GST Update on taxability of sub-contracting of GTA services 91/2020-21

The GTA service providers have the option to pay GST under forward charge at the rate of 12% and avail input tax credit. It is also clear that if the GTA opts for paying GST under forward charge at the rate of 12% with availing the facility of input tax credit, the said option is to be exercised for all the transactions. It is not possible for GTA to declare certain supplies under reverse charge mechanism and certain supplies under forward charge. The issue regarding the GST implication on the transaction of sub-contracting the services of GTA was recently considered by the Maharashtra AAR in the case of M/s Liberty Translines and the outcome of this advance ruling is the subject matter of discussion of our present update.

The applicant is engaged in providing services as GTA and has been appointed by M/s POSCO to provide service of transportation of goods by road for its clients. In simple words, the applicant is sub-contractor for providing GTA services to the clients of M/s POSCO. Hence, the applicant seeks advance ruling on the following questions:-

Whether the services rendered by the applicant to M/s POSCO as sub contractor will be classified as GTA Service?
Whether assesses can charge GST @12% under Forward Charge mechanism in terms of Notification No 20/2017-Central Tax (Rate) 2017 dated 22 August, 2017 as M/s POSCO is also charging GST @ 12% from its clients?
Whether recipient of service, M/s POSCO would be eligible to claim Input Tax Credit of the invoices issued by the applicant under forward charge mechanism?
Whether is it correct to have two GTA Service Providers and two consignment notes for the same movement of goods?

Goods Transport Agency is not defined in CGST Act, 2017 but the meaning of GTA is given by way of an explanation to Entry 9(iii) of Notification No 20/2017-Central Tax (Rate) 2017 dated 22 August, 2017 which reads as follows:-

Explanation to Entry 9(iii):- “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.

It was concluded that main contractor, M/s POSCO is providing road transport service to the ultimate customer and is issuing consignment notes and so falls under the definition of GTA. Main Contractor is not the owner of the vehicle but he has appointed a sub-contractor to provide services of transportation of goods by road. However, the applicant cannot be treated as GTA as the applicant is truck owner and has providing services of hiring of trucks to M/s POSCO which is exempt from levy of GST.

There is a difference between a GTA and a person who owns truck commonly known as transporter who may give transportation service either by himself or through a transport agent i.e. GTA. It was held that a consignment note is a necessary qualification to be considered as a GTA as per the explanation in Notification 11/2017 (CT) Rate dated 28^thJune 2017 . In the transportation industry, where one transporter has takes the help of another transporter by way of sub-contracting the work and the sub contractor bills to main contractor for sub contracting service. It is very clear in the GST Law that who issues consignment note will be treated as goods transport agency. Main Contactor issues consignment note and therefore only main contractor is a GTA for this transaction. Any services by way of transportation of goods by road other than through GTA would be exempt supply as per the notification no. 20/2017-Central Tax (Rate) dated. 22.08.2017.

In the present case, assessee is providing the transportation service but not as GTA but only as a truck owner to Main Contractor. Therefore, it was held that the services of applicant are exempt and there is no need to charge GST @12% under forward charge mechanism.
As regards the regarding admissibility to input tax credit to the recipient, it was held that the question pertains to M/s POSCO and so the AAR refrained from answering the same. Similarly, as regards the question whether there can be two consignment notes for the same transaction, the AAR denied from commenting as the said question is outside the ambit of scope of advance ruling as prescribed in section 97(2) of the CGST Act, 2017.

It is pertinent to mention here that in frequently asked question (FAQ) related to registration, it has been clarified that registration is not required in case where services of GTA are being provided to another GTA as services by way of giving on hire, a means of transportation of goods to a GTA are exempt from tax vide entry no. 22 of Notification number 12/2017-Central Tax (Rate) dated 28th June, 2017.

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GST Update on taxability of sub-contracting of GTA services 91/2020-21

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