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Tax liability and ITC on GTA Service under GST
In our previous blog, we have understood who a GTA is and the GST tax rates applicable to the service of transportation of goods provided by a GTA. In this blog, we will understand who is liable to pay the tax on GTA service: the GTA or the service recipient.
For this, the first step is to identify who is the recipient of the transportation service provided by a GTA.
How to identify the recipient of transportation service provided by a GTA?
In case of transportation of goods, identifying the person who receives the service from the GTA can be confusing- Is it the person sending the goods (consignor) or the person receiving the goods (consignee)?In this case, the recipient of service will be the person who makes the payment of freight charges. Hence, if the consignor pays the freight charges to the GTA, the consignor becomes the recipient of service and if the consignee pays the freight charges to the GTA, the consignee becomes the recipient of the service.
Example: A dealer takes the services of a GTA to deliver goods to his customer. The freight for the consignment is paid by the supplier. In this case, the dealer is considered as the person who has availed the transportation service from the GTA and hence, is the recipient of the service. Similarly, another consignment which the dealer sends through the GTA is a ‘to-pay’ consignment, where the customer will pay the freight charges to the GTA. In this case, the customer becomes the recipient of service from the GTA.
Once the recipient of the service has been identified, we can answer the important question of whether the GTA or the service recipient has to pay the tax liability.
This is based on the following 2 scenarios:
- Recipient belongs to the specified category of persons
- Recipient does not belong to specified category of persons
Recipient belongs to specified category of persons
When a GTA, whether registered or unregistered, provides taxable transportation or related services to any of the specified persons, the recipient of the service is liable to pay tax on reverse charge basis. These specified persons are:- A person registered under GST
- A factory registered under or governed by the Factories Act, 1948
- A Society registered under Societies Registration Act, 1860 or under any other law for the time being in force in any part of India
- A co-operative society established by or under any law
- A body corporate established by or under any law
- A partnership firm, whether registered or not under any law, including association of persons
- A casual taxable person
Example: Raj Logistics, a GTA, provides transport service to Manish Apparels, a registered dealer. On 15th October, ’17, Raj Logistics transports a batch of apparel on behalf of Manish Apparels to an unregistered person. The apparel is transported in a single vehicle and Raj Transports charges Rs. 8,000 as freight for this, which is paid by Manish Apparels.
Here, the transportation service provided by Raj Logistics is taxable @ 5% because the freight paid for a single vehicle exceeds Rs. 1,500. This freight is paid by Manish Apparels and hence, Manish Apparels is the recipient of service. Since Manish Apparels is a registered person, that is, a specified person, Manish Apparels is liable to pay tax @ 5% on this service.
Input tax credit Eligibility
Any person in the above list of specified persons who pays tax on reverse charge basis on transportation service received from a GTA, is eligible for full input credit of the tax paid.Recipient does not belong to specified category of persons
In the list of specified persons who are liable to pay tax on GTA service on reverse charge, certain persons have not been included. These are:- Unregistered Sole Proprietor
- Unregistered HUF (Hindu Undivided Family)
- Unregistered BOI (Body of Individuals)
Example: Mohan Transports, a registered GTA, provides transportation service to an unregistered sole proprietor, Mr. Rakesh, for a batch of electronic goods. The goods are delivered to a dealer, Lakshmi Electronics, in 3 vehicles. Mohan Transports charges Rs. 4,000 as freight for this, which is paid by Mr. Rakesh.
Here, the transportation service provided by Mohan Transports is taxable @ 5% because the freight paid for a single consignee exceeds Rs. 750. This freight is paid by Mr. Rakesh and hence, Mr. Rakesh is the recipient of service. Since Mr. Rakesh is an unregistered sole proprietor, that is, not a specified person and Mohan Transports is a registered GTA, Mohan Transports is liable to pay tax @ 5% on this.
Input tax credit eligibility
In such cases, where a registered GTA is liable to pay tax @ 5% on transportation service, 2 options have been given to the GTA:- Pay tax @ 5% with no input tax credit
- Pay tax @ 12% with full input tax credit
In this blog, we have learnt that when a GTA provides taxable transportation service to a specified person, the recipient is liable to pay tax on reverse charge. When a GTA provides taxable transportation service to a person other than the specified persons, the GTA is liable to pay tax, but only if it is registered. In our next blog, we will understand the impact on registration for a GTA and the recipient of GTA service.
Source :- http://blogs.tallysolutions.com/tax-liability-itc-on-gta-services-under-gst/
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GST on Free Samples, Supplies and Buy One Get One Free Offers
Festival season is around the corner, sales promotional offers will be a common sight in the market place. More often, promotional schemes are used as effective sales strategy to attract the customer to buy their product. Among the various promotional offers, Buy One-Get One Free, Free gifts, Flat discounts, and so on, are the popular schemes. In case of newer products, in order to gain market penetration, the concept of free samples are adopted. Under this, products are supplied for free as a sample, and this is very common in the pharmaceutical industry. While this method of sales is proven to be successful, it is not as easy for businesses as it looks. In deciding the promotional offers, the businesses need to consider the implication of taxes on these schemes.
In our earlier blog How to Calculate the Value on which GST should be charged?, we discussed about the treatment of discounts under GST. In this blog, let us discuss on the implication of tax on free supplies and free samples in the erstwhile regime, and under GST.
In the former regime of indirect taxes, VAT was not levied on free supplies and free samples since VAT was applicable on sale having consideration. However, in most of the states, the input tax credit on purchase was not allowed, and it had to be reversed. In case of Central Excise, excise duty was levied even on free supplies. This is because, taxable event under Central Excise was removal of goods.
GST on free samples, buy one get one free, free supplies
The treatment of tax for free samples and supplies under GST is more or less similar to VAT regime. Under GST, anything supplied as ’Free’, tax will not be levied on such supplies. However, on doing so, businesses need to sacrifice the benefit of input tax credit. This means, businesses will not be entitled for input tax credit on the goods, which are supplied as ’Free,’ and proportionate ITC needs to be reversed.Let us understand GST on free supplies with an example
Electronic World is an exclusive showroom of electronic products. They purchase 49 Inch and 22 Inch LED TV from their distributor. The following are the details of inward supplies:| TV | QTY | Rate | Amount | GST |
|---|---|---|---|---|
| 49 Inch LED TV | 10 Nos | 50,000 | 5,00,000 | 1,40,000 |
| 22 Inch LED TV | 10 Nos | 10,000 | 1,00,000 | 28,000 |
As discussed earlier, on free supplies, GST will not be levied. As a result, on making outward supplies of 22 Inch Led TV as free, GST will not be charged. However, Electronic World needs to reverse the ITC claim of Rs 2,800 on the inward supply of 22 Inch Led TV.
Similar treatment needs to be done in the event of goods are stolen, destroyed, written-off or disposed of as gifts,
Conclusion
The GST era has not brought in any significant change in the behaviour of free supplies. The provisions of the erstwhile law of VAT is replicated. However, caution should be taken to ensure that the reversal of ITC are accounted for periodically as applicable. This is to avoid interest or penalty in case of detection of non-adherence by the tax authority.Source :- http://blogs.tallysolutions.com/gst-free-samples-buy-one-get-one-offers-free-supplies/
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