and have exercised the option to pay tax on services of GTA in relation to transport of goods supplied by us during the Financial Year under forward charge.”.” 

Issues

Inward supplies received by GTA for their business are mainly in the nature of purchase/lease of trucks and repairs & maintenance of such trucks. It may be noted that ITC is available to GTA if it opts to pay the tax under FCM @ 12%. ITC is blocked only if either GTA opts to pay the tax under FCM @ 5% or the recipient is made liable to pay the tax under RCM @ 5%. Now the aforesaid amendment on one hand stipulates that the option of payment of tax under FCM is required to be selected at the beginning of the FY and cannot be changed during the said FY, however it permits changing of the option to pay the tax even though under the FCM @ 5% or 12% at a different time or even the same time for different supplies. Hence consider a situation where a GTA before the beginning of the FY opts to pay the tax under FCM and initial for say six months pays the tax @ 12% (with ITC) and then decides to pay the tax @ 5% (without ITC). It may be noted that from the perspective of the recipient of the GTA services the situation is neutral since the recipient shall be eligible for the ITC (5% or 12%) subject to other general conditions in law.

In such a situation the supplies made @ 5% (by virtue of paragraph (iv) of NN 11/2017 – CT (Rate)) are treated as exempt supplies warranting application of Sec. 17(2) of the CGST Act, 2017 read with Rule 42/43 of the CGST Rules, 2017 in terms of undertaking the determination of the restricted ITC. However, these provisions appear to apply only for the availment of the ITC during the period wherein the GTA opts to pay tax @ 5%. What shall happen to the ITC availed during the period when the GTA paid tax @ 12%? The provisions contained under the said paragraph (iv) do not appear to apply to the present situation. Also, the provisions contained u/s 18(4) of the CGST Act, 2017 (that provides for the payment of a certain amount (based on ITC availed) when a taxable supply is declared wholly exempt) do not appear to apply to the present situation. Further, the GTA can utilize the accumulated ITC to discharge the tax payable @ 5% in absence of any such restrictions in the law. It is therefore suggested that GST Council must address this issue to avoid litigation.

Other changes 

Vide Notification No. 04/2022-CT (Rate) dt. 13.07.2022 the value-based exemption where consideration charged for the transportation of goods on a consignment transported in a single carriage does not exceed Rs. 1500/- or where consideration charged for transportation of all such goods for a single consignee does not exceed Rs. 750/- have been omitted w.e.f. 18.07.2022. Hence the tax shall be payable in such situations.

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One Comment

  1. NAVEEN says:

    As per client instructions need to bill 6+6=12% under RCM, client will claim ITC because he is manufacturer, shall we continue the same why should we opt FCM
    For other client charging 5% (interstate) under RCM
    Both are different hence why should GTA opt FCM … suggestions please
    Both are

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