Service Tax on Goods Transport Agency - J&K problem - Finally Solved with POP Rules
PRIOR to 01.07.2012, confusion prevailed over the liability of service tax under Goods Transport Agency as far as transportation of goods to and from Jammu and Kashmir is concerned. In DDT 1393 02 07 2010, we asked, "How do we treat a goods transport agency transporting goods from Punjab to J&K ? Is it liable for service tax? What if the Truck starts in J&K and reached Delhi? What if the services are provided from outside J&K and received in J&K ? Are they liable to tax?"
It seems the lawmakers have finally found a solution to the J&K problem, at least with regard to payment of service tax. As per Rule 10 of the POP Rules, the place of provision of service in respect of GTA service is the location of the person liable to pay service tax (i.e., consignor or consignee). As per the proviso to Rule 2(1)(d) of the Service Tax Rules, 1994, if the person liable to pay freight is located in non-taxable territory, then the liability is on the service provider. Based on these two Rules, various possibilities of service tax liability on GTA service are listed here:
Activity | Location of GTA business establishment | Person liable to pay freight in terms of Rule 2(v)(d)(B) of STR | tax liability | Reasons |
Goods consigned from Delhi (taxable territory) to J&K(non taxable territory) | Delhi | Consignee located at J&K | Liability to pay ST is on the GTA who provided the service.ie GTA located at Delhi | As per the POP and ST rules, where such person specified under Rule 2(v)(d) is located in a non taxable territory, it is the service provider (GTA) who is liable to pay tax. |
J&K | Consignee located at J&K | No tax liability either on GTA or on the consignee | As per Rule 10 of POP and the definition of ‘location of service provider' read with proviso to Rule 2(v)(d)(B) | |
Delhi | Consignor located at Delhi | Tax liability on the consignor located at Delhi | By virtue of being located in the taxable territory as person liable to pay tax | |
J&K | Consignor located at Delhi | Tax liability on the consignor located at Delhi | By virtue of being located in the taxable territory as person liable to pay tax | |
Goods consigned from J&K to Delhi (from non taxable territory to taxable territory) | Delhi | Consignor located at J&K | Liability to pay ST is on the GTA who provided the service.ie GTA located at Delhi | As per the POP and ST rules, where such person specified under Rule 2(v)(d) is located in a non taxable territory, it is the service provider (GTA) who is liable to pay tax |
J&K | Consignor located at J&K | No tax liability on either consignor or on the GTA | As both person liable to pay freight and business establishment of GTA are located in Non taxable territory | |
Delhi | Consignee located at Delhi | Tax liability on the consignee located at Delhi | By virtue of being located in the taxable territory as person liable to pay tax | |
J&K | Consignee located at Delhi | Tax liability is on the consignee located at Delhi | By virtue of being located in the taxable territory as person liable to pay tax |
From the above table, there can never be a tax liability on GTA whose place of business is located in non-taxable territory (ie J&K). Further, if a GTA located in Delhi undertakes the transportation of goods from Jammu to Kashmir, since the person liable to pay freight is located in a non-taxable territory, the liability is on the GTA located in Delhi.