GST under Reverse Charge Mechanism (RCM) on GTA Services : All you need to know

1. Introduction:

Supply of Services by a Goods Transport Agency (GTA) is amongst the notified services wherein the tax is required to be paid by the recipient of such services. It is not new that GTA services have been brought under levy of reverse charge as same was within ambit of reverse charge under Service Tax law as well. In this article we will discuss about payment of GST under reverse charge mechanism (RCM) on GTA services.

As per Section 2(98) of the CGST Act, 2017 ‘reverse charge’ means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub-section (4) of section 5 of IGST Act, 2017.

In accordance to the powers conferred under sub-section (3) of section 9 of CGST Act, 2017 and under sub-section (3) of section 5 of IGST Act, 2017, Notification No. 13/2017-Central Tax (Rate) dated 28-6-2017 and Notification No. 10/2017-Integrated Tax (Rate) dated 28-6-2017 (hereinafter referred to as RCM Notifications) were issued by Central Government, notifying the situations wherein certain supply of services would be covered under ambit of reverse charge mechanism. As on date 23 services are under ambit of reverse charge mechanism vide above cited notifications which includes GTA Services.

2. Situations where reverse charge mechanism (RCM) will apply on GTA services

The GTA services would be covered under the ambit of reverse charge mechanism, if and only if all the following four conditions are satisfied.

a). Services of transportation of goods should be supplied by Goods Transport Agency

As per para 2(ze) of exemption Notification No. 12/2017-Central Tax (Rate) dated 28-06-2017 “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.

Thus, it can be seen that issuance of a consignment note is the sine-qua-non for a supplier of service to be considered as a Goods Transport Agency. If such a consignment note is not issued by the transporter, the service provider will not come within the ambit of goods transport agency. If a consignment note is issued, it indicates that the lien on the goods has been transferred (to the transporter) and the transporter becomes responsible for the goods till its safe delivery to the consignee.

What is a consignment note

Consignment Note is neither defined in the Act nor in the notification no.12/2017-Central Tax (Rate). Guidance can be taken from the meaning ascribed to the term under the Explanation to Rule 4B of Service Tax Rules, 1994. In terms of the said rule, 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.

However it is worth mentioning here that as per Rule 54(3) of the CGST Rules,2017 the GTA, supplying service in relation to transportation of goods by road in a goods carriage shall issue a tax invoice or any other document in lieu thereof, by whatever name called, containing the following information:

a. Gross weight of consignment.

b. Name of consignor

c. Name of consignee

d. Registration number of the goods carriage in which the goods are transported

e. Details of the goods transported.

f. Place of origin

g. Place of destination.

h. GSTIN of person liable to pay GST – consignor, consignee, or the GTA.

i. Other information as mentioned in rule 46 of the CGST Rules, 2017, like date of issue, Value of goods, serial number etc.

Consignment note by whatever name called

It is important to note that as per definition of goods transport agency, it should issue consignment note, by what-ever name called. Thus in cases where lien on the goods has been transferred (to the transporter) and the transporter becomes responsible for the goods till its safe delivery to the consignee and such transporter issues a document not named as consignment note but in substance is a consignment note, then such a document for all practical purposes will be regarded as consignment note and such transporter will be regarded as GTA.

In this regard one of the judgment of Service Tax era is relevant, namely Commissioner Central Excise Vs. M/s Kisan Sahkari Chini Mills Ltd and other (2017 (3) TMI 1786) wherein Allahabad High Court held that the term “consignment note” has no magical or technical meaning looking to the very purpose and intent of legislature in the matter. In the present case, transporters transferring sugarcane from Cane Collection Centers to sugar mills and presenting bills for such service, were regarded as GTA and the Hon’ble Court adjudged that their services will fall under ambit of RCM under service tax. It is important to note here that SLP against said judgment was also dismissed by Supreme Court.

Accordingly we may conclude that any document similar to consignment note will hold the transporter as GTA unless proved otherwise on facts.

Significance of the term ‘in relation to’ in the definition of GTA

As per the CBIC flyer on GTA Services, the use of the phrase ‘in relation to’ has extended the scope of the definition of GTA. It includes not only the actual transportation of goods, but any intermediate/ancillary service provided in relation to such transportation, like loading/unloading, packing/ unpacking, trans-shipment, temporary warehousing, etc. If these services are not provided as independent activities but are the means for successful provision of GTA Service, then they are also covered under GTA.

b). GTA should not have taken registration and exercised option to pay tax under forward charge

In terms of notification no. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by notification no. 20/2017- Central tax (Rate) dated 22.08.2017 , sr.no. 9 and sr. no. 11, Services of goods transport agency (GTA) in relation to transportation of goods (including used household goods for personal use) attracts GST @2.5% or 6% CGST. Identical rate would be applicable for SGST also, taking the effective rate to 5% or 12%.

However, the rate of 5% is subject to the condition that credit of input tax charged on goods or services used in supplying the service has not been taken. On the other hand GST @ 6% CGST (12% cumulative) is subject to the condition that the goods transport agency opting to pay central tax @ 6% under this entry shall, thenceforth, be liable to pay central tax @ 6% on all the services of GTA supplied by it. Further, there is no restriction on the GTA from taking ITC if this option is availed.

As per the RCM notification(s), reverse charge will not be applicable on GTA services in case the GTA has taken GST registration and exercised the option to pay tax under forward charge alongwith issuance of tax invoice charging applicable GST and has made a prescribed declaration as under:

It is pertinent to mention here that in case forward charge option is opted for by GTA, it has two options to pay GST i) pay GST @ 5% without availing of ITC and ii) pay GST @ 12% with availing of ITC. However where GTA has not opted as above it will in its invoice will not charge any tax and payment of GST will be made by the specified recipient to the Govt @ 5% under reverse charge mechanism.

c). GTA Services should be provided to specified recipients located in taxable territory

As per reverse charge notification(s) in order to trigger the requirement of payment of tax under reverse charge mechanism the GTA services should have been received by the following recipients located in taxable territory i.e. whole of India.

(a) any factory registered under or governed by the Factories Act, 1948; or

(b) any Society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India; or

(c) any Co-operative Society established by or under any law for the time being in force; or

(d) any person registered under the CGST Act or the IGST Act or the SGST Act or the UTGST Tax Act.

 (e) any body corporate established, by or under any law for the time being in force; or

(f) any partnership firm whether registered or not under any law including association of persons;

(g) any casual taxable person registered under the CGST Act or the IGST Act or the SGST Act or the UTGST Tax Act.

It may be noted here that out of the seven categories of recipients as stated above which are required to discharge liability under reverse charge, two categories are of registered persons viz clause (a) and (g). Rest five categories are persons which are not currently registered under GST law but due to obtaining the GTA services, they would now be required to obtain registration as per Section 24(iii) of the CGST Act, 2017, which mandates that persons who are required to pay tax under reverse charge are mandatorily required to obtain registration.

Who will be regarded as Service Recipient?

As per Explanation (a) to the RCM Notification, the person who pays or is liable to pay freight for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the person who receives the service for the purpose of this notification.

Thus recipient can be Consignor or Consignee based upon the facts of the case and who has privity of contract with the GTA.

RCM will not apply in case registration obtained for sole purpose of TDS

It has been specified in the RCM Notification(s) that reverse charge will not apply to services provided by a goods transport agency, by way of transport of goods in a goods carriage by road, to, –

(a) a Department or Establishment of the Central Government or State Government or Union territory; or

(b) local authority; or

(c) Governmental agencies, which has taken registration under the CGST Act, 2017, only for the purpose of deducting tax under section 51 and not for making a taxable supply of goods or services.

d.) GTA services should not be exempt from tax

As per Entry No. 21, 21A and 21B of exemption Notification No. 12/2017- Central Tax (Rate) dated 28-06-2017 the following GTA services are exempt from GST.

Entry No. 21

Services provided by a goods transport agency, by way of transport in a goods carriage of –

(a) agricultural produce;

(b) goods, where consideration charged for the transportation of goods on a consignment transported in a single carriage does not exceed one thousand five hundred rupees;

(c) goods, where consideration charged for transportation of all such goods for a single consignee does not exceed rupees seven hundred and fifty;

(d) milk, salt and food grain including flour, pulses and rice;

(e) organic manure;

(f) newspaper or magazines registered with the Registrar of Newspapers;

(g) relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; or

(h) defence or military equipments.

The above entry should be kept in mind while discharging obligations under reverse charge. In case GTA service being received falls under any of the above situations, the same shall be exempt and accordingly no payment will be required to be made under reverse charge mechanism.

Entry No. 21A

Services provided by a goods transport agency to an unregistered person, including an unregistered casual taxable person, other than the following recipients, namely: –

• any factory registered under or governed by the Factories Act, 1948
• any Society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India; or

(c) any Co-operative Society established by or under any law for the time being in force; or

(d) any body corporate established, by or under any law for the time being in force; or (e) any partnership firm whether registered or not under any law including association of persons;

(f) any casual taxable person registered under the CGST Act or the IGST Act or the SGST Act or the UTGST Act

Entry No. 21B

Services provided by a goods transport agency, by way of transport of goods in a goods carriage, to, –

(a) a Department or Establishment of the Central Government or State Government or Union territory; or

(b) local authority; or

(c) Governmental agencies,

which has taken registration under the CGST Act, 2017 only for the purpose of deducting tax under Section 51 and not for making a taxable supply of goods or services.

If we read the Entry No 21A and 21B collectively we find that these entries are not much relevant from perspective of RCM. Under Entry No. 21A the specified recipients (unregistered) liable to pay tax under RCM have already been excluded from purview of this exemption. Further under Entry 21B the GTA services to persons who have obtained GST registration solely for TDS purposes have been exempted. In this regard we have already discussed supra that RCM notifications also clearly states that in such cases RCM will not apply.

However the exemptions granted under above twin entries makes life of a GTA easy as by such exemptions it has been ensured that his services of transportation of goods either falls under reverse charge or is exempt from tax. Thus it appears that in no situation GTA is required to obtain registration and pay tax. Of course in case GTA wants to pay GST he can opt for same and can pay GST @5% without ITC and GST @ 12% with ITC and take voluntarily registration.

Illustration 1:

GTA provides service to an individual for transport of household goods. In such a case as such individual is unregistered and is also not a factory / society/ Co-operative Society / body Corporate / partnership firm / casual taxable person and thus such GTA services are exempt under entry 21A. In such case neither the GTA nor such individual is required to pay GST under forward charge / reverse charge.

Illustration 2:

GTA provides service of transport of goods to a Government Department. Such Govt. Department has obtained GST registration solely for the purpose of discharging TDS obligations under Section 51 of the CGST Act. In such a case, GTA services will be exempt under Entry 21B and thus neither the GTA nor such Govt Deptt will be required to pay GST under forward charge / reverse charge.

Transport of goods by road, other-wise than by GTA / Courier agency is exempt

It is important to note here that as per Entry No 18(a) of the exemption Notification No. 12/2017- Central Tax (Rate) dated 28-06-2017 services by way of transportation of goods by road except the services of (i) a goods transportation agency; (ii) a courier agency are exempt from tax.

Further as per CBIC flyer on GTA Services, Individual truck/tempo operators who do not issue any consignment note are not covered within the meaning of the term GTA. As a corollary, the services provided by such individual transporters who do not issue a consignment note will be covered by the entry at s.no.18 of notification no.12/2017-Central Tax (Rate), which is exempt from GST.

3. Which tax / how much tax is to be paid under reverse charge mechanism (RCM) on GTA Services

The tax viz CGST + SGST / UTGST or IGST that is required to be paid under reverse charge mechanism on GTA services would depend upon as to whether the supply is an inter-State supply of intra-State supply.

As per Section 7 and 8 of the IGST Act, a supply is regarded as inter-State supply wherein the location of supplier as well as place of supply, are in same State / UT. In case these are in different State / UT, same is treated as Inter-State supply.

Location of Supplier of GTA

As GTA are not liable to take registration under GST law as their entire services are under RCM or else are exempt, the location of supplier as per Sec 2(71) of the CGST Act, 2017 would generally be the location of fixed establishment (i.e. where shop / office of GTA is located) from which supply is made.

Place of Supply of GTA Services

Considering the GTA as well as the recipient (registered) are located in India, the place of supply of GTA services would be the location of the recipient (registered person) as per Section 12(8)(a) of the IGST Act, 2017.

In case the supply is inter-State supply, IGST shall be applicable else CGST + SGST / UTGST shall apply, which needs to be paid by recipient under reverse charge mechanism. Further as discussed supra that GTA has the option to either pay GST @ 12% with ITC or 5% without ITC. As RCM is applicable in cases where GTA does not exercise paying GST @ 12%, in such cases the recipient will be required to pay GST @ 5% on the value of supply as determined under Section 15 of the CGST Act, 2017.

Let us understand this with help of following example.

Illustration:

X Ltd a Company registered under GST law in Delhi obtained GTA services from a GTA (unregistered, having office at Noida, UP) for transportation of goods from Agra, UP to Faridabad, Haryana.

In this case the location of supplier is Noida (UP) while the place of supply is Delhi viz location of the registered recipient and thus X Ltd will be required to pay IGST @ 5% on the GTA services received.

4. When tax under Reverse charge (RCM) is to be paid on GTA Services

The liability for payment of tax in this case will be determined as per Section 13(3) of the CGST Act, 2017 wherein provisions regarding determination of time of supply of services covered under RCM are mandated.

According to provisions of Section 13(3), the time of supply for purposes of payment of tax under RCM, would be earlier of:

Illustration:

The time of supply is computed as under:

Case 1:

Time of supply will be date of payment i.e. 10-05-20XX or 61^st day from the date of invoice i.e. 07-06-20XX, whichever is earlier i.e. 10-05-20XX. Accordingly tax in this case would be required to be paid by 20^th/22^nd/24^th of June, 20XX with filing of GSTR-3B in case of normal assessees.

Case 2:

Time of supply will be date of payment i.e. 10-07-20XX or 61^st day from the date of invoice i.e. 07-06-20XX, whichever is earlier i.e. 07-06-20XX. Accordingly tax in this case would be required to be paid by 20^th/22^nd/24^th of June, 20XX with filing of GSTR-3B in case of normal assessees.

5. Availing of Input Tax Credit of tax paid under RCM on GTA services

In regard to availing of ITC on tax paid under RCM on GTA services, a question may arise as in case GTA is paying 5% GST, he is not allowed benefit of ITC. Whether such restriction will also apply on recipient paying GST @ 5% under RCM?. In this regard it may be noted that such restriction is with respect to GTA only and that too for its input services / inputs / capital goods and there is no such restriction on recipient in availing of tax credit of tax paid @ 5% on GTA services under RCM.

Thus input tax credit in respect of tax paid @5% under reverse charge mechanism (RCM) on GTA services can be availed as per Section 16 of the CGST Act, 2017 if such services are obtained for business purposes / taxable supplies. However it is important to note that in such a case a self invoice as mandated under Section 31(3)(f) of the CGST Act,2017 will have be raised by the recipient and input tax credit can only be availed on basis of such an invoice, subject to payment of tax.

6. Concluding remarks

Service for transportation of goods by Goods transport agency has been under ambit of reverse charge mechanism since times of Service tax law. While discharging RCM obligations it should be ensured that the recipient falls under specified persons made liable for RCM. Further the GTA should not have opted for forward charge / GTA services should not be exempt as in such cases, RCM will not be applicable.

For availing ITC, on GST paid under RCM on GTA services it should be ensured that self invoice as mandated under section 31(3)(f) of the CGST Act,2017 is issued by the recipient. Further time of supply as discussed should also be taken care of by recipient, in order to make timely payment of tax and avoid levy of any interest.

***

Don’t miss the next GST Update / Article / Judicial pronouncement

Subscribe to our newsletter from FREE to stay updated on GST Law

Resolve your GST queries from national level experts on GST free of cost.

Frah Saeed

Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.