GTA vs GTO – Service Tax Liability

[Smitesh Desai]

In industry and commerce, transportation of goods by road is commonly carried out by the following 3 principal modes:

1. Goods Transport Agency (GTA) – a transporter who gives a consignment note.
2. Goods Transport Operator (GTO) – a transporter who does not give a consignment note, but offers a chllan or kachcha bill.
3. Roadside Tempo – a transporter who does not give a consignment note or a challan or kachcha bill, but takes payment of freight over your cash payment vouchers. For brevity handcarts may be clubbed here.

According to law, GTA is exempt under the entry number 21 of Mega Notification 25/2012 as follows:

When the consignment is:

a. agricultural produce.

b. foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages.

c. chemical fertilizer, organic manure and oil cakes.

d. newspaper or magazines registered with the Registrar of Newspapers.

e. relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap.

f. defence or military equipments.

g. Cotton – ginned or baled.

When the freight is:

h. less than ₹ 1,500/= for the transportation of goods on a consignment transported in a single carriage.

i. less than ₹ 750/= for transportation of all such goods for a single consignee.

So, what happens in case of GTA services, which not exempt as above? That is, those GTA who charge more than ₹ 750/= or ₹ 1,500/=, or those who carry non-exempt items, such as computers, garments, cement?

RCM category:

Normally, freight could be paid either by the consignor (fob contracts) or consignee (cif contracts). In case the freight is payable by:

(a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948), or

(b) any society registered under the Societies Registration Act, 1860 (21 of 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, or

(d) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder, or

(e) any body corporate established, by or under any law; or

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

the entire tax liability falls upon the party who pays the freight (Receiver of Service), as per notification no 30/2012, This phenomenon is known as Reverse Charge Mechanism – RCM.

The other two transporters are fully and unconditionally exempt under the Negative list vide entry no 66D(p).

This was the settled legal position until Coromandel judgment COROMANDEL AGRO PRODUCTS & OILS LTD. Versus COMMR. OF C. EX., GUNTUR 2014 (6) TMI 657 - CESTAT BANGALORE created a ripple. The company adopted a stance that, if a transporter does not offer a consignment note, he would be treated as GTO – exempt under all circumstances. Accordingly, they claimed refund of service tax, erroneously paid by them, under RCM. But the honourable tribunal held otherwise by saying:

Quote

.......According to the law, recipient of the services has been made liable to pay and there is no dispute on this issue. According to Notification No. 35/2004-S.T., person who pays the freight is liable to pay. Therefore just because a person has not issued consignment note in accordance with law and violated the provisions of law, it cannot be held that the recipient also can claim that he would also violate the law. Unquote

In plain words, even if the transporter does not issue a consignment note, the receiver of service must pay service tax under RCM.

Does this judgment apply to everyday situations arising now, with reference to GTO and roadside tempos? Let’s find out.

The Coromandel judgment is based on the interpretation of “GTA”. The assessee had adopted a stance that:

1. GTA is defined to mean “person who transports goods by road” plus
2. Issues a consignment note.

Consignment note is also defined to mean a document that displays:

1. Identity of the consignor and consignee, and
2. Description of Goods, Gross weight and net weight, and
3. Origin and destination of journey, and
4. Identity of Person liable for Service Tax.

Many local transporters such as tempo owners ply goods for industry and trade but do not issue any consignment note. They issue kachcha bill or nothing at all. In the later case they collect their fare over cash payment vouchers. The assessee (Coromandel) had adopted a stance that since the transporter did not issue any consignment note, he was not a GTA. Accordingly, service tax under reverse charge mechanism is not payable. From legal viewpoint, at that time (2008), with reference to which the judgment was delivered, there was only one category – GTA. In 2012, the government created another category – Transport of Goods by Road, except GTA. This category may be loosely (not legally) referred to as GTO, which is exempt under the Negative List. The Coromandel judgment is therefore fully forceful upto 30/6/2012. Upto this date, GTA was the sole service provider in respect of Transport of Goods by Road. With reference to 2008 position, the honourable Tribunal found logic in enforcing tax liability even in absence of consignment note. In 2012, in absence of consignment note, law creates another category of service provider – GTO, who is exempt from Service Tax under the Negative List. This view enables industry to legitimately avoid service tax on transporters’ fares, when consignment note is not received.

Therefore, for the present, Coromandel judgment is not binding. Upto 30^th June 2012, the judgment is absolutely binding and enforceable.

Discussions to this article

[Rajagopalan Ranganathan]

Sir,

Section 66D (p) of Finance Act, 1994 states that-

(p) services by way of transportation of goods -

(i) by road except the services of -

(A) a goods transportation agency; or

(B) a courier agency;

Any transport company which is not issuing consignment note is presumed to be GTO. However, section 66 D has not defined who is GTO. It is a presumption that who issues a consignment note is GTA and those who do not issue consignment note is GTO. However the categories of persons mentioned in Notification 35/2004-ST are liable to pay service tax either as consignee or consignor provided the transporter issues a consignment note. However verification of ledger maintained by the above mentioned entities will reveal the amount expednditure incurred by them towards transport of the goods. Therefore the department will raise demand on the basis of the ledger maintained by those persons based on the decision of CESTAT in COROMANDEL AGRO PRODUCTS and OILS LTD. Versus COMMR. OF C. EX., GUNTUR 2014 (6) TMI 657 - CESTAT BANGALORE even after 1.7.2012. Therefore in my opinion the Government should suitably amend Section 66 D (p) of Finance Act, 1994 to clarify who is GTO.