Tax liability and ITC on GTA Service under GST

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In our previous blog, we have understood who a GTA is and the GST tax rates applicable to the service of transportation of goods provided by a GTA. In this blog, we will understand who is liable to pay the tax on GTA service: the GTA or the service recipient.

For this, the first step is to identify who is the recipient of the transportation service provided by a GTA.

How to identify the recipient of transportation service provided by a GTA?

In case of transportation of goods, identifying the person who receives the service from the GTA can be confusing- Is it the person sending the goods (consignor) or the person receiving the goods (consignee)?

In this case, the recipient of service will be the person who makes the payment of freight charges. Hence, if the consignor pays the freight charges to the GTA, the consignor becomes the recipient of service and if the consignee pays the freight charges to the GTA, the consignee becomes the recipient of the service.

Example: A dealer takes the services of a GTA to deliver goods to his customer. The freight for the consignment is paid by the supplier. In this case, the dealer is considered as the person who has availed the transportation service from the GTA and hence, is the recipient of the service. Similarly, another consignment which the dealer sends through the GTA is a ‘to-pay’ consignment, where the customer will pay the freight charges to the GTA. In this case, the customer becomes the recipient of service from the GTA.

Once the recipient of the service has been identified, we can answer the important question of whether the GTA or the service recipient has to pay the tax liability.

This is based on the following 2 scenarios:

  1. Recipient belongs to the specified category of persons

OR

  1. Recipient does not belong to specified category of persons

Recipient belongs to specified category of persons

When a GTA, whether registered or unregistered, provides taxable transportation or related services to any of the specified persons, the recipient of the service is liable to pay tax on reverse charge basis. These specified persons are:

  • A person registered under GST
  • A factory registered under or governed by the Factories Act, 1948
  • A Society registered under Societies Registration Act, 1860 or under any other law for the time being in force in any part of India
  • A co-operative society established by or under any law
  • A body corporate established by or under any law
  • A partnership firm, whether registered or not under any law, including association of persons
  • A casual taxable person

Note: All the persons specified above are mandatorily required to register under GST, irrespective of their turnover, as they are liable to pay tax on reverse charge basis.

Example: Raj Logistics, a GTA, provides transport service to Manish Apparels, a registered dealer. On 15th October, ’17, Raj Logistics transports a batch of apparel on behalf of Manish Apparels to an unregistered person. The apparel is transported in a single vehicle and Raj Transports charges Rs. 8,000 as freight for this, which is paid by Manish Apparels.

Here, the transportation service provided by Raj Logistics is taxable @ 5% because the freight paid for a single vehicle exceeds Rs. 1,500. This freight is paid by Manish Apparels and hence, Manish Apparels is the recipient of service. Since Manish Apparels is a registered person, that is, a specified person, Manish Apparels is liable to pay tax @ 5% on this service.

Input tax credit Eligibility

Any person in the above list of specified persons who pays tax on reverse charge basis on transportation service received from a GTA, is eligible for full input credit of the tax paid.

Recipient does not belong to specified category of persons

In the list of specified persons who are liable to pay tax on GTA service on reverse charge, certain persons have not been included. These are:

  • Unregistered Sole Proprietor
  • Unregistered HUF (Hindu Undivided Family)
  • Unregistered BOI (Body of Individuals)

When a registered GTA provides transportation service to any of these persons, the GTA is liable to pay tax on the supply. This is applicable only when the GTA is registered. If the GTA is also unregistered, there will be no tax liability on the GTA or the recipient.

Example: Mohan Transports, a registered GTA, provides transportation service to an unregistered sole proprietor, Mr. Rakesh, for a batch of electronic goods. The goods are delivered to a dealer, Lakshmi Electronics, in 3 vehicles. Mohan Transports charges Rs. 4,000 as freight for this, which is paid by Mr. Rakesh.

Here, the transportation service provided by Mohan Transports is taxable @ 5% because the freight paid for a single consignee exceeds Rs. 750. This freight is paid by Mr. Rakesh and hence, Mr. Rakesh is the recipient of service. Since Mr. Rakesh is an unregistered sole proprietor, that is, not a specified person and Mohan Transports is a registered GTA, Mohan Transports is liable to pay tax @ 5% on this.

Input tax credit eligibility

In such cases, where a registered GTA is liable to pay tax @ 5% on transportation service, 2 options have been given to the GTA:

  1. Pay tax @ 5% with no input tax credit
  2. Pay tax @ 12% with full input tax credit

A registered GTA has to make this choice at the beginning of the financial year.

In this blog, we have learnt that when a GTA provides taxable transportation service to a specified person, the recipient is liable to pay tax on reverse charge. When a GTA provides taxable transportation service to a person other than the specified persons, the GTA is liable to pay tax, but only if it is registered. In our next blog, we will understand the impact on registration for a GTA and the recipient of GTA service.

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