GST UPDATE ON GTA SERVICES

GST UPDATE ON GTA SERVICES

In terms of notification no. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended by notification no. 20/2017- Central tax (Rate) dated 22.08.2017, services of goods transport agency (GTA) in relation to transportation of goods (including used household goods for personal use) attracts GST @5% (under reverse charge mechanism) or 12% (under forward charge).

Option 1:- Applicability of Reverse Charge at 5%

The liability of transportation services provided by GTA at GST 5% is to be discharged by the recipient under reverse charge mechanism, subject to the condition that credit of input tax charged on goods or services used in supplying the service has not been taken. The Explanation to the notification further clarifies that 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 subsection (2) of section 17 of the Central Goods and Services Tax Act, 2017 and the rules made there under.

Further, the recipient of GTA service discharging the tax liability is entitled to take Input Tax Credit (ITC) of the amount of tax paid under reverse charge provided it is used in the course or furtherance of business at his end.

Option 2:- Applicability of Forward Charge at 12%

As per Notification No. 20/2017 – CT (Rate) dated 22.08.2017, GTA is allowed to take ITC subject to condition that they should discharge GST liability @12% under forward charge. Further the recipient would be eligible for ITC of the GST paid by GTA on forward charge basis.

Ambiguity regarding the credit not availed during the period of 01.07.2017 to 21.08.2017 on availing the option to discharge liability under forward charge at 12%

However, many transporters have changed their practice after receiving option of charging GST at 12% along with input tax credit from 22.08.2017, but before this option liability under GST was discharged under reverse charge basis by the service recipient. Now, the question arises on the availability of the credit on inputs/capital goods held in stock as on 21.08.2017 on discharging liability at 12% under forward charge on transportation services.

In the CGST Act, under section 18(1)(d) the credit is allowed when a registered taxable person comes out of exemption which is as follows:

(d) where an exempt supply of goods or services or both by a registered person becomes a taxable supply, such person shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable:

Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed.

There is separate form for the same also. But there is no clarification as regard the fact whether GTA is allowed to take credit on stock of inputs and on capital goods when GTA shifts from lower rate of GST to higher rate of GST with a change in condition of availment of credit.

However, in notification no. 11/2017-CT (Rate) dated 28.06.2017 and explanation has been added with the condition which is as follows:

(iv) 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.

Thus, the above provision indicates that the GTA service with the GST rate of 5% with the condition of non-availment of credit would be considered as exempt supply for the purpose of reversal under section 17(2) of the CGST Act, 2017 read with Rule 42 & 43 of the CGST Rules. However, the definition of ‘exempt supply’ under section 2(47) as provided in the CGST Act, does not includes within its ambit supply with GST rate of 5% with the condition that no cenvat credit has been taken. Consequently, the question arises that whether the benefit of section 18(1)(d) of the CGST Act, 2017 can be availed by GTA service provider opting from 5% to 12% GST rate? In our opinion, the provision contained in notification 11/2017 is specific and cannot be made applicable for the purpose of availing benefit under section 18(1)(d) of the CGST Act, 2017. Thus, it is a matter of dispute and needs to be resolved at earliest.

The content of this GST update is for educational purpose only and not intended for solicitation.

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