Whitepaper - Goods
Transport Agency Tax
Paying Liability
Ms. Radha Arun, Consultant to Udyog
Software (India) Ltd.
This document contains a study on the Goods Transport
Agency: What is it, and who is liable to pay service tax
on its service
Udyog Software (India) Ltd.
Hyderabad, Telangana, India
July 01, 2015
Goods transport agency: What is it, and who is liable to pay service tax on its service
Service tax on transportation of goods by road has never been a smooth ride. It was
first introduced in 1997 as tax on ‘goods transport operator’ and withdrawn the next
year because of stiff resistance from the transporters. Again it was introduced in 2004
after inputs from the Bharadwaj committee. In its present form it is a tax on the
service of ‘goods transport agency’ (GTA), collected (in most cases) from the
recipient of the service.
As repeated audit objections raised by the departmental service tax audit teams
show, several modalities of road freight service are fraught with uncertainty as to
whether they are taxable or not and if taxable, who is liable to pay the tax. This
paper examines the concept of GTA and who is liable to pay service tax on the service
of GTA under the reverse charge mechanism.
Goods transport: what is taxable and what is on the negative list
Negative List Entry:
The negative list of services in section 66D of the Finance Act 1994 includes an entry
at clause (p)(i) as follows:
(p) services by way of transportation of goods –
(i) by road except the services of –
(A) a goods transportation agency; or
(B) a courier agency.
This establishes that services of transport of goods by road, except for transport by a
courier or a GTA, are strictly not liable to service tax.
What is GTA
The definition of GTA is found in section 65B(26) of the Finance Act 1994, as follows:
(26) “goods transport agency” means any person who provides service in
relation to transport of goods by road and issues consignment note, by
whatever name called;
This definition is identical to the definition in section 65 (50b) ibid under the pre-July
2012 provisions. Thus a GTA, whether under the negative list regime or prior to it, is
identified by the fact of issue of consignment note. We shall return presently to the
significance of ‘consignment note, by whatever name called’, which is the focus of
many disputes between the assessee and the service tax department.
What is Courier
Goods are also transported by road by courier for urgent delivery, and this too
attracts service tax. Courier agency is defined in section 65B(20) as follows:
(20) “courier agency” means any person engaged in the door-to-door
transportation of time-sensitive documents, goods or articles utilising the
services of a person either directly or indirectly, to carry or accompany such
documents, goods or articles;
This definition too remains the same in the negative list regime as in the prior period.
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Wednesday, 01 July 2015
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Difference in tax treatment between GTA and courier
It is important to distinguish between transport by courier and GTA because the
courier pays service tax and collects it from the customer, while the service tax on
GTA is paid by the customer under reverse charge.
GTA: Reverse charge on person liable to pay freight
Under section 68 of the Finance Act 1994 the service provider normally pays the
service tax, but in case of particular services as notified, the Rules can prescribe that
a person other than the service provider will be liable to pay the service tax. Thus, to
bring reverse charge into effect, the service to which it will apply must be specified
in a notification, and the Rules must prescribe the person who will pay service tax.
Accordingly, notification 30/2012-ST names GTA as a service liable for reverse charge;
and rule 2(1)(d)(B) of the Service Tax Rules 1994 defines “person liable to pay service
tax” in respect of GTA as the person liable to pay the freight, if such person is
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in the taxable territory (i.e., India excluding Jammu & Kashmir) and
is a factory,
o a registered society,
o a cooperative society,
o an excise-registered dealer of excisable goods,
o anybody corporate established under law,
o any partnership firm whether registered or not and
o Including an association of persons.
If the person liable to pay freight is in a non-taxable territory (e.g. J&K), then the
transporter becomes liable to pay the service tax.
Thus, subject to the above, generally the entity that is liable to pay freight is also
liable to pay the service tax on freight. This covers entities that are liable to pay the
freight directly or through an agent.
Meaning of ‘person liable to pay freight’:
The wording in Rule 2(1)(d)(B) of the Service Tax Rules 1994, which defines the
‘person liable to pay service tax’ for GTA service, is
“any person who pays or is liable to pay freight either himself or through his
agent for the transportation of such goods by road in a goods carriage”.
This raises all manner of questions and disputes over whether the consignor or
consignee is liable to pay the service tax.
Recovery of freight charges in the invoice
In many cases the price is quoted inclusive of transportation charges; freight is paid to
the transporter by the consignor of the goods and recovered from the customer as a
line item on the invoice. The consignor may interpret this as a situation of the
consignee being liable to pay freight, while the consignee sees it as reimbursement to
the consignor. The upshot is that neither of the two pays service tax. It is seen that
the service tax authorities take an expedient view on this, depending on whether it is
the consignor or consignee who is the assessee before them.
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Privity of contract
The rule fixes liability for service tax on the “person who pays or is liable to pay
freight”. Though it does not say “liable to pay freight to the transporter”, the very
meaning of freight is a charge paid to the transporter for transport of goods. The
person who engaged the transporter is the person who has privity of contract with him
and is liable to pay him.
In a batch of cases of Sumangalam Suitings and others versus CCE Jaipur, ST/959973/2009, the goods were sent from Nepal and the freight recovered by the consignor
from the consignee in India. The department treated the Nepal party as agent of the
consignee for payment of freight and demanded service tax from the consignee.
Rejecting this stand, the CESTAT struck down the demand with the following
observations:
 To determine who is the person who is liable to pay service tax on GTA services
under section 68(2) read with the Service Tax Rules, we have to identify the
person who engaged the transporter and was liable to pay freight to the
transporter;
 The consignor who engaged the transporter and paid him cannot be treated as
agent of the consignee unless there is evidence in this regard;
 The contract of the consignee with the consignor was for supply of goods;
 The fact that the consignor arranged transport was strictly incidental to the
supply of goods;
 Mere fact of billing of the freight by the supplier to the customer did not make
them the agent of the customer or make the customer liable to pay service tax.
In short, the consignee had received goods, not GTA service. The case is reported in
the website of the CESTAT and can be accessed from
http://judis.nic.in/dist_judis/Cestat_Delhi/Retrieve/CaseNo_Qry.asp by entering the
bench as ‘Delhi’, subject matter as ‘service tax’ and appeal number as 959 of 2009.
It follows that reimbursement of freight to the consignor of the goods cannot create
liability of service tax on the consignee, unless the consignor was explicitly asked to
arrange and pay for the transport on behalf of the consignee.
Consignment note: significance
The reverse charge liability for service tax on GTA means that every entity that
transacts business with a transporter for sending or receiving goods by road has to
make a determination of whether it has received GTA service. The identifying factor
of the GTA is the consignment note. However, rule 4B of the Service Tax Rules 1994
confuses matters by stipulating that
“Any goods transport agency which provides service in relation to transport of
goods by road in a goods carriage shall issue a consignment note to the
recipient of service.”
This looks like a circular definition of GTA, in which the GTA is one that issues
consignment note and the GTA has to issue consignment note.
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What is a consignment note:
However, the ‘Explanation’ to the said rule 4B saves the situation. It defines what is
meant by consignment note:
“Explanation. – For the purposes of this rule and the second proviso to rule
4A, “consignment note” means a document, issued by a goods transport agency
against the receipt of goods for the purpose of transport of goods by road in a
goods carriage, which is serially numbered, and contains the names of the
consignor and consignee, registration number of the goods carriage in which
the goods are transported, details of the goods transported, details of the
place of origin and destination, person liable for paying service tax whether
consignor, consignee or the goods transport agency.”
This definition makes it clear that a consignment note is to be issued against the
receipt of goods for transport. Thus, a person who receives goods for transport by
road in a goods carriage is a GTA. He must issue a consignment note for receipt of the
goods.
Consignment note is required only when GTA takes custody of goods
It follows that if a person undertakes transport without receiving custody of the
goods, he does not issue a consignment note and is not a GTA. This position was
clearly enunciated by the CESTAT in appeal number ST/30/2011 in the case of Birla
Ready Mix versus CCE Noida. In that case service tax was demanded from the
appellant as recipient of the service of transportation of goods by road by GTA. The
appellants, manufacturers of ready mix concrete, had hired transit mixers for taking
the goods to the site and paid for the same. Payment was based on kilometres run. A
clause in the contract required the vehicle operator to obtain proper receipts from
the customer upon delivery. Upon examination of the terms of the contract, the
CESTAT observed that:
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“…the operator was responsible only for the vehicle and there is
no custodial rights or responsibilities in matter of goods carried.”
“This obviates the need to issue consignment notes which
normally is a document of title for the goods when it is in the
custody of the transporter.”
“Since the appellants are responsible for the goods transported,
consignment note, which is a document of title to the goods, is
not issued.”
“There is one clause to the effect that the operator will obtain
proper receipts from customers after the goods are delivered.
Thus by itself cannot make the contract to be that of “Goods
Transport Agency” as defined in Section 65(50b) of Finance Act,
1994.”
“When consignment notes are not issued by the operator they
cannot be considered as a ‘Goods Transport Agency’”.
The CESTAT considered the provisions of Rule 4A and 4B of the Service Tax Rules 1994
and acknowledged the circular nature of the provisions, in that the definition of GTA
“is dependent on a requirement laid down using the defined term itself and leads to
difficulties in proper understanding of the matter.” On this the CESTAT observed as
follows:
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
“Since the provision of Act has to prevail we understand the
definition at Section 65(50b) has to be understood independent of
Rule 4B of Service Tax Rules, 1994 to decide whether the person
concerned is a goods transport agency by adopting ordinary
meaning of consignment note and then apply Rule 4B of Service
Tax Rules, if the person concerned is found to be a goods
transport agency.”
Thus the CESTAT has clarified the manner in which to interpret the provision that a
GTA is one that issues consignment note and the requirement that a GTA must issue
consignment note. [This case is not reported on the CESTAT site; it is reported by a
private publication as 2013 (30) S.T.R. 99 (Tri. - Del.).]
Misconceptions leading to audit objections and demands of service tax
Commonly the departmental officers, in scrutinising the service tax payments for
correctness, take the amount under the head ‘transportation of goods’ in the
accounts of the entity and calculate service tax on this amount. If it is more than the
tax actually paid, they demand service tax as short-paid. However, the amount under
this head would normally include reimbursement of freight to the seller, in addition
to self-payment of freight. It would also include hiring of lorries without consignment
note. The foregoing discussion and case law should be of help in dealing with such illfounded demands of service tax.
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Wednesday, 01 July 2015
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