27 April 2017

Applicability of GST on GTA

by Ekansh Agrawal

The Final GST Act is here, still many issues lack clarity and could result in disputes with the tax authority, owing to different interpretations and views between businesses and the department. This article seeks to highlight some of the significant issues pertaining to registration by a GTA, as set out in the CGST Act and Draft Rules (issued to date) which may be of interest to most businesses.


Background of GTA Service

The levy of Service Tax on Road Transportation Service has always remained a subject matter of uncertainty. Initially, Finance Act 1997 proposed to tax the services of road transportation which was subsequently withdrawn after nation-wide strike. Thereafter in the Budget 2004, it was proposed to levy service tax on services provided by a goods transport agency in relation to transport of goods by road vide Finance Act, 2004 with effect from 10-9-2004. However, the levy was deferred till further notice again in view of protest by transporters. The Government thereafter constituted a committee to study the matter. Taking into account the recommendations of the Committee, Notification Nos. 32 to 35/2004 – ST all dated 3-12-2004 were issued, so as to effectively impose tax on the service of transport of goods by road with effect from 1-1-2005 under reverse charge basis.


How it will pan out under GST?

Based on a bare reading of the provisions of registration carved out in the CGST Act and Revised Registration Rules (Draft), it is possible to come to a conclusion that a person providing the service of goods transport agency and having an aggregate turnover of more than INR 20 lakhs is mandatorily required to get registered under GST and comply all the provisions that a taxable person has to comply viz. raise invoices, furnish returns, etc. No specific exclusion has been provided to GTAs neither in the Act nor in draft Rules.  Bringing GTAs under GST net might not be the intention of the law makers considering the resistance by the industry in the past, however such language used in law is likely to give rise to disputes. This will also adversely affect the transport industry where majority of the transporters are not exposed to any compliances under existing law and are also not equipped to carry out such tasks.


What will happen to the inter-unit services of GTA?

Under GST, even support services between different units located in different States (distinct persons under GST) without any consideration are also liable to GST. Suppose a GTA engaged solely in supplying goods transportation service (i.e. presumably a reverse charge supply) is operating in two States because of business requirements, and one unit is set up solely for providing administration, HR, accounts, etc., related services to the other unit, then as per Entry 2 of Schedule I provision of such support services even without any consideration between distinct persons will be liable to GST and taxable value shall be determined as per Valuation Rules.


Valuation Rules

Attention is invited to sub-rule (7) of Rule 6 of GST Valuation Rules (Draft), which provides that the value of taxable services provided by such class of service providers as may be notified by the Government on the recommendations of the Council as referred to in Entry 2 of Schedule I between distinct persons as referred to in Section 25, other than those where input tax credit is not available under sub-section (5) of Section 17, shall be deemed to be NIL. This provision exempts the services between the units of notified service providers, which are otherwise taxable as per Entry 2 of Schedule I (supply of services between distinct persons even if made without consideration).



It is pertinent to note that the intention behind taxing the inter-unit services is to seamlessly pass the credit to the other unit from where the ultimate taxable supply is being undertaken. In a case where the receiver of such credit is effecting supplies on which tax is to be discharged by the recipient under reverse charge, question of passing any credit does not arise as the same will not get utilized. If the same is taxed, it will only result in blockage of credits at the end of receiver which is not logical and may not be the intention of the government.


Action to be taken

Industry should remain vigilant as these are potential areas where representations should be made to the appropriate authority (on the following grounds), listing the consequences of above said provisions and request the government to come up with suitable amendments enabling them to maintain status quo:
·      GTA (inter-alia) should be notified by the government under the reverse charge category under Section 9(3) of CGST Act.
·      Once notified under reverse charge category, GTA should also request to get notified under Rule 6(7) of the Valuation Rules.

Above issues are equally applicable to other services which are presently kept under reverse charge category under service tax law.

[The author is an Associate, Lakshmikumaran & Sridharan, Gurgaon]


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