RMC ON FRIGHT, Goods and Services Tax - GST

[Shailander Jain]

One of our client is Cement Dealer and charging tax under forward charges on cement sale @ 28%. Now cement company appointed him as C&F Agent and paying secondary freight for Transportation of Cement bag from Depo to Sub dealer/customer location.

My query is : Can dealer raise secondary freight invoice to Cement company under REVERSE Charges mechanism with the object that GST on freight will be paid by cement company.

Posts / Replies

[KASTURI SETHI]

Sh. Shailander Jain Ji,

(1) A C & F Agent is a pure agent in terms of Rule 33 of CGST Rules, 2017. See Explanation below sub-clause (iii). The pure agent is responsible for payment GST on the amount of commission.

(2) A C & F Agent works for and on behalf of the Principal (owner). So the Principal is liable for discharging GST liabilities.

(3) A person who pays (bears) the freight can pay GST on the amount of freight under RCM.

(4) Thus the Cement Company, being the Principal can pay GST on the amount of secondary freight.

[Shilpi Jain]

Reverse charge applicable only for GTA i.e. a person transporting the goods and issuing a consignment note.

Pls see if these are satisfied.

[KASTURI SETHI]

        If GTA does not opt for forward  charge mechanism, person paying freight to GTA is liable to pay GST under RCM and that person may be consignor or consignee (registered) . 

          All the above three replies should be  read conjointly. 

[VENU K]

RCM on freight is applicable to GTA services and not to everyone.

Moreover what amount should constitute value of supply depends on valuation rules read with Sec 15 if valuation is required. It comes into play only with respect to whether freight charges ought to be a part of the value of supply billed to the recipient.

A further question that needs to be analysed is the nature of supply between cement company and C and F agent when it comes to reimbursements. Whether this in itself is another supply attracting GST also will have to be verified.

All these things depends on the contractual relationship between the parties.

As to whether C and F agent is a pure agent as per Rule 33 is a fact to be ascertained from each individual case on the basis of the contract with the cement company. Names like advertising agency, travel agency etc are obvious  misnormers and they have  nothing to do with Agency relationship as such. This is evident from the conditions to be treated as a pure agent as per rule 33

For the purposes of this rule, the expression "pure agent" means a person who-

(a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;

(b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;

(c) does not use for his own interest such goods or services so procured; and

(d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

[KASTURI SETHI]

(i) A  C & F Agent is the best example of a pure agent. The Tax Payer has to qualify to the conditions laid down Rule 33 of CGST Rules. 

(ii) Secondary freight can form part of transaction value at the hands of the principal for the purpose of payment of GST.

[Shailander Jain]

Respected Members,

Thanks for your valuable suggestion.. however still confusion is stand..

So I will elaborate my query..

Our client is distributor of Ambuja Cement Ltd. Now Ambuja Cement opened a Depo near by our client location and appointed our client for transportation of cement from Depo to purchaser location in surrounding 20-30 km area.

Our client  transporting the cement from their own tractors.  For this work Ambuja cement is taking GST Invoice under RCM from our client on monthly basis and paying secondary freight to him.

Is this is correct procedure as our client is not GTA. He is regular cement dealer. 

[VENU K]

If the dealer is transporting cement in his own vehicles he naturally becomes a GTA. In GST there is no restrictions as to what kind of activities a registered person can undertake. So what the company is doing is perfectly all right in my opinion. The client has to report this as outward supply liable for RCM.

The definition of GTA as per notification 11/2017 is as follows

Explanation.- “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.

[KASTURI SETHI]

(i) Transportation of goods by own truck is not taxable. It is self-service and self service is no service. 

(ii)  All  incidental expenses are to form the part of the cost of the final product/transactional value to arrive at the correct payment of GST.

[KASTURI SETHI]

In continuation of above :

------------ Under Section 15 (2) (c) of CGST Act.

[KASTURI SETHI]

Freight expenses (not only freight) and incidental expenses become an integral part of  the landed cost of inputs/raw materials to be used in the manufacture of the final product. 

[KASTURI SETHI]

In the above reply at serial no.10, read 'transportation expenses' instead of 'freight expenses'