Sunday, November 6, 2011

Service Tax on Goods Transport Agencies (GTA)

Service Tax on Goods Transport Agency (GTA) is yet another “innovation” in Indian tax scenario. The “innovative” Fringe Benefit Tax (FBT) was bundled out couple of years back but this GTA is here to stay and haunt especially manufacturers who do not provide transporting services but avail of these transporting services. The way out of this muddle is to ensure that GTA service providers pay this service tax and charge in their invoices as all other service providers do. But, will the Government be able to get over the strong GTA lobby is a big question.

For beginners to explain why GTA is different, “Under Service Tax the person who provides ‘service’ has to pay Service Tax and claim it from his customer as this is an indirect tax. Difference under GTA is that service tax has to be paid by the recipient of the service and not by provider of service. This is called “Reverse Charge” mechanism. So if a manufacturer avails Goods Transport service from a GTA, he on the basis of the bill of the GTA should pay to the Service tax authorities Service tax. The manufacturer also has to maintain all the records regarding this payment and file necessary returns also.
The main purpose of this article is to highlight the procedure for payment of service tax on GTA & availment of Cenvat Credit on the same, by a manufacturing concern which has both manufacturing and trading (exempted) products.

First some basic rules

1. Service tax is to be paid on the GTA bill less 75% abatement – (ie) if the bill value is Rs.10,000 then service tax needs to be paid on Rs.2,500

2. Current service tax percentage is 10.3% after 75% abatement effective rate is 2.575%

3. Service tax is not payable if the GTA bill is less than Rs.750

4. Service tax is not payable if the GTA bill is less than Rs.1,500 for more than one consignment in the same consignment note (LR)

5. Credit of Cenvat can be availed by the manufacturer using the TR6 Challan or GAR-7 Challan on which Service tax has been paid by them


Treatment for freight on Manufactured goods on which Excise duty is payable

Service tax has to be paid on all freight bills received and paid by the manufacturer. The manufacturer has to maintain separate records for these bills and also register of tax paid.

The complication arises in availing of Cenvat Credit. Manufactures have to split the GTA invoices into 3 catagories.

1. NGTA – No GTA


This is basically GTA invoices on which there is no service tax payable because either the bill value is Rs.750 or below or Rs.1,500 or below for more than 1 consignment.

So obviously there is no Cenvat Credit available on these bills

2. GTAC – GTA on which Credit can be availed


This covers all Inward freight (ie) materials used in or in relation to Manufacture of excisable goods and all Outward freight upto the place of removal (ie) either a warehouse or Depot from which goods are invoiced to customers

3. GTANC – GTA payable but on which No Credit can be availed


Service tax paid on all Outward freight (ie) freight incurred on sales of finished goods, will not be eligible for Cenvat Credit, as this freight is not used for transporting items used in or in relation to Manufacture of excisable goods but for transporting already duty suffered goods.
 
Treatment for freight on Traded goods on which Excise duty is not payable

Service tax has to be paid on all freight bills received and paid by the manufacturer for these traded (exempted) items. The manufacturer has to maintain separate records for these bills and also register of tax paid.

However as for Cenvat Credit there are only 2 categories (as explained above).

1. NGTA

2. GTANC

In short, for the trading (exempted) portion of the products the manufacturer is liable to pay service tax but cannot claim CENVAT credit.

Conclusion

For a manufacturer maintaining records and filing returns on GTA is an additional burden imposed by law just because GTA service providers are resisting any move to tax them and unwilling to maintain records. This practice should not be continued, GTA service providers should be made accountable under law for service tax also and they should also be on par with all other service tax providers as to payment of service tax. Government should Act firmly on this.
 

2 comments:

  1. kaya trading firm per service tax freight inward or outward per lagega. pls. your oppinion

    ReplyDelete
  2. 03.05.2013
    Mr. Saravanan,
    Your Article is simple and superb and what you have given is valuable information. I had decided to meet a Consultant regarding my doubt/problem regarding the GTA service tax. I wonder if you will have time to clarify and guide me.
    My manufacturing unit was started in 1982, paying Central Excise Duty at the beginning and later, it availed value based exemption being below 1.5 crores till today.
    In the meantime when service tax on GTA was introduced, protested, levied on the service receiver, challenged, stayed, then definition changed, rules amended, all the time I was confident that GTA is not justified and hence will be lifted from the shoulders of the service receivers, sooner or later. All along I did not apply or obtain a Licence under GTA.

    Since it seems GTA will remain, I want to obtain a Licence. Now I wonder how to obtain a LIcence ! Will I have to pay for the preceding 5 years plus equal penalty plus interest; or will I be asked to pay from the inception of GTA on the service receivers.

    Please clarify.
    K.MARIAPPAN

    ReplyDelete