In terms of Sr. No. 1 of paragraph 1 of Notification No. 13/2017- Central Tax (Rate) dated 28.06.2017, Central Government had earlier notified the applicability of reverse charge on GTA by providing that Supply of Services by a goods transport agency (GTA) in respect of transportation of goods by road to- Specified category recipient*1 shall fall under reverse charge.
Further Paragraph 1 of Notification No. 11/2017- Central Tax (Rates) notifies central tax rates for services subject to condition mentioned there in the notification.
Sr No. 9(iii) of that para had prescribed 2.5 % Central Tax rate for Services of goods transport agency (GTA) in relation to transportation of goods (including used household goods for personal use) with the condition that “credit of input tax charged on goods and services used in supplying the service has not been taken”. Thus the effective rate for GTA was 5% with no ITC to the transporter.
Then there arises a question, what if a person do not wish to comply with these conditions on restriction of ITC, meaning thereby one wish to claim full ITC with no concession on rates i.e. discharge of GST on Standard rates of 18%?
The aforesaid question has now been resolved by the Government by issuing series of notifications on 22nd August, 2017, along with some new twist which has been created by amending reverse charge provisions on GTA.
In terms of Notification No. 20/2017 – Central Tax (Rate) dated 22nd August, 2017, Central Government has amended Notification No. 11/2017 – Central Tax (Rate) relating to the rates for supply of services under CGST Act. In para (iii) of that notification, Government has allowed an option to pay GST at the central tax rate of 6% (With Full ITC) on “Services of goods transport agency (GTA) in relation to transportation of goods (including used household goods for personal use)”. But in order to avail the option to pay pay GST at 6%, a new condition has been prescribed which reads as follows: “Provided that the goods transport agency opting to pay central tax @ 6% under this entry shall, thenceforth, be liable to pay central tax @ 6% on all the services of GTA supplied by it”.
The primary consequence of the aforesaid condition is that, if a GTA will willing to avail credit of Input Tax, then he needs to discharge GST on his own by charging the same in its Invoices by following normal charge mechanism instead of shifting the GST liability on Service Recipient. To give effect to this condition, the central government has amended notification no. 13/2017– Central Tax (Rates) by issuing a Notification No. 22/2017- Central Tax (Rates) dated 22nd August 2017.
In terms of Para (i) of the Notification No. 22/2017- Central Tax (Rates) dated 22nd August 2017, Supply of Services by a goods transport agency (GTA) who has not paid central tax at the rate of 6% in respect of transportation of goods by road to- Specified category recipient shall fall under reverse charge mechanism.
Thus henceforth, there are two options available to the trade & Industry to discharge GST liability in case of Transportation of goods by road by GTA:
Option No. 1: Pay 5% GST with restriction of ITC to transporter:
In Case of Supply of Services by a GTA to a specified category recipient, tax needs to be discharged by the recipient by following Reverse Charge Mechanism. In this case, although credit of input tax will be denied to GTA, but there is no such denial of credit to the person paying tax under reverse charge.
In other cases (i.e. supply of services by a GTA to person other than specified category recipient), tax will be discharged by the GTA at the aggregate rate of 5% with no credit of input tax paid by him.
Option No. 2: Pay 12% GST with no restriction on ITC to transporter (With no Reverse Charge Mechanism)
Here the provision relating to reverse charge will be lapsed. The aggregate tax @ 12% needs to be discharged by the transporter by following normal provisions of law. Further the transporter can avail full credit of input tax paid by him in this case.
Thus effectively, the provisions relating to levy of Goods and Services Tax on Goods Transporting Agency has been twisted by allowing multiple option with more flexibility to them.
Note: *1 Specified category recipient for the purpose of this write up means:
(a) Any factory registered under or governed by the Factories Act, 1948(63 of 1948); or
(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; located in the taxable territory.
(Disclaimer: This write up is based on the understanding and interpretation of author and the same is not intended to be a professional advice.)
[The author is a Chartered Accountant and can also be reached at firstname.lastname@example.org]