Levy of GST on GTA service for transportation of goods on road and availability of credit to the recipient of service is always a controversial issue.
GTA service provider is not liable to pay GST on consideration received for transportation of goods on road as because the said service is specified under sec 9(3) of CGST Act vide notification 13/2017 Central Tax Rate, June 28, 2017. According to the said provision, recipient of service is required to pay tax on reverse charge basis and all the provision Levy of GST on GTA service for transportation of goods on road and availability of credit to the recipient of service is always a controversial issues of the Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such service. (Emphasis supplied)
According to the aforesaid provision, GST rate, applicable for transportation of goods on road will be applied on the recipient of the said service.
On perusal of GST rate for GTA service for transportation of goods on road as prescribed under notification 11/2017 Central Tax Rate, June 28, 2017, sl 9(iii) under heading 9965 we notice the tax rate is 5% (2.5% CGST) for service but the said rate is subject to fulfillment of conditions as mentioned below:
“credit of input tax charged on goods and services used in supplying the service has not been taken
[Please refer to Explanation no.(iv)] “
Explanation-IV :
“For the purposes of this notification,-
Wherever a rate has been prescribed in this notification subject to the condition that credit of input tax charged on goods or services used in supplying the service has not been taken, it shall mean that:-
(a) credit of input tax charged on goods or services used exclusively in supplying such service has not been taken; and
(b) Credit of input tax charged on goods or services used partly for supplying such service and partly for effecting other supplies eligible for input tax credits, is reversed as if supply of such service is an exempt supply and attracts provisions of sub-section
(2) Of section 17 of the Central Goods and Services Tax Act, 2017 and the rules made There under. “
In the background of the aforesaid conditions attached to the rate, following issues could be triggered:
1) Is this condition applicable to recipient?
2) If answer to above question is yes, then how recipient will ensure fulfillment of the said conditions? If conditions are not fulfilled can recipient still avail concessional rate?
3) If recipient of goods transport service provided by GTA, is not eligible to go for 5% GST rate then what tax rate will be applicable?
4) Is recipient of goods transport service provided by GTA eligible for input tax credit?
In this article, I will analyze each of the aforesaid issues from the perspective of CGST Act 2017 and notification issued by the authority on time to time.
Issue-1: Whether condition attached to concessional rate of tax, i.e. 5% is applicable only to GTA providing transportation of goods service on road and not to the recipient of such service?
To address the aforesaid issue, we need to analyze the condition attached to the concessional rate of tax.
“credit of input tax charged on goods and services used in supplying the service has not been taken
[Please refer to Explanation no.(iv)] “
Restriction is on supplier of service and not on recipient of service.
When GTA will be liable to pay GST?
If GTA provides goods transport service on road to an unregistered individual for personal use only then GTA will be liable to pay GST as a provider of service as because such service is excluded in Notification No. 13/2017- Central Tax (Rate) Dated: 28/06/2017 from specified service for the purpose payment of tax under reverse charge basis under sec 9(3) of CGST Act 2017
Therefore the condition attached to the said notification will be applied only when GTA will provide service to an entity which is not covered under section 9(3) of CGST Act .In other words when the recipient of service is not liable to pay tax under reverse charge basis, GTA service provider could levy tax @ 5% subject to fulfillment of conditions as discussed above.
Therefore recipient of service cannot take the benefit of concessional rate of tax 5% to discharge his liability.
Issue-2: If answer to question rose in issue -1 is yes, then how recipient will ensure fulfillment of the said conditions? If conditions are not fulfilled can recipient still avail concessional rate?
For the argument sake, let me assume recipient is liable to pay GST @5% under reverse charge basis.
To validate the assumption, we need to analyze provision of 9(3) of CGST Act 2017.
“………………………all provisions of the Act shall apply to such recipient as if he is the person liable in paying the tax in relation to the supply of such goods or services or both.” (Emphasis supplied)
There is no dispute about the liability of recipient to pay the tax.
Serial no. 9(iii) under heading 9965 to notification 11/2017 Central Tax Rate, June 28, 2017, does not specify whether the rate is for provider of service or recipient of service.
The said rate is applicable on fulfillment of conditions and the said conditions are for supplier of service.
Sec 9(3) of CGST Act empowers recipient of service only to discharge the liability as if the supplier of service. In other words recipient will not be deemed to be supplier of service for any purpose other than payment of tax.
Therefore the conditions attached to the rate are applicable for supplier of service and not for recipient of service.
Since the conditions are not applicable to the recipient, can he eligible to avail concessional rate of 5%?
To find out the answer we need to analyze the Explanation IV attached to the said notification.
Explanation-IV :
“For the purposes of this notification,-
Wherever a rate has been prescribed in this notification subject to the condition that credit of input tax charged on goods or services used in supplying the service has not been taken,……………………………..”
Conditions are embedded in the rate itself.
If these conditions are not for the recipient of service then the concessional rate will also not for the recipient of service.
Issue-3: If recipient of goods transport service provided by GTA, is not eligible for 5% tax rate then what tax rate will be applicable.
To address the aforesaid issue we need to revisit notification 11/2017 Central Tax Rate, June 28, 2017.
Sl 9(v) of heading 9965 of the said notification states that
“Goods transport services other than (i), (ii), (iii) and (iv) above, will be subject to GST @ 18%”
Out of the aforesaid items Sl 9(iii) is pertaining to transportation of goods by road service provided by GTA and the same is relevant for our analysis and as concluded under issue 1, si 9(iii) will not be applicable to the recipient of service.
Therefore in view of sl 9(v) of heading 9965 of the said notification, recipient of the transportation of goods service on road provided by GTA will be liable to discharge the GST liability @ 18% only
Issue-4: Is recipient of goods transport service provided by GTA eligible for input tax credit?
Input tax credit is allowable if the tax attributable to taxable supplies for the purpose of business and is not specifically blocked under the law.
Service provided by the GTA for transportation of goods on road is a taxable supply for business, so tax paid by the recipient under reverse charge basis on such supply will be eligible for input tax credit.
Conclusion:
1) GTA is liable to pay tax on services provided for transportation of goods on road where the said service is not specified for coverage u/s 9(3) of CGST Act.
2) GTA could discharge GST liability @ 5% if the conditions attached to the serial no. 9(iii) under heading 9965 to notification 11/2017 Central Tax Rate, June 28, 2017 is duly complied with.
3) Transportation of goods on road by GTA, which is notified as specified service for the purpose of sec 9(3) of CGST Act, GST liability for the said service will be discharged by the recipient of the service and the GST rate applicable on recipient will be 18%
4) Tax paid under reverse charge by the recipient of service will be eligible for credit in the hands of recipient of service