GOODS TRANSPORT AGENCY AND SERVICE TAX
By CA. Srikantha Rao T
The levy of service tax on the services of transport of goods by road in its present form has
been in force with effect 01.01.2005. The scheme calls for payment of service tax on freight
charges by the service receiver in certain specified cases rather than the service provider who
is generally required to collect service tax on the value charged towards taxable services
provided under Chapter V of Finance Act 1994 as amended from time to time. This was after a
committee was formed in 2004 to look into issues of taxing services in relation to transport of
goods as a result of opposition from the transport operators. The scheme for taxing such
services was notified through various notifications (32 to 35) issued on 3.12.2004 and it was
Notification 35/2004 dated 03.12.2004 which cast the liability to pay service tax on the person
paying the freight or liable to pay the freight where the consignor or consignee happened to
be any of the persons specified in the said notification. The notification specifically clarified
that the liability was not on the goods transport operator. For this purpose, Rule 2(1)(d) of
Service Tax Rules 1994 dealing with “person liable to pay tax” was also amended to clarify the
liability.
This brings us to the important question and that is whether the levy of service tax on services
in relation to transport of goods by road as it stands today was first of all intended by the law
makers at all in 2004. Before we discuss this further, it would be worthwhile to note that the
legislature has been eyeing this category of service for quite sometime and the first efforts to
tax the same was made when service tax was levied on “goods transport operators” for
services rendered in relation to transport of goods, with effect from 16.11.1997. For this
purpose, “goods transport operator” had been defined to mean any commercial concern
engaged in the transportation of goods not including a courier agency. When this was
introduced, the goods transport operators went on an all India strike which compelled the
government to make payment of service tax the responsibility of their customers by amending
Rule 2(1)(d) of Service Tax Rules 1994. This was challenged by the customers and the
Supreme Court in Laghu Udyog Bharati Vs UOI (1999 (112) ELT 365 (SC)) held such collection
from customers as envisaged by Rule 2(1)(d) of Service Tax Rules 1994 to be ultravires the
Act itself. The government responded by inserting changes in the Finance Act itself in 2000
which were intended to have retrospective effect to grant power to collect service tax from
customers of GTO which was once again challenged only for the Supreme Court in Gujarat
Ambuja Cements Ltd Vs UOI (2005 (182) ELT 33 (SC)) to uphold validity of such changes for
the period concerned. This levy existed only till 02.06.1998 on account of pending litigations
at that point of time, before being brought back with some changes in 2004. The
determination is important because today service tax is being paid by the service receiver
where the service provider happens to be a transport operator.
If one were to go through paragraph 149 of the Budget Speech of the Honorable Finance
Minister on July 8th 2004, while presenting the budget, what was stated was the intention to
levy service tax on services provided by transport booking agents. The then Finance Minister
had also clarified that there was no intention to levy service tax on truck owners or truck
operators. Pursuant to this, a new sub clause was inserted in Section 65(105) for the purpose
of defining the concept of taxable service in relation to transport booking agents. It is however
very interesting to note that while the intention as disclosed by the Budget Speech was to tax
services provided by transport booking agents, the changes in Section 65(105) sought taxing
goods transport agency. Now, the term “goods transport agency” is something which is quite
different from the term “transport booking agents”. If what is happening in practice [
departments view] is any indication, there is no difference between “goods transport
operator”, “goods transport agency” and “transport booking agents” though we would like to
differ in opinion. This would be so even though the original intention of the law makers might
have been to levy service tax on goods transport operators themselves which might have been
rolled back only due to the powerful transport lobby.
The power to collect service tax from a person other than the service provider in case of
notified taxable services is now available to the Government u/s 68(2) of Chapter V of Finance
Act 1994 as amended from time to time. Rule 2(1)(d)(v) of Service Tax Rules 1994 specifies
the circumstances in which the payer of freight would be regarded as the person liable for
paying service tax. The payer of freight charges would be required to pay service tax where
the consignor or consignee of goods happens to be any of the following –
i.
A factory registered under or governed by Factories Act 1948
ii.
A Company formed or registered under Companies Act 1956
iii.
A corporation established by or under any law
iv.
A society registered under Societies Registration Act 1860 or under any law
corresponding to that Act for the time being in force in any part of the country
v.
A cooperative society established by or under any law
vi.
A dealer of excisable goods who is registered under Central Excise Act 1944 or rules
made there under
vii. A body corporate established or a partnership firm registered under any law
Where the consignor or consignee happens to be any other person not covered under the
aforesaid categories, the liability for paying service tax would be on the GTA itself. The person
liable for paying service tax would have to register under Service Tax for the purpose of
making payment. Rule 2(p) of Cenvat Credit Rules 2004 specifically excludes such payments
from the definition of output service which would mean such payments to be made in cash and
not by utilising Cenvat Credits.
Definition
As per Section 65(105)(zzp) of Chapter V of Finance Act 1994 as amended from time to time,
taxable service means any service provided or to be provided to any person by a goods
transport agency, in relation to transport of goods by road in a goods carriage. The terms
“goods”, “goods carriage” and “goods transport agency” have also been defined.
As per Section 65(50), “goods” has the meaning assigned to it in clause (7) of Section 2 of the
Sale of Goods Act 1930. As per Section 65(50a), “goods carriage” has the meaning assigned
to it in clause (14) of Section 2 of Motor Vehicles Act 1988. As per Section 65(50b), “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. The concept of
“goods transport agency” has been defined in such a way so as to make a goods transport
operator issuing a consignment note liable under this category. Readers may also note that
Rule 4B of Service Tax Rules 1994 require a GTA providing transport of goods by road in a
goods carriage, to issue a consignment note to the recipient of service.
As per Section 2(14) of Motor Vehicles Act 1988, “goods carriage” means any motor vehicle
constructed or adapted for use solely for the carriage of goods, or any motor vehicle not so
constructed or adapted when used for the carriage of goods. The term motor vehicle as
defined u/s 2(28) of Motor Vehicles Act 1988 does not include vehicles having less than four
wheels and with engine capacity not exceeding 25cc as well as vehicles running on rails or
vehicles adapted for use in a factory or in an enclosed premises. Thus persons operating these
vehicles cannot be brought under this category.
For the purpose of trying to distinguish the concept of “transport booking agents” from “goods
transport agency”, one would have to refer a standard English dictionary. The term “agent”
has been defined by the Websters Dictionary as a “person or business authorized to act on
another’s behalf”. The term “agency” can be understood in this context as “an organisation,
company or bureau that provides a particular service.” “Booking” can be understood as the act
of reserving or making a reservation.
Thus if one goes through the aforesaid definitions, it would not be wrong to infer that the
intention of the law makers might have been to hold a person who acts as an agent for
booking of transport of goods by road by a goods carriage as being liable to service tax and
not the goods transport operator or agency that operates the goods carriage. But as the
scheme stands today, an operator of goods carriage issuing a consignment note to the service
receiver would render the service receiver liable to service tax.
Concept of consignment note
Rule 4B of Service Tax Rules 1994 defines consignment note to mean 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 name 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. Readers may
note that a consignment note generally has the following details – date, place where the note
is made, name and address of sender and carrier, place of taking over the goods, date of
taking over the goods, place for designated delivery, name and address of consignee, common
description of goods and packaging, details of packages with gross and net weight, charges for
carriage etc. Thus, unless we have a note disclosing all the required details, the same in our
view cannot be regarded as a consignment note and make the customer liable to service tax.
A consignment note in our view unlike a Multimodal Transport Document issued under
Multimodal Transportation of Goods Act 1993 cannot be regarded as being negotiable and
constituting document of title to goods unless the consignor and the transferee agree with the
transport operator that the same shall constitute document of title to goods.
Whether the levy of service tax on GTA service needs a review?
In our view the entire exercise of levying service tax on services in relation to transport of
goods by road can be reviewed considering the fact that transportation is an essential service
for any economy to move forward as well as the main intention and object of levying service
tax going by the Budget Speech of the then Finance Minister made on the floor of the
Parliament in 2004. However, whether this would be entertained by Courts at all is something
which would have to be seen as the Supreme Court in ITC Ltd Vs CCE New Delhi (2004 (171)
ELT 433 (SC)) has held that ordinary and natural meaning of words has to be given effect as
legislature is deemed to intend and mean what it says. However, in case of ambiguity in
language, reference may be made to legislative intent and object to resolve it. Prima facie, it
appears that the law makers have used this principle to perfection in levying service tax with
regard to services of transportation of goods by road while presenting the idea as one which
involved taxing the services of transport booking agents.
Readers may note that the view regarding the intention to levy service tax on transport
booking agents and not on goods transport operators or truck owners has received some
support if one were to go by the recent decision in Kanaka Durga Agro Oil Products (P) Ltd Vs
CCE Guntur (2009 (15) STR 399 (Tri-Bang)) where transport of goods by road by individuals
owning and operating trucks was held not to be liable to service tax where one of the grounds
taken up for argument was that transport booking agents alone were liable to service tax.
Where service tax is collected by the GTA, would the payer of the freight be again liable to pay
service tax?
In the opinion of the authors, the payer would not again be liable. Where the person liable to
pay service tax pays the freight with the service tax thereon, service tax again cannot be
levied in order to avoid double taxation of the same transaction. It is immaterial whether the
service tax is paid by the payer of the freight directly to the government or pays it to the GTA
who then pays it to the government. This view has also been confirmed by the Tribunal in
Mandev Tubes Vs CCE Vapi (2009-TIOL-1231-CESTAT-AHM). The department may however
continue to oppose this view. As a prudent practice the specified tax payers may avoid paying
the transporters and pay after getting registered in their own accord to avoid dispute.
Exemptions/Abatement if any
Notification 13/2008 ST dated 01.03.2008 provides an exemption of 75% of the gross amount
charged for the transportation of goods and consequently, service tax would be payable only
on 25% of the amount charged, at the applicable rate which is 10.3% at present. Notification
34/2004 ST dated 03.12.2004 as amended also provides an exemption from service tax where
the amount of freight charged for individual consignments does not exceed Rs. 750 and for
other consignments where it does not exceed Rs. 1500. Service tax has also been exempted
on transport of goods by road service for transportation of fruits, vegetables, egg or milk,
under Notification 33/2004 ST dated 03.12.2004.
Exemption on certain specified services provided to a GTA – Notification 1/2009 ST
dated 05.01.2009
Certain specified taxable services provided to GTA for its use in relation to transport of goods
by road service provided by it to its customer, have been exempted from service tax. These
are – clearing and forwarding agent’s services, cargo handling agency service, manpower
recruitment service, storage and warehousing service, business auxiliary service, packaging
service, support service of business or commerce, supply of tangible goods service. This has
been retrospectively made applicable from 2005 in Finance Act 2009.
Whether the exemption of 75% is available in respect of ancillary services provided by GTA
and whose value is included in the amount charged by GTA to its customer?
Yes. The benefit of exemption of 75% would be available in respect of such charges where the
service is a composite service and such composite services need not be broken up to tax
separately the various elements involved, as per Circular 104/7/2008 ST dated 06.08.2008.
The test to be applied here is one of form and substance of the transaction and where the
essence is one of transport of goods by road service, the exemption of 75% would be available
on the gross amount charged even if such amount includes charges towards ancillary services
provided along with transportation service.
Whether the benefit of small service provider’s exemption of Rs. 10 lakhs can be claimed by
the person liable to pay service tax on this service?
No. The benefit of small service provider’s exemption cannot be claimed with regard to
payment of service tax under this heading as the person liable to pay service tax in this case,
is not the service provider and the service cannot be construed as an output service in his
hands.
Cenvat Credit of Service tax paid on services in relation to transport of goods by road
Readers may note that the service tax paid under this category can be claimed back as credit
subject to the said transportation services received satisfying the definition of “input service”
as laid down under the Cenvat Credit Rules 2004. The Tribunal has, recently in M/s ABB Ltd &
India Cements Ltd Vs Commissioner of Central Excise & Service Tax Bangalore and CCE
Tirupati (2009-TIOL-830-CESTAT-Bang-LB) sought to put to rest the doubts regarding
inclusion of such services under the definition of “input service” by analysing the concept of
“activities relating to business” and held it to include both essential and auxiliary activities of
business including outward transportation. It also held that definition of “input service” was
required to be interpreted in the light of requirements of business and was not to be read
restrictively so as to confine only up to the factory or up to depot of manufacturers. If services
like advertising or market research were undertaken to attract a customer to buy goods, and
these services are eligible to credit, services which ensured physical availability of goods to the
customer i.e. services for transportation should also be eligible to credit. The issue as to credit
availability was also held to be independent of the issue as to valuation of goods
manufactured, under the Central Excise Act 1944. Another aspect which was highlighted was
that service tax was a destination based consumption tax (as decided in All India Federation of
Tax Practitioners Vs UOI (2007 (07) STR 625 SC)) and if credit on outward transportation was
to be denied then levy of service tax on transportation service would amount to a tax on
business rather than being a consumption tax.
The definition of “input service” had however been amended by Notification 10/2008 CE (NT)
dated 01.03.2008 with effect from 01.04.2008 and the definition taken up by the Tribunal in
this case was the earlier definition and not the amended one. Therefore there is every chance
of the department questioning the credit availment once more by considering the first limb of
the definition without analyzing further as to the activities which are relating to business,
especially if the amendment was with the intention to restrict the credit availability. The earlier
decision of the Tribunal in Gujarat Ambuja Cements Ltd was also on the basis of the definition
before it was amended with effect from 01.04.2008.
Thus the manufacturers would have to demarcate between the service tax pertaining to the
period prior to 01.04.2008 and the amount pertaining to period after 01.04.2008 to be on the
safer side of the law as there is every possibility of the department opening up a new round of
litigation. This, if it happens, is something which in our view, would have to be clarified by the
Courts considering the spirit of the Cenvat Credit Rules 2004 though the present view taken
by the Larger Bench is clearly logical.
NOTIFICATION
Sub: Service Tax – Communication of Notification
No: 32/2004-ST to 35/2004-ST– Reg.
********
Copy of Notification No: 32/2004-ST, to Notification
No: 35/2004-ST dated 03.12.2004, of the Government of India, Ministry of
Finance, Department of Revenue, Central Board of Excise and Customs are
communicated herewith for information and necessary action. The content of
this trade notice may be brought to the knowledge of all concerned.
(U.NIRANJAN)
JOINT COMMISSIONER
CHENNAI III
(Issued from File C.No.IV/16/302/2004 S.Tax)
To
As per mailing list (Both Trade and Dept.)
TO BE PUBLISHED IN PART II SECTION 3 SUB-SECTION (i) OF THE GAZETTE
OF INDIA, EXTRAORDINARY DATED THE 03RD DECEEMBER, 2004
NOTIFICATION NO:32/2004-Service Tax,
Dated : December 3, 2004
In exercise of the powers conferred by sub-section (1) of section 93 of
the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied
that it is necessary in the public interest so to do, hereby exempts the
taxable service provided by a goods transport agency to a customer, in
relation to transport of goods by road in a goods carriage, from so much of
the service tax leviable thereon under section 66 of the said Act, as is in
excess of the service tax calculated on a value which is equivalent to twentyfive per cent. of the gross amount charged from the customer by such goods
transport
agency
for
providing
the
said
taxable
service:
Provided that this exemption shall not apply in such cases where –
(i) the credit of duty paid on inputs or capital goods used for providing such
taxable service has been taken under the provisions of the Cenvat Credit
Rules,
2004;
or
(ii) the goods transport agency has availed the benefit under the notification
of the Government of India in the Ministry of Finance (Department of
Revenue) No. 12/2003-Service Tax, dated the 20th June, 2003 [G.S.R. 503
(E),
dated
the
20th
June,
2003].
2. This notification shall come into force on the first day of January, 2005.
[F. No. 341/18/2004-TRU (Pt.)]
(V.
Deputy Secretary to the Government of India
Sivasubramanian)
NOTIFICATION NO: 33/2004-Service Tax,
Dated : December 3, 2004
In exercise of the powers conferred by sub-section (1) of section 93 of
the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied
that it is necessary in the public interest so to do, hereby exempts the
taxable service provided by a goods transport agency to a customer, in
relation to transport of fruits, vegetables, eggs or milk by road in a goods
carriage, from the whole of service tax leviable thereon under section 66 of
the
said
Act.
2. This notification shall come into force on the first day of January, 2005.
[F. No. 341/18/2004-TRU (Pt.)]
(V.
Sivasubramanian)
Deputy Secretary to the Government of India
-----------------------------------------------------------------------------------------------
NOTIFICATION NO:34/2004-Service Tax,
Dated : December 3, 2004
In exercise of the powers conferred by sub-section (1) of section 93 of
the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied
that it is necessary in the public interest so to do, hereby exempts the
taxable service provided by a goods transport agency to a customer, in
relation to transport of goods by road in a goods carriage, from the whole of
service tax leviable thereon under section 66 of the said Act, where,(i)
the gross amount charged on consignments transported in a goods
carriage
does
not
exceed
rupees
one
thousand
five
hundred;
or
(ii) the gross amount charged on an individual consignment transported in a
goods
carriage
Explanation.-
does
For
not
the
exceed
purposes
of
rupees
this
seven
hundred
notification,
“an
fifty.
individual
consignment” means all goods transported by a goods transport agency by
road
in
a
goods
carriage
for
a
consignee.
2. This notification shall come into force on the first day of January, 2005.
[F. No. 341/18/2004-TRU (Pt.)]
(V.
Sivasubramanian)
Deputy Secretary to the Government of India
NOTIFICATION NO:35/2004-Service Tax,
Dated : December 3, 2004
In exercise of the powers conferred by sub-section (1), read with sub-
section (2) of section 94 of the Finance Act, 1994 (32 of 1994), the Central
Government hereby makes the following rules further to amend the Service
Tax
1.
Rules,
1994, namely:
-
(1) These rules may be called the Service Tax (Fifth Amendment) Rules,
2004.
(2) They shall come into force on the first day of January, 2005.
2. In
the
Service
Tax
Rules,
1994,-
(I) in rule 2, in sub-rule (1), in clause (d), after sub-clause (iv), the
following
sub-clause
shall
be
inserted,
namely:-
“(v) in relation to taxable service provided by a goods transport agency,
where
the
consignor
or
consignee
of
goods
is,-
(a) any factory registered under or governed by the Factories Act, 1948 (63
of
1948);
(b) any company established by or under the Companies Act, 1956 (1 of
1956);
(c)
any
corporation
established
by
or
under
any
law;
(d) any society registered under the Societies Registration Act, 1860 (21 of
1860) or under any law corresponding to that Act in force in any part of
India;
(e)
any
co-operative
society
established
by
or
under
any
law;
(f) any dealer of excisable goods, who is registered under the Central Excise
Act,
1944
(1
of
1944)
or
the
rules
made
thereunder;
or
(g) any body corporate established, or a partnership firm registered, by or
under
any
law,
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;” ;
(II) in rule 4A, in sub-rule (1), after the first proviso, the following proviso
shall
be
inserted,
namely:-
“Provided further that in case the provider of taxable service is a goods
transport agency, providing service to a customer, in relation to transport of
goods by road in a goods carriage, an invoice, a bill or, as the case may be, a
challan shall include any document, by whatever name called, which shall
contain the details of the consignment note number and date, gross weight
of the consignment and also contain other information as required under this
sub-rule.”;
(III)
after rule 4A, the following rule shall be inserted, namely:-
‘4B. Issue of consignment note.- 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
customer:
Provided that where any taxable service in relation to transport of goods by
road in a goods carriage is wholly exempted under section 93 of the Act, the
goods transport agency shall not be required to issue the 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 name
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.’.
[F. No. 341/18/2004-TRU(Pt.)]
(V.
Sivasubramanian)
Deputy Secretary to the Government of India
Note.- The principal rules were notified vide notification no. 2/94-Service Tax dated
the 28th June 1994 and published in the Gazette of India, Extraordinary vide number
G.S.R.546 (E), dated the 28th June 1994 and were last amended vide notification
No. 30/2004-Service Tax, dated the 22nd September, 2004 [G.S.R. 633 (E), dated
the 22nd September, 2004].