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Technical Guide on

Transportation

The Institute of Chartered Accountants of India


(Set up by an Act of Parliament)
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Edition : January, 2015

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Foreword
iv
Preface

v
vi
Contents
Chapter 1 Introduction 1
Chapter 2 Service Tax Rules, 1994 Pertaining to Transportation Sector 47
Chapter 3 Valuation Rules for Transportation Sector 56
Chapter 4 Reverse Charge Mechanism, 2012 forTransportation Sector 64
Chapter 5 Place of Provision of Service Rules, 2012 pertaining to
Transportation Sector 82
Chapter 6 Place CENVAT Credit Rules, 2004 Pertaining to
Transportation Sector 94
Chapter 7 Notification and Circular Pertaining to Transportation Sector 137
Chapter 8 Head Notes – Judgements 186
Chapter 9 Practical Illustration for Transportation Sector 197
Chapter 10 Frequently Asked Questions on Transportation Sector 203

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viii
Chapter 1
Introduction
A. Taxability on Transportation of Goods by Road
Background
With the invention of wheel, the world has progressed manifold. Through
wheel, even transportation of goods has been made possible from one place
to another which is also one of the key factor in growth of commerce. In
ancient times (at certain places, even today), the goods were transported in
horse cart or camel carts or through humans. With the development of roads,
the transport vehicles have been developed such as trucks, tractors etc by
which movement of goods from one place to another takes place. The
transport operator in case of truck can have their own truck or can take the
same on rent.
The activities performed by the operator of truck are service.
The taxability or otherwise of service tax on the activities of road
transportation is provided in under mentioned paragraphs.

Legislative History upto 30.06.2012 in brief


The Finance Act, 1997 had levied Service Tax on Goods Transport
Operators w.e.f. 16-11-1997 [(Notification No. 41/97-S.T., dated 5-11-1997)].
However, there was a nationwide strike afterwhich, the levy was exempted
[(Notification No. 43/97-S.T., dated 5-11-1997) and later on withdrawn
(Notification No. 5/99-Service Tax, dated 28-2-1999)].
The Finance (No. 2) Act, 2004 has then imposed service tax on Transport of
Goods by Road on services provided by any goods transport agency with
effect from 10-09-2004. However, the levy was deferred till further notice
again in view of transporters strike.
In pursuance to an agreement between the Government and representatives
of the transport industry, a Committee has been set up to look into
appropriate mechanism/modalities for collection and payment of service tax
by commercial concerns and the rules/notifications has been finalized with
the consultation of the committee. No tax would, therefore, be payable by the
Technical Guide on Transportation

goods transport agency till such time government comes out with the
relevant rules/ notifications prescribing the modalities for levy and collection.
Pursuant to that, the effective date for levy has been specified as
01.01.2005. Notification No 32/2004 was issued which specified that service
tax has to be paid only on 25% of the value, provided CENVAT credit of
inputs or capital goods shall not be taken and benefit of Notification No
12/2003 shall not be taken. The notification has been rescinded and in its
place, Notification No 1/2006-ST on the similar lines has been brought in
wherein abatement on 75% on the value of freight has been provided,
provided CENVAT credit of inputs, input services or capital goods shall not
be taken and benefit of Notification No 12/2003 shall not be taken. After
introduction of Negative list, the said provisions are contained in Notification
No 26/2012-ST dated 20.06.2012.
In addition to this, the exemption has been given if certain products are
transported. The exemption has been provided for taxable service provided
by a goods transport agency to any person, in relation to transport of fruits,
vegetables, eggs, milk, food grains or pulses by road in a goods carriage.
[Notification No. 33/2004-S.T., Dated 3/12/2004 as amended]. On the similar
lines, the exemptions are contained in Notification No 25/2012-ST dated
20.06.2012 after the introduction of Negative List.
The Government also did not wish to tax the small consignments, hence, it
has exempted the services provided by goods transport agency where
consignments transported by road when gross amount charged is upto `
1500/-or when gross amount charged for an individual consignment is upto `
750/-. [Notification No. 34/2004-S.T., Dated 3/12/2004]. On the similar lines,
the exemptions are contained in Notification No 25/2012-ST dated
20.06.2012 after the introduction of Negative List.
The taxable service has been defined as ‘Any service provided or to be
provided to any person, by a goods transport agency, in relation to transport
of goods by road in a goods carriage;’ [Section 65(105)(zzp)]. In this
definition, up to 15.05.2008, it was taxable if the recipient of service was a
customer of GTA. From, 16.05.2008, the word ‘customer’ has been replaced
by ‘any person’ and thus, has broadened the coverage.
There is no basic change in the taxability post introduction of Negative list,
but whatever differences that are there, has been explained in under
mentioned paragraphs.

2
Introduction

Position from 01.07.2012


From 01.07.2012, Government has specified Negative list in service tax.
‘Negative List’ comprises that list wherein there will not be any tax on the
services specified in that list. Government has specified that list in Section
66D of the Finance Act, 1994. The following services provided in relation to
transportation of goods are specified in the negative list of services which
are:
 Transportation of goods by road except the services of (i) a goods
transportation agency; or (ii) a courier agency;
 Transportation by aircraft or vessel from a place outside India up to the
customs station of clearance in India; or
 by inland waterways.

Meaning of Goods Transport Agency:


Section 65B(26) of the Finance Act, 1994 interprets goods transport agency
as "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;
Transportation of goods by road except by way of Goods Transport Agency
and Courier is covered in the negative list. Service tax is on ‘Goods
Transport Agency’ and not on the ‘Goods Transport Operator’. In a simplest
way ‘agent’ means acting on behalf of another. Whenever goods are
purchased by any person which are required to be delivered to the premises
of the customer, then the same can be arranged in under mentioned ways:
Seller or Consignor delivers goods in the truck owned by them: In such case,
there is no ‘agency’ involved; hence, there will not be any service tax, even if
later on Consignor recovers charges for services provided by it. The word
'agency' in GTA should be construed given the definition of agent in Section
182 of the Indian Contract Act, 1872, as per which an 'agent' is a "person
employed to do any act for another or to represent another in dealings with
the third persons". When the aspect of ‘agency’ is absent in case where a
truck owner or operator gives a truck without an agent being go-between,
there can be no tax. [From para 6.6 of Cce & C, Guntur Versus Kanaka
Durga Agro Oil Products Pvt. Ltd. & Anr[2009] 22 STT 435 (BANG. -
CESTAT)]

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Technical Guide on Transportation

 Buyer agrees to take goods in its truck, in such a case, the buyer
provides services to itself. Thus, no question of service tax arises.
 Seller arranges for transport of goods by arranging truck. In such a
case, the truck owner carries the goods from one destination to
another, but it would be on behalf of seller. Thus, truck operator acts
as an agent of seller. In such a situation, there will be service tax as
the services are provided by ‘Goods Transport Agency’
In Para 149 of Budget 2004 of the Union Finance Minister's speech, Hon’
Finance Minister has clarified that there is no intention to levy service tax on
truck owners or truck operators.
Thus, only when element of ‘agency’ is present, there will be service tax on
transport of goods by road services provided by Goods Transport Agency.

Case Law
(a) Birla Ready Mix Versus Commissioner of Central Excise,
Noida2013 (30) S.T.R. 99 (Tri. - Del.) = [2013] 59 VST 518 (CESTAT) =
[2012 (12) TMI 736]
In this case, the assessee was engaged in manufacturing of Read Mix
Concrete ("RMC" for short). They had hired "Transits Mixers", that is,
vehicles specially designed for carryings RMC from place of manufacture to
place of delivery of the goods. The vehicles were provided by the owners to
the appellant for their use as per terms of a contract. The appellant paid
consideration to the vehicle owners which involved certain payments on
monthlybasis and certain payments based on the number of kilometres run.
Revenue demanded tax on the consideration paid by the appellant to the
vehicle owners, considering it as a consideration for services of "Goods
Transport Agency".
In this case, the Hon’ Tribunal, among other things observed that service tax
is levied on the services of a "Goods Transport Agency" and not on services
of a "Goods Transport Operator". The latter term was used in Finance Act
1994 during the period Nov 1997 to June 1998 and the former expression is
being used now. So it is to be understood that these two expressions refer to
different types of persons. 'The mere fact that the operator is doing activity of
transportation cannot make the operator a "Goods Transport Agency". So the
operators in this case cannot be considered as "Goods Transport Agencies"

4
Introduction

[The logic is that no agency relationship arises between the truck owner and
the truck operator]

Meaning of Goods Carriage


Para 2(r) of Notification No 25/2012-ST defines goods carriage as “Goods
carriage” has the meaning assigned to it in clause (14) of section 2 of the
Motor Vehicles Act, 1988 (59 of 1988)"
As per Section 2(14) of the Motor Vehicles Act, ’’Goods carriage” means any
motor vehicle constructed or adapted for use solely for the carriage of goods,
or any motor vehicle not so constructed or adapted when used for the
carriage of goods;"

Consignment Note
One of the condition for levy of service tax on transport of goods by Road is
that the consignment note must be issued.
The provisions regarding issuance of consignment note is contained in Rule
4B of Service Tax Rules, 1994.
As per Explanation to Rule 4B, ‘consignment note" means a document,
issued by a goods transport agency against the receipt of goods for the
purpose of transport of goods by road in a goods carriage, which is serially
numbered, and contains the name of the consignor and consignee,
registration number of the goods carriage in which the goods are transported,
details of the goods transported, details of the place of origin and destination,
person liable for paying service tax whether consignor, consignee or the
goods transport agency’
The consignment Note shall also contain the details of the consignment note
number and date, gross weight of the consignment. [2nd Proviso to Rule 4A
of Service Tax Rules, 1994]
As per Rule 4B, ‘any goods transport agency which provides service in
relation to transport of goods by road in a goods carriage shall issue a
consignment note to the recipient of service.
It has also been clarified in Rule 4B that where any taxable service in relation
to transport of goods by road in a goods carriage is wholly exempted under
section 93 of the Act, the goods transport agency shall not be required to
issue the consignment note.

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Technical Guide on Transportation

Whether issuance of consignment note is mandatory?


In the under mentioned matters, it has been held that even though
consignment note is not issued, but there is provision of service of Goods
Transport Agency, the same will be taxable even if there is no consignment
note issued.
 It has been held in Bharathi Soap Works Versus Commissioner Of
Cus. & C. Ex., Guntur 2008 (9) S.T.R. 80 (Tri - Bang.) that issuance of
consignment note is mandatory.
 In Coromandel Agro Products & Oils Ltd. Versus Commr. Of C. Ex.,
Guntur 2014 (33) S.T.R. 660 (Tri. - Bang.) = 2014 (6) TMI 657 (Tri. -
Bang.), the question arose as to whether because private truck
operator or a GTA violates the provisions of Rule 4B by not issuing a
consignment note, can the recipient refuse to pay Service Tax? In this,
it has been held that ‘according to the law, recipient of the services
has been made liable to pay and there is no dispute on this issue.
According to Notification No. 35/2004-S.T (Now Notification No
30/2012)., person who pays the freight is liable to pay. Therefore just
because a person has not issued consignment note in accordance with
law and violated the provisions of law, it cannot be held that the
recipient also can claim that he would also violate the law. Therefore,
on analysis of the statutory provisions and Notification, etc., the
recipient is liable to pay Service Tax in situation like this and therefore
the refund claim has correctly been rejected.
 In, UP. State Sugar Corporation Ltd. Versus Commr. Of C. Ex.,
Meerut-II2011 (24) S.T.R. 423 (Tri. - Del.) = 2011 (7) TMI 941 (Tri. -
Del.), the pre deposit has been ordered. In this case, the Appellate
Authority found that the Appellant had utilised the service of sugarcane
transport contractors for transportation of sugarcane from various
sugarcane collection centers and the service so received escaped levy
of Service Tax - Consignment note may not necessarily be in any
format since no such format is prescribed under law but the
documents accompanying the goods identifying the consignor and
consignee, route of consignment enable to construe what a
consignment note is and the Appellant’s grievance that the
consignment note was mandatory does not find support of law when
fact and circumstances demonstrate route of goods moved disclosing
identity of consignor and consignee and goods consigned.

6
Introduction

In under mentioned cases, it has been considered that when the transporters
did not issue consignment notes or G` or Challans or any documents
containing the particular as prescribed in Explanation to Rule 4B of the
Service Tax Rules, 1994, the Transporters cannot be called ‘Goods
Transport Agency’ and, hence, in these cases, the service of transportation
of goods provided by the transporters would not be covered in the definition
of Goods Transport Agency. This principle has been held in:
 S. Selvam v. CCE [2014 (9) TMI 115 (Chennai- Tri)]
 South Eastern Coal Fields Ltd v. CCE [2014 (8) TMI 857 –(Delhi-Tri)]
 Carris Pipes & Tubes Pvt. Ltd. Versus Commissioner of Central Excise,
Coimbatore [2013 (8) TMI 294 -(Chennai- Tri)]
 Lakshminarayana Mining co. Vs CST Banglore2009 (16) STR (69)
affirmed by Karnataka High Court in 2012 (26) STR 517 (Kar.)
 KMB Granites Pvt. Ltd. CCE Salem - 2010 (19) STR 437
 Bazpur Co-operative Sugar Factory Ltd. Versus Commissioner of Central
Excise, Meerut-II [2012 (8) TMI 752 - CESTAT, NEW DELHI] =[2012] 36
STT 444 (New Delhi - Tri) = 2012 (27) S.T.R. 517 (Tri. - Del.)
 Mahi Agro Products Pvt. Ltd. Versus COMMR. OF CUS., C. EX. & ST.,
GUNTUR [2013 (2) TMI 243 –Tri- Banglore] =2012 (28) S.T.R. 300 (Tri. -
Bang.)

Exemptions
Though there is a service tax on transport of services provided by Road, yet,
there are certain sectors wherein government wants to have exemption and
also upto a certain amount, government wants to provide exemption. Hence,
the Central Government has introduced a mega exemption Notification No
25/2012-ST dated 20.06.2012. As per the notification, the services of
transportation of goods in a goods carriage is exempt in the manner specified
hereunder:
Exemption based on the value of freight charged
Where the services are provided by a goods transport agency, by way of
transport in a goods carriage of,-
(i) goods, where gross amount charged for the transportation of goods on
a consignment transported in a single carriage does not exceed one

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Technical Guide on Transportation

thousand five hundred rupees; [Sr No 21(b) of Notification No 25/2012-


ST]
(ii) goods, where gross amount charged for transportation of all such
goods for a single consignee does not exceed rupees seven hundred
fifty; [Sr No 21(c) of Notification No 25/2012-ST]
Exemption based on the materials transported as amended upto
11.07.2014
In the following transportation of goods, services provided by goods transport
agency by way of transport in a goods carriage is exempt:
(i) Agricultural produce; [Sr No 21(a) of Notification No 25/2012-ST]
(ii) Foodstuff including flours, tea, coffee, jaggery, sugar, milk products,
salt and edible oil, excluding alcoholic beverages; [Sr No 21(d) of
Notification No 25/2012-ST]
(iii) Chemical fertilizer, organic manure and oil cakes; [Sr No 21(e) of
Notification No 25/2012-ST]
(iv) newspaper or magazines registered with the Registrar of Newspapers;
[Sr No 21(f) of Notification No 25/2012-ST]
(v) Relief materials meant for victims of natural or man-made disasters,
calamities, accidents or mishap; [Sr No 21(g) of Notification No
25/2012-ST]
(vi) Defence or military equipments; [Sr No 21(h) of Notification No
25/2012-ST]
(vii) Cotton, ginned or baled. [Sr No 21(i) of Notification No 25/2012-ST]

Renting of means of transportation to Goods Transportation


Agency
Whenever any entity gives to a goods transportation agency a means of
transportation of goods, then the consideration received towards such renting
is exempt. [Sr No 22(b) of Notification No 25/2012-ST dated 20.06.2012]

Abatement
Central Government has power to prescribe the abatement with respect to
certain services. Abatement means reduction. Central Government has

8
Introduction

granted exemption equal to percentage of abatement specified. The


abatement has been prescribed in Notification No 26/2012-ST dated
20.06.2012.
With respect to service of transportation of goods by Road, Central
Government has provided an abatement of 75% of the value of services. [Sr
No 7 of the Notification no 26/2012-ST]. Thus, service tax is required to be
paid only on 25% of the value of services.
The abatement has been granted subject to the condition that CENVAT
credit on inputs, capital goods and input services, used for providing the
taxable service, has not been taken by the service provider under the
provisions of the CENVAT Credit Rules, 2004.
 In para 31 of F.No.B1/ 6 /2005-TRU, dated 27th July, 2005, it has
been clarified thata declaration by the goods transport agency in the
consignment note issued, to the effect that neither credit on inputs or
capital goods used for provision of service has been taken nor the
benefit of notification No. 12/2003-Service Tax has been taken by
them may suffice for the purpose of availment of abatement by the
person liable to pay service tax.
The ministry has clarified that the condition for availing abatement in case of
GTA service where CENVAT credit has not been availed is required to be
satisfied by the service providers only. Service recipient will not be required
to establish satisfaction of this condition by the service provider. [Sr No
4.1.6(1) of DOF Letter 334/15/2014-TRU dated 10.07.2014].

Valuation
The provisions regarding valuation are contained in section 67 of the Finance
Act, 1994 which reads as
.‘(1) Subject to the provisions of this Chapter, service tax chargeable on
any taxable service with reference to its value shall,—
(i) in a case where the provision of service is for a consideration in
money, be the gross amount charged by the service provider for such
service provided or to be provided by him;
(ii) in a case where the provision of service is for a consideration not
wholly or partly consisting of money, be such amount in money, with
the addition of service tax charged, is equivalent to the consideration;

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Technical Guide on Transportation

(iii) in a case where the provision of service is for a consideration which is


not ascertainable, be the amount as may be determined in the
prescribed manner.
(2) Where the gross amount charged by a service provider, for the service
provided or to be provided is inclusive of service tax payable, the value of
such taxable service shall be such amount as, with the addition of tax
payable, is equal to the gross amount charged.
(3) The gross amount charged for the taxable service shall include any
amount received towards the taxable service before, during or after provision
of such service.
(4) Subject to the provisions of sub-sections (1), (2) and (3), the value
shall be determined in such manner as may be prescribed
Explanation.—For the purposes of this section,—
(a) "consideration" includes any amount that is payable for the taxable
services provided or to be provided;
(c) "gross amount charged" includes payment by cheque, credit card,
deduction from account and any form of payment by issue of credit
notes or debit notes and book adjustment, and any amount credited or
debited, as the case may be, to any account, whether called
"Suspense account" or by any other name, in the books of account of
a person liable to pay service tax, where the transaction of taxable
service is with any associated enterprise.’
Thus, the service tax is required to be charged on the gross amount charged.
Where the amount charged does not contain service tax, then the service
provider can treat the amount as inclusive of service tax and pay tax as if the
amount charged is cum tax. However, the recipient of service tax cannot
treat the amount as inclusive of service tax.

Small Service Provider Exemption


Notification No 33/2012-ST provides exemption from taxable services of
aggregate value not exceeding ten lakh rupees in any financial year from the
whole of the service tax leviable thereon under section 66B of the said
Finance Act. However, this exemption is subject to the condition, inter alia,
that
 the aggregate value of taxable services rendered by a provider of

10
Introduction

taxable service from one or more premises, does not exceed ten lakh
rupees in the preceding financial year.
 taxable services provided by a person under a brand name or trade
name, whether registered or not, of another person;
The exemption is not available to the persons who are required to pay
service tax as a recipient of service in terms of section 68(2) of the Finance
Act. [2nd Proviso to Para 1 of the Notification]
Thus, the exemption can be claimed by the service provider. In case of
goods transport agency, the service provider can claim exemption in cases
wherein it is required to make payment of service tax.
Instances where service tax is to be paid by service provider in case of
transport of goods by Road:
 Where the person paying freight does not fall into specified category of
persons;
 When the person paying freight is located in a non-taxable territory;
The Gross amount charged by Goods Transport Agency under Section 67
ibid to the recipient of service shall not to be taken into account for
determining the aggregate taxable value under the small scale
exemption.[Reply to FAQ 8.2 issued by Department dated 05.02.2009]

Who is required to make payment of service tax?


Generally service provider makes payment of service tax. However, with
respect to certain services specified by Government, service recipient is
liable to pay service tax.
Rule 2(1)(d)(i)(B) of Service Tax Rules, 1994 read with Notification No
30/2012-ST dated 20.06.2012 states that in relation to service provided or
agreed to be provided by a goods transport agency in respect of
transportation of goods by road, where the person liable to pay freight is,—
(i) any factory registered under or governed by the Factories Act, 1948
(63 of 1948);
(ii) any society registered under the Societies Registration Act, 1860 (21
of 1860) or under any other law for the time being in force in any part
of India;

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Technical Guide on Transportation

(iii) any co-operative society established by or under any law;


(iv) any dealer of excisable goods, who is registered under the Central
Excise Act, 1944 (1 of 1944) or the rules made thereunder;
(v) any body corporate established, by or under any law; or
(vi) any partnership firm whether registered or not under any law including
association of persons;
any person who pays or is liable to pay freight either himself or through his
agent for the transportation of such goods by road in a goods carriage,
in such case, it is the person receiving service is required to make payment
of service tax.
It has also been clarified that when person liable to pay freight is located in a
non-taxable territory, the provider of such service shall be liable to pay
service tax.
Examples
KGB Infrastructures Limited, located in Maharastra is into the business of
construction and purchased bricks from JSK, a partnership firm. Bricks are
supplied in a truck and the freight for the same is paid by KGB Infrastructures
Limited. The amount of freight is ` 6000/-. In such case, as the person who
is liable to pay freight is KGB Infrastructures Limited. As KGB Infrastructures
Limited falls into the category of one of the specified persons as per Rule
2(1)(d)(i)(B) of Service Tax Rules, 1994, hence, as per Notification No
30/2012-ST read with Rule 2(1)(d)(i)(B) of Service Tax Rules, 1994, the
recipient of service is liable to pay service tax. The abatement of 75% is
available in terms of Notification No 26/2012-ST. Thus, service tax is payable
at 12.36% (with E Cess and SHE Cess) on ` 1500/- (after claiming
abatement of 75%). No SSP Exemption will be available to the recipient of
service.
KGB Infrastructures Limited is into the business of construction and
purchased bricks from JSK, a partnership firm. Bricks are supplied in a truck
and the freight for the same is paid by JSK, a partnership firm. The amount of
freight is ` 6000/-. In such case, as the person who is liable to pay freight is
JSK, a partnership firm. It does not matter whether partnership is registered
or it is unregistered. Subsequently, if M/s JSK, a partnership firm recovers
the freight from KGB Infrastructures Limited by charging the same in the

12
Introduction

invoice, in such case, the freight has been paid to the truck owner by JSK, a
partnership firm. The liability is only of the person paying freight is with
respect to services provided by goods transport agency and not any other
person.

Point of taxation
The point of taxation refers to the time when the tax is required to be paid.
For the said reason, Point of Taxation Rules, 2011 has been introduced. As
far as transportation of goods by Road is concerned, point of taxation is
required to be seen from service providers view point as well as service
receivers view point.

From Service Providers View Point


Where tax is required to be paid by service provider, in such a case, point of
taxation will be determined by Rule 3 of Point of Taxation Rules, 2011. The
relevant extracts are reproduced below:
For the purposes of these rules, unless otherwise provided, ‘point of taxation’
shall be,-
(a) the time when the invoice for the service provided or to be provided is
issued:
Provided that where the invoice is not issued within the time period specified
in rule 4A of the Service Tax Rules,1994, the point of taxation shall be the
date of completion of provision of the service.
(b) in a case, where the person providing the service, receives a payment
before the time specified in clause (a), the time, when he receives such
payment, to the extent of such payment.
Provided that for the purposes of clauses (a) and (b), —
(i) in case of continuous supply of service where the provision of the
whole or part of the service is determined periodically on the completion of
an event in terms of a contract, which requires the receiver of service to
make any payment to service provider, the date of completion of each such
event as specified in the contract shall be deemed to be the date of
completion of provision of service;
(ii) wherever the provider of taxable service receives a payment up to
rupees one thousand in excess of the amount indicated in the invoice, the

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Technical Guide on Transportation

point of taxation to the extent of such excess amount, at the option of the
provider of taxable service, shall be determined in accordance with the
provisions of clause (a).
Explanation .- For the purpose of this rule, wherever any advance by
whatever name known, is received by the service provider towards the
provision of taxable service, the point of taxation shall be the date of receipt
of each such advance.

Where service recipient is the person responsible for


payment of tax
The point of taxation for transportation of goods by road is contained in Rule
7 of the Point of Taxation Rules as the service recipient is the person
responsible for payment of service tax in terms of section 68(2) of the
Finance Act, 1994.
Rule 7 of the Point of Taxation Rules read as under (upto 30.09.2014):
 ‘Notwithstanding anything contained in these rules, the point of
taxation in respect of the persons required to pay tax as recipients of
service under the rules made in this regard in respect of services
notified under sub-section (2) of section 68 of the Act, shall be the
date on which payment is made:
Provided that, where the payment is not made within a period of six
months of the date of invoice, the point of taxation shall be determined
as if this rule does not exist:
Provided further that in case of “associated enterprises”, where the
person providing the service is located outside India, the point of
taxation shall be the date of debit in the books of account of the
person receiving the service or date of making the payment whichever
is earlier’
 From 01.10.2014, the above rule reads as
 ‘Notwithstanding anything contained in Rule 3, 4 or 8, the point of
taxation in respect of the persons required to pay tax as recipients of
service under the rules made in this regard in respect of services
notified under sub-section (2) of section 68 of the Act, shall be the
date on which payment is made:

14
Introduction

 Provided that, where the payment is not made within a period of three
months of the date of invoice, the point of taxation shall be the date
immediately following the said period of three months:
 Provided further that in case of “associated enterprises”, where the
person providing the service is located outside India, the point of
taxation shall be the date of debit in the books of account of the
person receiving the service or date of making the payment whichever
is earlier’
Rule 10 in the Point of Taxation Rules, 2011 has been inserted w.e.f
01.10.2014, which reads as:
 Notwithstanding anything contained in the first proviso to rule 7, if the
invoice in respect of a service, for which point of taxation is
determinable under rule 7 has been issued before the 1st day of
October, 2014 but payment has not been made as on the said day, the
point of taxation shall,–
(a) if payment is made within a period of six months of the date of
invoice, be the date on which payment is made;
(b) if payment is not made within a period of six months of the date
of invoice, be determined as if rule 7 and this rule do not exist
The effect of above is summarised as under:
 Where the freight is payable as a recipient of service and the invoice is
issued on or before 30.09.2014, in such case, the point of taxation will
be the date of payment where the payment is made within six months.
If the payment is not made within six months, in such a case, the point
of taxation will be determined as if Rule 7 does not exist. Thus, the
matter will fall back to the date of invoice and interest liability will
commence from the date of invoice.
 From 01.10.2014, the change has been made from 6 months to 3
months which would indicate that generally the point of taxation in
case where service tax is payable under reverse charge would be the
date of payment, provided the payment is made within 3 months.
 Where the payment is not made within 3 months, in such case, the
point of taxation will be immediately following the expiration of three
months. Thus, interest liability commences from the completion of
three months.

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Technical Guide on Transportation

 It needs to be noted that point of taxation is 3 months from the date of


invoice. Thus, where consignment note is received on 25.10.2014 for
payment of ` 1,00,000/-, in such a case,
(c) Where payment is made on 25.01.2015, then the due date of
payment of service tax will be 06.02.2015 in case of entities
other than proprietorship and partnerships.
(d) Where payment is made on 31.01.2015, then the due date of
payment of service tax will be 06.02.2015 in case of entities
other than proprietorship and partnerships.
(e) Where payment is made on 06.02.2015, then the due date of
payment of service tax will be 06.02.2015 in case of entities
other than proprietorship and partnerships.
(f) Where payment is made on 10.02.2015, then the due date of
payment of service tax will be 06.02.2015 in case of entities
other than proprietorship and partnerships. Thus, interest of 4
days is required to be paid.
 Since the above provisions are to come w.e.f 01.10.2014, transition
provisions are made which are contained in Rule 10.

CENVAT Credit to Service Provider


There are two options available to the service provider:
 One, claim abatement of 75%, on the condition that CENVAT credit of
inputs, input services and capital goods will not be available. Based on
this condition only, the service provider and service receiver pays
service tax after availing abatement.
 Two, do not claim abatement of 75% as per Notification No 26/2012-
ST and avail CENVAT credit of inputs, input services and capital
goods. In this case, the rate of service tax will be 12.36% (incl E Cess
and SHE Cess).

CENVAT Credit to the Recipient of input service i.e., service


of ‘Transport of goods by Road’
 The manufacturer or provider of output service will make payment of
service tax on transportation of goods by road. In this regard, a
question arises as to whether the credit of the same will be available.

16
Introduction

In this regard, it is pertinent to note the definition of ‘input service’


which is contained in Rule 2(l) of CENVAT Credit Rules, 2004 which
reads as
‘“Input service” means any service, -
(i) used by a provider of output service for providing an output service;
or
(ii) used by a manufacturer, whether directly or indirectly, in or in
relation to the manufacture of final products and clearance of final
products upto the place of removal,
and includes services used in relation to modernisation, renovation or
repairs of a factory, premises of provider of output service or an office
relating to such factory or premises, advertisement or sales promotion,
market research, storage upto the place of removal, procurement of
inputs, accounting, auditing, financing, recruitment and quality control,
coaching and training, computer networking, credit rating, share
registry, security, business exhibition, legal services, inward
transportation of inputs or capital goods and outward
transportation upto the place of removal; but excludes,-
(A) service portion in the execution of a works contract and
construction services including service listed under clause (b) of
section 66E of the Finance Act (hereinafter referred as specified
services) in so far as they are used for -
(a) construction or execution of works contract of a building or a civil
structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital
goods,
except for the provision of one or more of the specified services; or
(B) services provided by way of renting of a motor vehicle, in so far as
they relate to a motor vehicle which is not a capital goods; or
(BA) service of general insurance business, servicing, repair and
maintenance , in so far as they relate to a motor vehicle which is not a
capital goods, except when used by -
(a) a manufacturer of a motor vehicle in respect of a motor vehicle
manufactured by such person ; or

17
Technical Guide on Transportation

(b) an insurance company in respect of a motor vehicle insured or


reinsured by such person; or
(C) such as those provided in relation to outdoor catering, beauty
treatment, health services, cosmetic and plastic surgery, membership
of a club, health and fitness centre, life insurance, health insurance
and travel benefits extended to employees on vacation such as Leave
or Home Travel Concession, when such services are used primarily for
personal use or consumption of any employee;”’
Thus, the definition of ‘input services’ includes inward transportation of inputs
or capital goods and outward transportation upto the place of removal.
Considering above, the service of ‘Transportation of goods upto the place of
removal’ be bifurcated into inward transportation and outward transportation.
Thus, from the above:
 Service tax credit on inward freight i.e., inward transportation of inputs
or capital goods is available as it is specifically included in the
definition of input services.
 Service tax credit on outward transportation upto the place of removal
is available.
 Service tax credit on outward transportation from the place of removal
is not available.
In this regard, it is also pertinent to note the meaning of ‘place of removal’
which is which is defined in Rule 2(qa) of CENVAT Credit Rules, 2004 as
well as Section 4(3)(c) of Central Excise Act, 1944 which reads as ‘’"place of
removal" means-
(i) a factory or any other place or premises of production or manufacture
of the excisable goods;.
(ii) a warehouse or any other place or premises wherein the excisable
goods have been permitted to be deposited without payment of duty,
(iii) a depot, premises of a consignment agent or any other place or
premises from where excisable goods are to be sold after their
clearance from the factory.
(iv) from where such goods are removed;
Thus, where goods are cleared from depot, in such case, credit of service tax

18
Introduction

on transportation from factory to depot is permissible; however, credit of


service tax on transportation from depot to customer’s premises is not
permissible as an input service.

Document based on which CENVAT credit can be taken?


As per Rule 9(1)(e) of CENVAT Credit Rules, 2004, the CENVAT credit can
be taken on the basis of challan evidencing payment of service tax, by the
service recipient as the person liable to pay service tax.

Place of Provision
The place of provision of services of goods transportation agency shall be
the location of the person liable to pay tax. [ Proviso to Rule 10 of Place of
Provision of service Rules, 2012]
Thus, where goods are to be sent from Goa to Nepal and freight is payable
by consignor, in this case, the service tax is required to be paid by the
consignor.
When freight is payable by a person located in a non-taxable territory, the
provider of such service shall be liable to pay service tax i.e., in such case,
the GTA will have to pay service tax.
Eg. A goods transportation agency ABC located in Delhi transports a
consignment of new motorcycles from the factory of XYZ in Gurgaon
(Haryana), to the premises of a dealer in Bhopal, Madhya Pradesh. Say, XYZ
is a registered assessee and is also the person liable to pay freight and
hence person liable to pay tax, in this case. Here, the place of provision of
the service of transportation of goods will be the location of XYZ i.e.
Haryana. [Para 5.10.3 of Education Guide issued by CBEC]

When services of GTA are provided in a non-taxable territory:


In case where the person liable to pay freight is located in a non taxable
territory, in such case, provider of service shall be liable to pay service tax.
[Rule 2(1)(d) of Service Tax Rules, 1994]
For the same, it is necessary to understand the meaning of term taxable
territory and non taxable territory.
As per section 66B which is a charging provision which states that there shall
be levied a tax (hereinafter referred to as the service tax) at the rate of
twelve per cent. on the value of all services, other than those services

19
Technical Guide on Transportation

specified in the negative list, provided or agreed to be provided in the taxable


territory by one person to another and collected in such manner as may be
prescribed.
Section 65B(52) of the Finance Act, 1994 interprets taxable territory as the
territory to which the provisions of this Chapter (i.e., Chapter V of Finance
Act, 1994) apply.
As per section 64(1) of the Finance Act, 1994, This Chapter (i.e., Chapter V
of Finance Act, 1994) extends to the whole of India except the State of
Jammu and Kashmir
Section 65B(35) interprets non-taxable territory as the territory which is
outside the taxable territory;
Eg. A goods transportation agency ABC located in Delhi transports a
consignment of new motorcycles from the factory of XYZ in Gurgaon
(Haryana), to the premises of a dealer in Jammu (non-taxable territory). Say,
as per mutually agreed terms between ABC and XYZ, the dealer in Jammu is
the person liable to pay freight. Here, in terms of amended provisions of rule
2(1)(d), since the person liable to pay freight is located in non-taxable
territory, the person liable to pay tax will be ABC. Accordingly, the place of
provision of the service of transportation of goods will be the location of ABC
i.e. Delhi.

Can services provided by GTA be treated as Export service?


 When services are provided outside India and the person paying
freight is located outside India, in such a case, the freight may be received in
foreign currency. In such a case, can the service be said to be exported?For
determining whether there is export of service or not, the conditions stated in
Rule 6A of Service tax Rules, 1994 is required to be seen which are
reproduced as under:.

Rule 6A of Service Tax Rules, 1994


(1) The provision of any service provided or agreed to be provided shall
be treated as export of service when,-
(a) the provider of service is located in the taxable territory ,
(b) the recipient of service is located outside India,
(c) the service is not a service specified in the section 66D of the Act,

20
Introduction

(d) the place of provision of the service is outside India,


(e) the payment for such service has been received by the provider of
service in convertible foreign exchange, and
(f) the provider of service and recipient of service are not merely
establishments of a distinct person in accordance with item (b) of
Explanation 3 of clause (44) of section 65B of the Act
(2) Where any service is exported, the Central Government may, by
notification, grant rebate of service tax or duty paid on input services or
inputs, as the case may be, used in providing such service and the rebate
shall be allowed subject to such safeguards, conditions and limitations, as
may be specified, by the Central Government, by notification.
In case of transport of goods service, when the person paying freight is
located in a non-taxable territory, in such a case, the place of provision of
service will be the place of service provider. Where the place of provision of
service in case of goods transport agency becomes India, even though the
consideration for service is received in foreign exchange, it will not be
considered as Export Service.Thus, the services provided by GTA in
neighbouring countries such as Pakistan, Nepal, Bhutan and Bangladesh will
not be treated as Export.

Exemption for services received of transport of goods by


road received by exporter of goods.
In case of export goods, the rebate of goods and services utilised in export
goods is eligible. However, there are certain services wherein Government
has granted upfront exemption from payment of service tax. The upfront
exemption has been granted so as to avoid chain of first of all payment of tax
and then grant of refund.
The provisions in this regard are contained are contained in Notification No
31/2012-ST dated 20.06.2012. As per the said provision, ‘Service provided to
an exporter for transport of the said goods by goods transport agency in a
goods carriage from any container freight station or inland container depot to
the port or airport, as the case may be, from where the goods are exported;
or Service provided to an exporter in relation to transport of the said goods
by goods transport agency in a goods carriage directly from their place of
removal, to an inland container depot, a container freight station, a port or
airport, as the case may be, from where the goods are exported is exempt
from the payment of service tax.’

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Technical Guide on Transportation

For availing the said exemption, the exporter has to inform the Assistant
Commissioner of Central Excise or the Deputy Commissioner of Central
Excise, as the case may be, having jurisdiction over the factory or the
regional office or the head office, as the case may be, in Form EXP1
appended to Notification No 31/2012-ST, before availing the said exemption;
Further, the exporter should be registered with an export promotion council
sponsored by the Ministry of Commerce or the Ministry of Textiles, as the
case may be. He should have an IEC number. He should be registered with
the service tax department. He is liable to pay service tax as a recipient of
service tax in terms of section 68(2) of the Finance Act, 1994 read with Rule
2(1)(d) of the Finance Act, 1994.
The invoice, bill or challan, or any other document by whatever name called
issued by the service provider to the exporter, on which the exporter intends
to avail exemption, shall be issued in the name of the exporter, showing that
the exporter is liable to pay the service tax.
The exporter availing the exemption shall file the return in Form EXP2, every
six months of the financial year, within fifteen days of the completion of the
said six months along with certified copies of invoice, bill or challan issued by
the service provide as well as consignment note.
The documents enclosed with the return shall contain a certification from the
exporter or the authorised person, to the effect that taxable service to which
the document pertains, has been received and used for export of goods by
mentioning the specific shipping bill number on the said document.
where the exporter is a proprietorship concern or partnership firm, the
documents enclosed with the return shall be certified by the exporter himself
and where the exporter is a limited company, the documents enclosed with
the return shall be certified by the person authorised by the Board of
Directors.

Taxability on Services Provided by Railways


Introduction
India’s transport sector is large and diverse; it caters to the needs of 1.1
billion people. In 2007, the sector contributed about 5.5 percent to the
nation’s GDP, with road transportation contributing the lion’s share. Indian
Railways is one of the largest railways under single management. It carries

22
Introduction

some 17 million passengers and 2 million tonnes of freight a day in year


2007 and is one of the world’s largest employers. The railways play a leading
role in carrying passengers and cargo across India's vast territory. However,
most of its major corridors have capacity constraint requiring capacity
enhancement plans. [source: worldbank.org]
Thus, for such a huge share of railways, in 2006, government has introduced
service tax on transport of goods by container in rail. The taxability of the
same is discussed below.

Legislative History
The levy has been brought into force w.e.f 01.05.2006. Initially,
transportation of goods in containers by rail, by other than Government
railways were taxable under section 65(105)(zzzp). Abatement of 70% was
granted under Sr No 11 of Notification No 1/2006-ST without any conditions.
Thus, services of container transportation by person other than Government
Railways were made taxable. Thus, services provided by Container
Corporation of India were brought to tax net.
In 2009, Government has increased the scope of this service by imposing
service tax on goods transported by railways including Government railways,
whether in containers or otherwise. However, because of huge hue and cry,
the exemption has been granted to services provided by Government
Railway vide Notification No 33/2009-ST dated 01.09.2009 and thereafter the
said service remained exempted till 30th September, 2012.

Position from 01.07.2012


From 01.07.2012, Government has specified Negative list in service tax.
‘Negative List’ comprises that list wherein there will not be any tax on the
services specified in that list. Government has specified that list in Section
66D of the Finance Act, 1994. A service of transportation of goods by Rail is
not covered in the Negative List. Even the service of transportation of goods
services by provided by Government or a local authority is not there in the
negative list.
Notification No 43/2012-ST dated 02.07.2012 has exempted Services by way
of transportation of goods by railways upto 30.09.2012.
Thus, from 01.10.2012, a service by way of transportation of goods is taxable
for all persons.

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Technical Guide on Transportation

Exemptions
Though there is a service tax on transport of services provided by Rail, yet,
there are certain sectors wherein government wants to have exemption.
Hence, the Central Government has introduced a mega exemption
Notification No 25/2012-ST dated 20.06.2012. As per the notification, the
services by way of transportation by rail or a vessel from one place in India to
another of the following goods
(i) Relief materials meant for victims of natural or man-made disasters,
calamities, accidents or mishap; [Sr No 20(b) of Notification No
25/2012-ST]
(ii) Defence or military equipments; [Sr No 20(c) of Notification No
25/2012-ST]
(iii) newspaper or magazines registered with the Registrar of Newspapers;
[Sr No 20(f) of Notification No 25/2012-ST]
(iv) railway equipments or materials; [Sr No 20(g) of Notification No
25/2012-ST]
(v) Agricultural produce; [Sr No 20(h) of Notification No 25/2012-ST]
(vi) Foodstuff including flours, tea, coffee, jaggery, sugar, milk products,
salt and edible oil, excluding alcoholic beverages; [Sr No 20(i) of
Notification No 25/2012-ST]
(vii) Chemical fertilizer, organic manure and oil cakes; [Sr No 20(j) of
Notification No 25/2012-ST]
(viii) Cotton, ginned or baled. [Sr No 20(k) of Notification No 25/2012-ST]

Abatement
Central Government has power to prescribe the abatement with respect to
certain services. Abatement means reduction. Central Government has
granted exemption equal to percentage of abatement specified. The
abatement has been prescribed in Notification No 26/2012-ST dated
20.06.2012.
With respect to service of transportation of goods by Road, Central
Government has provided an abatement of 70% of the value of services. [Sr
No 7 of the Notification no 26/2012-ST]. Thus, service tax is required to be
paid only on 30% of the value of services. There are no conditions attached
to it.

24
Introduction

CENVAT Credit
Railway provides taxable as well as exempted service. In this regard, for
providing taxable service, CENVAT credit of inputs, capital goods and input
services are available. However, railway provides both taxable and exempted
services. Thus, as per Rule 6 of CENVAT Credit Rules, under mentioned
options are available for Railways.
 Maintain separate accounts with respect to provision of taxable and
exempted services and avail CENVAT credit only to that extent which
pertains to provision of taxable services.
 If the railway chooses not to maintain separate accounts with respect
to provision of taxable and exempted services, then it shall
Make payment of amount of 2% of the value of exempted services; or (2% is
special provision for Railways, otherwise, it is 6%)
Avail proportionate credit in terms of Rule 6(3A) of CENVAT Credit Rules,
2004.

Valuation
The provisions regarding valuation are contained in section 67 of the Finance
Act, 1994. The prime principle for valuation of service is the gross amount
charged by the service provider for such service provided or to be provided
by him;
For eg., the freight rate from Concor Container Freight Station VZP to Agra,
for 20 Ft Container for General commodity, the rate for container freight is `
Y/-. In addition to above, the door delivery charges and terminal charges are
collected extra. The service tax is on the gross amount charged for services
provided, therefore, it will also be levied on the door delivery charges and
terminal charges.

Small Service Provider Exemption


Notification No 33/2012-ST provides exemption from taxable services of
aggregate value not exceeding ten lakh rupees in any financial year from the
whole of the service tax leviable thereon under section 66B of the said
Finance Act. However, this exemption is subject to the condition, inter alia,
that
 the aggregate value of taxable services rendered by a provider of

25
Technical Guide on Transportation

taxable service from one or more premises, does not exceed ten lakh
rupees in the preceding financial year.
 taxable services provided by a person under a brand name or trade
name, whether registered or not, of another person;
 The text of the notification is attached in chapter VII of this guide.

Who is required to make payment of service tax?


It is the provider of service who is liable to make payment of service tax [Rule
2(1)(d)(ii) of Service Tax Rules, 1994.
The service tax is on services provided in India. As per Rule 2(1)(d)(G) of
Service Tax Rules, 1994, ‘“person liable for paying service tax” in relation to
any taxable service provided or agreed to be provided by any person which
is located in a non-taxable territory and received by any person located in the
taxable territory, the recipient of such service.

Point of taxation
The point of taxation refers to the time when the tax is required to be paid.
For the said reason, Point of Taxation Rules, 2011 has been introduced. As
far as transportation of goods by Courier is concerned, point of taxation is as
under.
 Date of invoice or payment, whichever is earlier, if the invoice is
issued within the prescribed period of 30 days from the date of
completion of the provision of service.
 Date of completion of the provision of service or payment, if the
invoice is not issued within the prescribed period as above. Its effect
has been illustrated in the below mentioned table. [Rule 3 of Point of
Taxation Rules, 2011]

CENVAT Credit to the Recipient of input service


The credit of transport of goods by Rail is eligible so far as the same is
related to provision of output service or for manufacturing of dutiable goods.
As per Rule 9(1)(fa) of CENVAT Credit Rules, 2004, the credit can be taken
based on a Service Tax Certificate for Transportation of goods by Rail
(herein after referred to as STTG Certificate) issued by the Indian Railways,
along with the photocopies of the railway receipts mentioned in the STTG
certificate;

26
Introduction

Place of Provision
Rule 10 of place of provision of Services Rules, 2012 states that the place of
provision of services of transportation of goods, other than by way of mail or
courier, shall be the place of destination of the goods.
Thus, for eg., when goods are booked from Pune to Kashmir, the place of
provision is Kashmir, which is the destination of goods. As the place of
provision of service is in non-taxable territory, therefore, service tax will not
apply.
Similarly, when goods are booked from Kashmir to Pune, the place of
provision is Pune, which is the destination of goods. As the place of provision
of service is in taxable territory, hence, service tax will apply on the same.

Taxability on Services Provided by Air and Ocean


Introduction
Transport of goods can be done via road, rail, air and sea / water. In
international trade, most of the traffic is handled by air and sea.
In this chapter, analysis of service tax has been made on transportation of
goods by air and water.

Legislative History
The service of transportation of goods by air has been made taxable w.e.f
10.09.2004. Services provided by an aircraft operator (i.e. commercial
concern like an airlines) in relation to transport of goods by an aircraft falls
under this category. Thus, in addition to the actual air-freight charges, all
charges collected towards storing, handling, loading/unloading (done in
relation to air transportation of cargo) by an airlines are also chargeable to
this levy. Subsequently, the term ‘commercial concern’ has been replaced by
the term ‘any person’.
Any services provided or to be provided to any person, by any other person,
in relation to transport of (i) coastal goods; (ii) goods through national
waterway; or (iii) goods through inland water were made taxable w.e.f
01.09.2009. Notification No 30/2009-ST dated 31.08.2009 was issued by
which if certain goods are transported, then the activity was not taxable. As
per Notification No 1/2006-ST, the abatement of 25% was permitted subject
to condition that the CENVAT credit of duty on inputs or capital goods or the

27
Technical Guide on Transportation

CENVAT credit of service tax on input services, used for providing such
taxable service, has been taken under the provisions of the CENVAT Credit
Rules, 2004; or benefit of Notification No 12/2003-ST has not been availed.

Position from 01.07.2012


Goods transport through Air
From 01.07.2012, Government has specified Negative list in service tax.
‘Negative List’ comprises that list wherein there will not be any tax on the
services specified in that list. Government has specified that list in Section
66D of the Finance Act, 1994. No change in transportation of goods by air
has been brought in even after the introduction of Negative List.The tax is a
tax on service provided or to be provided to any person, by an aircraft
operator, in relation to transport of goods by aircraft.
However, as per section 66B of the Finance Act, there shall be levied a tax
(hereinafter referred to as the service tax) at the rate of twelve per cent. on
the value of all services, other than those services specified in the negative
list, provided or agreed to be provided in the taxable territory by one person
to another and collected in such manner as may be prescribed.
Section 65B(52) interprets taxable territory as the territory to which the
provisions of this Chapter apply;
As per section 64(1) of the Finance Act, 1994, ‘Chapter V of Finance Act,
1994 extends to whole of India except Jammu and Kashmir’.
Section 65B(27) states that India means
 the territory of the Union as referred to in clauses (2) and (3) of article
1 of the Constitution;
 its territorial waters, continental shelf, exclusive economic zone or any
other maritime zone as defined in the Territorial Waters, Continental
Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976;
(80 of 1976.)
 the seabed and the subsoil underlying the territorial waters;
 the air space above its territory and territorial waters; and
 the installations, structures and vessels located in the continental shelf
of India and the exclusive economic zone of India, for the purposes of
prospecting or extraction or production of mineral oil and natural gas
and supply thereof;

28
Introduction

Section 66D(p) states that services by way of transportation of goods by an


aircraft or a vessel from a place outside India to the first customs station of
landing in India will be in the Negative List.
Thus, when the goods are brought to any other airport after first custom
station only will be taxed in India. In other words, transportation of goods in
India only will be taxed.
Goods transport through Vessel
As far as transportation of goods by vessel is concerned, a service provided
by government except transport of goods, inter alia, is there is negative list.
Further, transport of goods by inland waterways is also covered in the
Negative list. [Section 66D(p)(iii)]
Transportation of goods by vessel in inland waterways is there in Negative
List. As per section 65B(29) of the Finance Act, 1994, "inland waterway"
means national waterways as defined in clause (h) of section 2 of the Inland
Waterways Authority of India Act, 1985 (82 of 1985.) or other waterway on
any inland water, as defined in clause (b) of section 2 of the Inland Vessels
Act, 1917; (1 of 1917.)
 Section 2(h) of the Inland Waterways Authority of India Act, 1985
reads as under:
National Waterway
"National waterway" means the inland waterway declared by section 2 of the
National Waterway (Allahabad- Haldia Stretch of the Ganga- Bhagirathi-
Hooghly River) Act, 1982 (49 of 1982 ), to be a national waterway.
Explanation. -- If Parliament declares by law any other waterway to be a
national waterway, then from the date on which such declaration takes effect,
such other waterway-
 Based on above, Government has declared 5 national waterways
which are as under:
1National Waterway 1 or NW1 will starts from Allahabad to Haldia with
an distance of 1620 km. The NW 1 run through the Ganges, Bhagirathi and
Hooghly river system with having fixed terminals at Haldia,Farrakka and
Patna and floating terminals at most of the riverside cities like
Kolkata,Bhagalpur,Varanasi and Allahabad. It will be the longest National
Waterway in India.

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Technical Guide on Transportation

National Waterway 2 will a stretch on Brahmaputra river from Sadiya to


Dhubri in Assam state. The NW 2 is one of the major freight transportation
waterway of north east India and the third longest Waterway with an total
length of 891 km.
National Waterway 3 or the West Coast Canal is located in Kerala state and
run from Kollam to Kottapuram. The 205 km long West Coast Canal is India’s
first waterway with all time navigation facility. The NW3 is consist of West
Coast Canal, Champakara Canal and Udyogmandal Canal and runs through
Kottappuram,Cherthala, Thrikkunnapuzha Kollam and Alappuzha.
National Waterway 4 is connect Kakinada to Pondicherry through
Canals,Tank and River Godavari along with Krishna river. The NW 4 the
second longest waterway of India with total lenght of 1095 km in Andhra
Pradesh and Tamil Nadu.
National Waterway 5 connects Orissa to West Bengal using the stretch on
BrahmaniRiver,East Coast Canal,Matai river and Mahanadi River Delta. The
623 km long canal system will handle the traffic of cargo such as coal,
fertilizer, cement and iron.
National Waterway 6 is the proposed waterway in Assam state and will
connect Lakhipur to Bhanga in river Barak. The 121 km long waterway will
help in trading between town of Silchar to Mizoram State.
 “Inland water” means any canal, river, lake or other navigable water.
[Section 2(b) of Inland Vessels Act, 1917]
Services by transportation of goods by an aircraft or a vessel from a place
outside India upto the customs station of clearance in India is also covered in
the negative list.
Section 2(7) of the Customs Act, 1962 states that “coastal goods" means
goods, other than imported goods, transported in a vessel from one port in
India to another.
Thus, there will be service tax on transportation of goods in coastal waters
i.e., from one port to another.

Exemptions
Though there is a service tax on transport of services provided by Air, yet,
there are certain sectors wherein government wants to have exemption.
Hence, the Central Government has introduced a mega exemption

30
Introduction

Notification No 25/2012-ST dated 20.06.2012. Hence, the Central


Government has introduced a mega exemption Notification No 25/2012-ST
dated 20.06.2012. However, no exemption has been provided for
transportation of goods by Air.
For transport of goods by vessel, Sr No 20 of Notification No 25/2012-ST
grants exemption for transportation of goods. As per the notification, the
services by way of transportation by rail or a vessel from one place in India to
another of the following goods
(i) Relief materials meant for victims of natural or man-made disasters,
calamities, accidents or mishap; [Sr No 20(b) of Notification No
25/2012-ST]
(ii) Defence or military equipments; [Sr No 20(c) of Notification No
25/2012-ST]
(iii) newspaper or magazines registered with the Registrar of Newspapers;
[Sr No 20(f) of Notification No 25/2012-ST]
(iv) railway equipments or materials; [Sr No 20(g) of Notification No
25/2012-ST]
(v) Agricultural produce; [Sr No 20(h) of Notification No 25/2012-ST]
(vi) Foodstuff including flours, tea, coffee, jaggery, sugar, milk products,
salt and edible oil, excluding alcoholic beverages; [Sr No 20(i) of
Notification No 25/2012-ST]
(vii) Chemical fertilizer, organic manure and oil cakes; [Sr No 20(j) of
Notification No 25/2012-ST]
(viii) Cotton, ginned or baled. [Sr No 20(k) of Notification No 25/2012-ST]

Abatement
Central Government has power to prescribe the abatement with respect to
certain services. Abatement means reduction. Central Government has
granted exemption equal to percentage of abatement specified. The
abatement has been prescribed in Notification No 26/2012-ST dated
20.06.2012. Service tax has to be paid at full rate since no abatement has
been prescribed for transport of goods by air.Thus, service tax will be on
gross amount charged by airlines at full 12% with E Cess of 2% and SHE
Cess of 1% making aggregate rate of 12.36%.

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Technical Guide on Transportation

With respect to service of transportation of goods by Vessel, Central


Government has provided an abatement of 60% of the value of services. [Sr
No 10 of the Notification no 26/2012-ST]. Thus, service tax is required to be
paid only on 40% of the value of services. This abatement is subject to the
condition that CENVAT credit on inputs, capital goods and input services,
used for providing the taxable service, has not been taken under the
provisions of the CENVAT Credit Rules, 2004]. This abatement rate has
been increased from 50% to 60% w.e.f 01.10.2014.

Valuation
The provisions regarding valuation are contained in section 67 of the Finance
Act, 1994. The prime principle for valuation of service is the gross amount
charged by the service provider for such service provided or to be provided
by him;
For transporting of goods, airlines collect freight. The Letter F. No.
B2/8/2004-TRU, dated 10-9-2004 whose para 6 states that, in addition to the
actual air-freight charges, all charges collected towards storing, handling,
loading/unloading (done in relation to air transportation of cargo) by an
airlines are also chargeable to this levy.

Small Service Provider Exemption


Notification No 33/2012-ST provides exemption from taxable services of
aggregate value not exceeding ten lakh rupees in any financial year from the
whole of the service tax leviable thereon under section 66B of the said
Finance Act. However, this exemption is subject to the condition, inter alia,
that
 the aggregate value of taxable services rendered by a provider of
taxable service from one or more premises, does not exceed ten lakh
rupees in the preceding financial year.
 taxable services provided by a person under a brand name or trade
name, whether registered or not, of another person;
The text of the notification is attached in chapter VII of this guide.

Who is required to make payment of service tax?


It is the provider of service who is liable to make payment of service tax [Rule
2(1)(d)(ii) of Service Tax Rules, 1994.

32
Introduction

The service tax is on services provided in India. As per Rule 2(1)(d)(G) of


Service Tax Rules, 1994, “person liable for paying service tax” in relation to
any taxable service provided or agreed to be provided by any person which
is located in a non-taxable territory and received by any person located in the
taxable territory, the recipient of such service.

Point of taxation
The point of taxation refers to the time when the tax is required to be paid.
For the said reason, Point of Taxation Rules, 2011 has been introduced. As
far as transportation of goods by Courier is concerned, point of taxation is as
under.
 Date of invoice or payment, whichever is earlier, if the invoice is
issued within the prescribed period of 30 days from the date of
completion of the provision of service.
 Date of completion of the provision of service or payment, if the
invoice is not issued within the prescribed period as above. Its effect
has been illustrated in the below mentioned table. [Rule 3 of Point of
Taxation Rules, 2011]

CENVAT Credit to the Recipient of input service.


The credit of transport of goods by air and vessel is eligible so far as the
same is related to provision of output service or for manufacturing of dutiable
goods.
1. Place of Provision
Rule 10 of place of provision of Services Rules, 2012 states that he place of
provision of services of transportation of goods, other than by way of mail or
courier, shall be the place of destination of the goods.
Thus, for eg., when goods are booked from Pune to Kashmir, the place of
provision is Kashmir, which is the destination of goods. As the place of
provision of service is in non-taxable territory, therefore, service tax will not
apply.
Similarly, when goods are booked from Kashmir to Pune, the place of
provision is Pune, which is the destination of goods. As the place of provision
of service is in taxable territory, hence, service tax will apply on the same.
Thus, where an exporter is sending goods from India to any other country

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Technical Guide on Transportation

outside India, say ‘China’, in such case, as per Rule 10, the place of
provision is destination of goods which is ‘The China’ and as per Rule 8, the
place of provision is the location of service receiver, which is ‘The India’; in
such a case, Rule 14 comes to rescue which states that ‘Notwithstanding
anything stated in any rule, where the provision of a service is, prima facie,
determinable in terms of more than one rule, it shall be determined in
accordance with the rule that occurs later among the rules that merit equal
consideration’. Thus, as per Rule 14 read with Rule 10, the place of Provision
of Service is ‘The China’.
The service tax is on services provided in a taxable territory. Section 66B
reads as ‘There shall be levied a tax (hereinafter referred to as the service
tax) at the rate of twelve per cent. on the value of all services, other than
those services specified in the negative list, provided or agreed to be
provided in the taxable territory by one person to another and collected in
such manner as may be prescribed’.As the services are provided in ‘China’
as per Place of Provision of Services Rules, 2012, the transaction is not
subject to service tax in India.

Export of services
For determining whether there is export of service or not, the conditions
stated in Rule 6A of Service tax Rules, 1994 is required to be seen which are
reproduced as under:.
Rule 6A of Service Tax Rules, 1994
(1) The provision of any service provided or agreed to be provided shall
be treated as export of service when,-
(a) the provider of service is located in the taxable territory ,
(b) the recipient of service is located outside India,
(c) the service is not a service specified in the section 66D of the Act,
(d) the place of provision of the service is outside India,
(e) the payment for such service has been received by the provider of
service in convertible foreign exchange, and
(f) the provider of service and recipient of service are not merely
establishments of a distinct person in accordance with item (b)
of Explanation 3 of clause (44) of section 65B of the Act

34
Introduction

Thus, where an exporter is sending goods from India to any other country
outside India, say ‘The China’, in such case, as per Rule 10 of Place of
Provision of Service Rules, 2012 r.w. Rule 14 of the said Rules, the place of
provision is destination of goods which is ‘The China’.
However, the service provider and service receiver, both are located in
taxable territory as well as the payment of the service will be in Indian
Rupees, hence, the transaction wherein an exporter is sending goods from
India to any other country outside India, say ‘The China’, will not qualify as
export.
It means that the export benefit (Rebate) will not be available as the
transaction is not qualifying as export. However, service tax is not required to
be paid because the place of provision of service is outside the taxable
territory.
However, when Indian Airlines provides services of transportation of goods
from Britan to Canada, in such case, the place of provision of service is
Canada, the service provider is located in taxable territory, the service
recipient is located outside India and if the consideration is received in
convertible foreign currency, hence, this transaction will qualify as export.

Taxability on Services Provided by Courier


Background
In the ancient days, the messages were conveyed through pigeons. Lateron,
the evolvement of posts hascome into place. In India, the leader in providing
these services is India Post running under Ministry of Communication and
Information Technology. Along with the service of post, the services of Speed
Post, Media Post, Logistic Post has also evolved. There are private operators
such as DTDC Couriers, Professional Couriers etc., who provide services of
communicating messages, delivering letters, correspondences, as well as
valuables.
In the foregoing paragraphs, the analysis on services provided by courier is
analysed.

Legislative History upto 30.06.2012 in brief


The service tax on courier has been levied with effect from 01.11.1996. The
terms ‘Courier agency’ has been defined to be a commercial concern

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Technical Guide on Transportation

engaged in the door to door transportation of time sensitive documents,


goods or articles, utilising the services of a person, either directly or
indirectly, to carry or accompany such documents, goods or articles [Section
65(33) of the Finance Act, 1994]. From 16.05.2008, the term ‘commercial
concern’ was replaced by ‘any person’.
No abatement has been granted at any time on services provided by courier.

Position from 01.07.2012


Section 66D of the Finance Act, states Negative List. In section 66D(p),
following services are covered under Negative List. Services of transportation
of goods by road are in negative list except the services of a goods
transportation agency and of courier agency.
Thus, excepting above, there is no major change in taxability of courier
service.
Section 65B(20) of the Finance Act, 1994 interprets ‘courier agency’ as
"courier agency" means any person engaged in the door-to-door
transportation of time-sensitive documents, goods or articles utilising the
services of a person, either directly or indirectly, to carry or accompany such
documents, goods or articles;
The service provided by courier agency is not covered under Negative List,
nor is the same covered in exemption Notification. Hence, the same is
taxable.
Courier agencies are clearly identifiable by virtue of the nature of business
performed by them in the matter of delivery of time sensitive documents,
goods or articles. The nature of their business is quite distinct from the
ordinary transporters which carry goods from one place to another place.
What distinguishes the commercial concern as courier agency from an
ordinary transporter is the service provided by it in the door to door
transportation of time sensitive documents, goods or articles. [Para 12 of F
No F. No. 341/43/96-TRU dated 31.10.1996].
'Angadia' undertakes delivery of documents, goods or articles received from
a customer to another person for a consideration. Therefore, 'angadias' are
covered within the definition of a 'courier' and services provided by angadia
are liable to service tax. [Para 4.16.4 of Education Guide]

36
Introduction

For qualifying to be a courier agency, there has to be door to door


transportation of goods. The meaning of door to door transportation is
explained in under mentioned paragraphs.
 The courier company is engaged in door to door transportation of time
sensitive documents. It is a prevalent practice in the courier industry
that at the time of booking cargo, the consignor or sender visits the
courier company and books the cargo or parcel or document (referred
to as ‘article’) and provides the details. The courier company then
books the ‘article’ and delivers to the desired destination. It has been
held in the case of VijayanandRoadlines Ltd v. CCE Belgaum (2005) 8
TMI 409 (Tri- Bang) = (2006) 1 STR 113 that Courier Agencies
undertake the service of transportation of goods and documents from
one place to another where time sensitivity and ensuring delivery at
the door is the prime criteria. Only in respect of very big customers,
the courier agencies collect the documents from the premises of the
customers and deliver to the consignees. They do not collect the
documents at the door of every consigner. Even if the consigner goes
to the office of the courier for depositing the documents, the same
should be considered door-to-door delivery. Door-to-door
transportation should be interpreted to include the cases where
consigners and consignees go to the courier office for depositing the
documents and taking delivery of the same.

Taxability of services provided by ‘India Post’


The Negative list comprises of, inter alia, services by Government or a local
authority excluding services by the Department of Posts by way of speed
post, express parcel post, life insurance and agency services provided to a
person other than Government. Thus, specified services provided by India
Post to a person other than Government. The service provided to
Government is not taxable because for levy of service tax, there has to be
two persons. Since India post is a department of Government, hence, when it
provides services to Government, services are provided to itself, hence, not
taxable.
As per sub-clause (i) of clause (a) of section 66D services provided by the
Department of Posts by way of speed post, express parcel post, life
insurance, and agency services carried out on payment of commission on
non government business are excluded from the negative list. Therefore, the

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Technical Guide on Transportation

following services provided by Department of Posts are not liable to service


tax.
 Basic mail services known as postal services such as post card, inland
letter, book post, registered post provided exclusively by the
Department of Posts to meet the universal postal obligations.
 Transfer of money through money orders, operation of savings
accounts, issue of postal orders, pension payments and other such
services. [para 4.1.10 of Education Guide]

Exemptions
Though there is a service tax on transport of services provided by Road, yet,
there are certain sectors wherein government wants to have exemption and
also upto a certain amount, government wants to provide exemption. Hence,
the Central Government has introduced a mega exemption Notification No
25/2012-ST dated 20.06.2012. However, no exemption has been provided for
transportation of goods by courier.

Abatement
Central Government has power to prescribe the abatement with respect to
certain services. Abatement means reduction. Service tax has to be paid at
full rate since no abatement has been prescribed for courier agency.

Valuation
The provisions regarding valuation are contained in section 67 of the Finance
Act, 1994 which reads as
‘(1) Subject to the provisions of this Chapter, service tax chargeable on
any taxable service with reference to its value shall,—
(i) in a case where the provision of service is for a consideration in
money, be the gross amount charged by the service provider for such
service provided or to be provided by him;
(ii) in a case where the provision of service is for a consideration not
wholly or partly consisting of money, be such amount in money, with
the addition of service tax charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for a consideration which is
not ascertainable, be the amount as may be determined in the
prescribed manner.

38
Introduction

(2) Where the gross amount charged by a service provider, for the service
provided or to be provided is inclusive of service tax payable, the value of
such taxable service shall be such amount as, with the addition of tax
payable, is equal to the gross amount charged.
(3) The gross amount charged for the taxable service shall include any
amount received towards the taxable service before, during or after provision
of such service.
(4) Subject to the provisions of sub-sections (1), (2) and (3), the value
shall be determined in such manner as may be prescribed
Explanation.—For the purposes of this section,—
(a) "consideration" includes any amount that is payable for the taxable
services provided or to be provided;
(c) "gross amount charged" includes payment by cheque, credit card,
deduction from account and any form of payment by issue of credit notes or
debit notes and book adjustment, and any amount credited or debited, as the
case may be, to any account, whether called "Suspense account" or by any
other name, in the books of account of a person liable to pay service tax,
where the transaction of taxable service is with any associated enterprise.’
However, the amount collected which is in nature of pure agent will not be
included in the value of taxable services. In this regard, the provisions are
contained in Rule 5 of Service Tax (Determination of Value) Rules, 2006 and
the related extracts of the same is reproduced below.
Rule 5(1) ‘ Where any expenditure or costs are incurred by the service
provider in the course of providing taxable service, all such expenditure or
costs shall be treated as consideration for the taxable service provided or to
be provided and shall be included in the value for the purpose of charging
service tax on the said service. **’
Rule 5(2), ‘Subject to the provisions of sub-rule (1), the expenditure or costs
incurred by the service provider as a pure agent of the recipient of service,
shall be excluded from the value of the taxable service if all the following
conditions are satisfied, namely:-
(i) the service provider acts as a pure agent of the recipient of service
when he makes payment to third party for the goods or services
procured;

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Technical Guide on Transportation

(ii) the recipient of service receives and uses the goods or services so
procured by the service provider in his capacity as pure agent of the
recipient of service;
(iii) the recipient of service is liable to make payment to the third party;
(iv) the recipient of service authorises the service provider to make
payment on his behalf;
(v) the recipient of service knows that the goods and services for which
payment has been made by the service provider shall be provided by
the third party;
(vi) the payment made by the service provider on behalf of the recipient of
service has been separately indicated in the invoice issued by the
service provider to the recipient of service;
(vii) the service provider recovers from the recipient of service only such
amount as has been paid by him to the third party; and
(viii) the goods or services procured by the service provider from the third
party as a pure agent of the recipient of service are in addition to the
services he provides on his own account.
Explanation1. For the purposes of sub- rule (2), "pure agent" means a
person who-
(a) enters into a contractual agreement with the recipient of service to act
as his pure agent to incur expenditure or costs in the course of
providing taxable service;
(b) neither intends to hold nor holds any title to the goods or services so
procured or provided as pure agent of the recipient of service;
(c) does not use such goods or services so procured; and
(d) receives only the actual amount incurred to procure such goods or
services.
Explanation2.- For the removal of doubts it is clarified that the value of the
taxable service is the total amount of consideration consisting of all
components of the taxable service and it is immaterial that the details of
individual components of the total consideration is indicated separately in the
invoice.

40
Introduction

For Eg.
(a) Courier agencies undertake comprehensive business and provide
integrated transportation, warehousing, packing, inventory management, etc.
whether, the charges for additional facility will be included in the services of
courier.
Ans:
The Government has clarified in its Circular No. 341/43/96-TRU, dated
October 31, 1996 the courier agencies undertake comprehensive business
and provide integrated transportation, warehousing, packing, inventory
management, etc. If these facilities are relatable to door-to-
door transportation, the charges for such facilities are to be included in the
value of taxable services.
(b) Courier agency also undertakes import and export of cargo and there
is also provision in this regard in the Customs Act, 1962. Whether the
amount collected towards payment of custom duties, concor charges etc be
included in Gross Amount charged and service tax is payable on such
amount?
Ans: The service tax is required to be paid on the gross amount charged
from the client. However, if any amount is collected as a ‘pure agent’, then on
the same, service tax is not required to be paid. When a courier agency
makes payment of custom duty/ concor on behalf of client, it acts in the
capacity of pure agent. Hence, the same will not be covered in the gross
amount charged.
(c) In case of VPP service, the charges for courier are to be recovered by
the recipient of goods. In case of VPP service, if the addressee of a value
payable postal article omits to take delivery of it within 7 days following the
date of its first presentation or the date of delivery to him or to his accredited
agent of an intimation of its arrival, the article will be returned to the sender
on the 8th day. However, if in the meantime the addressee has applied in
writing to the post office for detention of the article for a further period not
exceeding seven days beginning with the said 8th day and pays the
prescribed fee the article shall not be returned to the sender until
the expiration of the further period covered by the application. Any fee so
paid shall in no circumstances be refunded. Whether the service tax is
payable on extra amount charged by Post Office?

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Technical Guide on Transportation

Ans: As per section 67 of the Finance Act, 1994, service tax is payable on
the gross amount charged. Thus, service tax is also payable on extra fees /
demurrage collected.

Small Service Provider Exemption


Notification No 33/2012-ST provides exemption from taxable services of
aggregate value not exceeding ten lakh rupees in any financial year from the
whole of the service tax leviable thereon under section 66B of the said
Finance Act. However, this exemption is subject to the condition, inter alia,
that
 the aggregate value of taxable services rendered by a provider of
taxable service from one or more premises, does not exceed ten lakh
rupees in the preceding financial year.
 taxable services provided by a person under a brand name or trade
name, whether registered or not, of another person;
The text of the notification is attached in chapter VII of this guide.
Thus, the exemption can be claimed by the service provider. In case of
goods courier agency, the benefit of ` 10 lakhs will be available, provided it
should not be under the brand name / trade name of others.
In many cases, certain person takes franchisee of a courier and does the
business of courier, in such a case, when the courier agency operates under
brand name / trade name of others, then the benefit of SSI Exemption shall
not be available.
For eg., A Ltd starts business of providing courier agency services under the
brand name of ‘DTDC courier’, in such as case, benefit of SSI exemption will
not be available.

Who is required to make payment of service tax?


It is the provider of service who is liable to make payment of service tax [Rule
2(1)(d)(ii) of Service Tax Rules, 1994.
The service tax is on services provided in India. As per Rule 2(1)(d)(G) of
Service Tax Rules, 1994, ‘“person liable for paying service tax” in relation to
any taxable service provided or agreed to be provided by any person which
is located in a non-taxable territory and received by any person located in the
taxable territory, the recipient of such service.

42
Introduction

Point of taxation
 The point of taxation refers to the time when the tax is required to be
paid. For the said reason, Point of Taxation Rules, 2011 has been
introduced. As far as transportation of goods by Courier is concerned, point
of taxation is as under.
 Date of invoice or payment, whichever is earlier, if the invoice is
issued within the prescribed period of 30 days from the date of completion of
the provision of service.
 Date of completion of the provision of service or payment, if the
invoice is not issued within the prescribed period as above. Its effect has
been illustrated in the below mentioned table. [Rule 3 of Point of Taxation
Rules, 2011]
 The courier agency also can be covered as a continuous supply
service. As per Rule 2(c) of Point of Taxation Rules, 2011, ‘“continuous
supply of service” means any service which is provided or agreed to be
provided continuously or on recurrent basis, under a contract, for a period
exceeding three months with the obligation for payment periodically or from
time to time, or where the Central Government, by a notification in the Official
Gazette, prescribes provision of a particular service to be a continuous
supply of service, whether or not subject to any condition;’
o For eg. India post provides service to corporate customers and regular
users many value added services including pick-up from the premises,
convenient monthly billings, account management facilities, assistance in
import / export procedures of shipments, corporate tracking facilities, volume
discounts etc. In case of continuous supply service, where the provision of
the whole or part of the service is determined periodically on the completion
of an event in terms of a contract, which requires the receiver of service to
make any payment to service provider, the date of completion of each such
event as specified in the contract shall be deemed to be the date of
completion of provision of service;
 If invoice or payment is received prior to that, then date of invoice or
payment, whichever is earlier, shall be the point of taxation.

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Technical Guide on Transportation

CENVAT Credit to the Recipient of input service i.e., service


of ‘courier service’
The credit of courier service is eligible so far as the same is related to
provision of output service or for manufacturing of dutiable goods. In the
following cases, the credit of courier has been allowed:
 Fenner India Ltd. Versus Commissioner of Service Tax, Madurai 2014
(7) TMI 355 (Tri.-Chennai.)
 CCE vs CCL Products (India)Ltd 2009(16) STR 305
 CCE vsApar Industries Ltd. 2010(20)STR 624
 CCE vsApar Industries Ltd 2011 (23) STR J94 (Guj)
 CCE vsTopworth Steels Private Ltd. 2012(26) STR 420
 CCE vs. Lupin Ltd. 2012(285) ELT 221
 Tufropespvt. Ltd. vs CCE 2012 (277) ELT 359
 Meghmani Organics Ltd. vs CCE 2012 (26) STR 555

Place of Provision
Rule 10 of place of provision of Services Rules, 2012 states that the place of
provision of services of transportation of goods, other than by way of mail or
courier, shall be the place of destination of the goods.
Thus, for courier, Rule 10 will not apply as it specifically excludes ‘service of
transportation of goods by mail or courier’.
The provision of courier service commences as soon as the goods or parcels
are delivered to the courier and concludes when the goods or parcels are
delivered to the destination.
As per Rule 3of place of provision of Services Rules, 2012, ‘The place of
provision of a service shall be the location of the recipient of service’.
Thus, after exclusion of the courier service from Rule 10, it falls under Rule
3.

Export of Services
As per Rule 6A of the Service Tax Rules, 1994, the provision of any service
provided or agreed to be provided shall be treated as an export of service

44
Introduction

when,-
(a) the provider of service is located in the taxable territory ,
(b) the recipient of service is located outside India,
(c) the service is not a service specified in the section 66D of the Act,
(d) the place of provision of the service is outside India,
(e) the payment for such service has been received by the provider of
service in convertible foreign exchange, and
(f) the provider of service and recipient of service are not merely
establishments of a distinct person in accordance with item (b) of
Explanation 3 of clause (44) of section 65B of the Act.
Considering above, let us analyse few cases as to find out whether the
services provided pertains to Export of otherwise.
# Case # 1
The applicant collects parcel from the clients located in India and delivers
them outside of India. The clients located in India are paying for courier
charges in Indian Rupees.
Ans: In this case, though the parcels are to be delivered outside India and as
perRule 3of place of provision of Services Rules, 2012, ‘The place of
provision of a service shall be the location of the recipient of service’.
Location of service recipient is in India, therefore, place of provision of
service falls in India.
# Case # 2
The applicant collects parcel from the clients located in India and delivers
them outside of India. The clients located being an exporter makes the
payment from EEFC Account.
Ans: In this case, though the parcels are to be delivered outside India and as
per Rule 3of place of provision of Services Rules, 2012, ‘The place of
provision of a service shall be the location of the recipient of service’.
Location of service recipient is in India, therefore, place of provision of
service falls in India. Even if the payment is received in foreign currency, still
as the location of service recipient is in India, hence, the place of provision of
service falls into taxable territory which is Inida.

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Technical Guide on Transportation

# Case # 3
The applicant collects parcel from the clients located in India and delivers
them outside of India. The clients located outside India are paying for courier
charges like in case of VPP post.
Ans: In this case, the parcels are to be delivered outside India and as per
Rule 3of place of provision of Services Rules, 2012, ‘The place of provision
of a service shall be the location of the recipient of service’. Location of
service recipient is in outside India, therefore, place of provision of service
fallsoutside India.
If the consideration for services are received in convertible foreign exchange,
then the said activity will be considered as Export of Service.
# Case # 4
UPS:United Parcel Service, Inc., generally known as UPS collects parcels
from their clients to be delivered to India. For delivering the clients, UPS
enters into an agreement with Poonam Couriers located in India for
delivering the parcels to the destination based in India. For this, Poonam
Courier charges UPS. What will be the place of provision of this transaction.
Ans: The place of provision of service as per Rule 3 is location of service
recipient which is located in USA. Hence, the place of provision of service is
USA. [This principle has also been held in Ups Jetair Express Pvt Ltd V. Cce
(Tri Mumbai) 2014 (10) TMI 523.]

46
Chapter 2
Service Tax Rules, 1994 Pertaining
to Transportation Sector
Introduction
Every assessee is required to comply with the service tax law. The basic
procedure regarding registration, payment of taxes, returns etc are contained
in service tax Rules, 1994 read with the provisions of Chapter V of the
Finance Act, 1994. The procedures to the extent applicable to the entities in
transportation sector are discussed in the under mentioned paragraph.

Registration [Rule 4 of Service Tax Rules, 1994 and


Section 69]
The provisions regarding registration are contained in Section 69 of the
Finance Act, 1994 read with Rule 4 of Service Tax Rules, 1994. Every
person providing service has to get himself registered. However, there is a
small service provider exemption available upto aggregate value of taxable
services upto the value of ` 10 lakhs provided during the year, provided,
inter alia
 The service provided should not belong to brand name or trade name
of any other person;
 The aggregate value of service provided during the previous year do
not exceed ` 10 lakhs;
 The provisions do not apply when a person is required to pay service
tax as a recipient of service.
The application for registration is required to be made to the superintendent
of Central Excise in Form ST-1 by logging through www.aces.gov.in.
The application is required to be made separately for each premise.
However, Where a person, liable for paying service tax on a taxable service,
(i) provides such service from more than one premises or offices; or
(ii) receives such service in more than one premises or offices; or,
Technical Guide on Transportation

(iii) is having more than one premises or offices, which are engaged in
relation to such service in any other manner, making such person
liable for paying service tax,
and has centralised billing system or centralised accounting system in
respect of such service, and such centralised billing or centralised
accounting systems are located in one or more premises, he may, at his
option, register such premises or offices from where centralised billing or
centralised accounting systems are located. The centralized registration will
be given by the Commissioner of Central Excise.
With respect to transportation of goods service where the person liable to
pay freight falls into the category of specified persons, basic exemption limit
of ` 10 lakhs will not be available. Similarly, when a person provides services
under a brand name or trade name of others, in such case, basic exemption
limit of ` 10 lakhs is not available. In such case, registration is required to be
made.
In any other case, exemption uptoaggregate value of taxable servicesupto
the value of ` 10 lakhs is provided, however, registration is required to be
made when the value of taxable services provided reaches at the level of ` 9
lakhs. This provision is contained in Service Tax (Registration of Special
Category of Persons) Rules, 2005. Similarly, when an input service
distributor wants to distribute the credit, it has to get itself registered.
The registration certificate will be given in Form ST-2.
If a person fails to gets registered then, the person is liable to penalty upto `
10000/- [Section 77(1)(a) of the Finance Act, 1994]

Services to be provided or credit to be distributed on


invoice, bill or challan
The provisions in this regard are contained in Rule 4A of Service Tax Rules,
1994. As the entities engaged in transportation sector are providing service,
hence, it is necessary to provide invoice on completion of service. As per
Rule 4A of Service Tax Rules, 1994, every person providing taxable service
shall not later than thirty days from the date of completion of such taxable
service or receipt of any payment towards the value of such taxable service,
whichever is earlier issue an invoice, a bill or, as the case may be, a challan
signed by such person or a person authorized by him in respect of such
taxable service provided or agreed to be provided and such invoice, bill or,

48
Service Tax Rules, 1994 Pertaining to Transportation Sector

as the case may be, challan shall be serially numbered and shall contain the
following, namely:-
(i) the name, address and the registration number of such person;
(ii) the name and address of the person receiving taxable service;
(iii) description and value of taxable service provided or agreed to be
provided; and
(iv) the service tax payable thereon.
The second proviso further states that in case the provider of taxable service
is a goods transport agency, providing service to any person, in relation to
transport of goods by road in a goods carriage, an invoice, a bill or, as the
case may be, a challan shall include any document, by whatever name
called, which shall contain the details of the consignment note number and
date, gross weight of the consignment and also contain other information as
required under this sub-rule. [2nd Proviso to Rule 4A of Service Tax Rules,
1994]
Thus, consignment note is essential document that is required to be provided
by an agency providing services of transport of goods by road. The
provisions relating to issuance of consignment note is contained in Rule 4B
of Service Tax Rules, 1994. Rule 4B states that ‘any goods transport agency
which provides service in relation to transport of goods by road in a goods
carriage shall issue a consignment note to the recipient of service.’
Further, meaning of consignment note has been explained in Explanation to
Rule 4B which states that ‘consignment note" means a document, issued by
a goods transport agency against the receipt of goods for the purpose of
transport of goods by road in a goods carriage, which is serially numbered,
and contains the name of the consignor and consignee, registration number
of the goods carriage in which the goods are transported, details of the
goods transported, details of the place of origin and destination, person liable
for paying service tax whether consignor, consignee or the goods transport
agency.’
Thus, person providing transport of goods by road has to issue consignment
note along with invoice and other service provider has to issue invoice, bill
orchallanwhich has the details as contained in Rule 4A.
Any person who issues invoice in accordance with the provisions of the Act

49
Technical Guide on Transportation

or rules made thereunder, with incorrect or incomplete details or fails to


account for an invoice in his books of account, shall be liable to a penalty
which may extend to ` 10000/- [Section 77(1)(e) of the Finance Act, 1994]

Payment of Service Tax [Section 68 r.w. Rule 6 of Service


Tax Rules, 1994]
All the entities, whether provider or recipient of service are required to make
the payment of service tax electronically, through internet banking w.e.f
01.10.2014. The Assistant Commissioner or the Deputy Commissioner of
Central Excise, as the case may be, having jurisdiction, may for reasons to
be recorded in writing, allow the assessee to deposit the service tax by any
mode other than internet banking.
The tax is required to be paid to the credit of Central Government
 by the 6th day of the month, if the duty is deposited electronically
through internet banking; and
 by the 5th day of the month, in any other case,
immediately following the calendar month in which the service is deemed to
be provided as per the rules framed in this regard.
Where the assessee is an individual or proprietary firm or partnership firm,
the service tax shall be paid to the credit of the Central Government by the
6th day of the month if the duty is deposited electronically through internet
banking, or, in any other case, the 5th day of the month, as the case may be,
immediately following the quarter in which theservice is deemed to be
provided as per the rules framed in this regard.
However, for the month of March, the tax is required to be paid by 31st March
in all cases.
In case of individuals and partnership firms whose aggregate value of taxable
services provided from one or more premises is fifty lakh rupees or less in
the previous financial year, the service provider shall have the option to pay
tax on taxable servicesprovided or agreed to be providedupto ` 50 lakhs on
receipt basis.
In case where the service tax is deposited by cheque, the date of
presentation of cheque to the bank designated by the Central Board of
Excise and Customs for this purpose shall be deemed to be the date on
which service tax has been paid subject to realization of that cheque.

50
Service Tax Rules, 1994 Pertaining to Transportation Sector

The service tax can be paid through internet banking or by utilizing CENVAT
credit, if permitted.
From 01.10.2014, Rule 6(2) of Service Tax Rules, 1994 states that ‘Every
assessee shall electronically pay duty through internet banking’. Thus, it
becomes mandatory for every assessee now to make e-payment compulsory.
However, there arises some issues whereby a person is not in a position to
do internet banking say., the password has been blocked, or the username
and password for net banking has not been provided by the bank or any such
reasons. As a reason, a safegauard has been made by inserting a proviso
which states that the Assistant Commissioner or the Deputy Commissioner of
Central Excise, for reasons to be recorded in writing , allow an assessee
payment of duty by any mode other than internet banking.

Interest on delayed payment of tax


As per section 75 of the Finance Act, 1994, every person, liable to pay the
tax in accordance with the provisions of section 68 or rules made thereunder,
who fails to credit the tax or any part thereof to the account of the Central
Government within the period prescribed, shall pay simple interest at such
rate not below ten percent. and not exceeding thirty-six per cent. per annum,
(at 18% p.a at present) as is for the time being fixed by the Central
Government, by notification in the Official Gazette for the period by which
such crediting of the tax or any part thereof is delayed.
Thus, where the tax for the month of October for ` 100000/- of a company is
outstanding and is paid on 15th November, 2014. In this case, the due date
was 6th November, 2014 in case of company and is paid on 15th November,
2014. In this case, delay is of 9 days. Therefore, interest is required to be
paid for 9 days at 18% p.a.
The proviso to section 75 states that in the case of a service provider, whose
value of taxable services provided in a financial year does not exceed sixty
lakh rupees during any of the financial years covered by the notice or during
the last preceding financial year, as the case may be, such rate of interest,
shall be reduced by three per cent per annum. Thus, where the rate of
interest is 18% p.a., then for service provider whose value of taxable
services provided in a financial year does not exceed sixty lakh rupees
during any of the financial years covered by the notice or during the last
preceding financial year, then the rate of interest will become 15% p.a (18.%
- 3% ).

51
Technical Guide on Transportation

It is to be noted that the reduction has been given where tax is required to be
paid as a service provider and not as a service recipient. Thus, where a
person is required to pay service tax as a recipient of service, interest at 18%
will have to be paid.
To encourage prompt payment of service tax, it is being proposed to
introduce interest rates which would vary on the extent of delay [Notification
No.12/2014-ST]. Simple interest rates per annum payable on delayed
payments under section 75, are prescribed as follows:
Extent of delay Simple interest rate per annum
Up to six months 18%
More than six months &upto one 18% for first six months, and 24% for
year the period of delay beyond six
months
More than one year 18% for first six months, 24% for
second six months, and 30% for the
period of delay beyond one year
This new interest rate regime will become operational only on 1st October
2014. In other words, upto 1st October, 2014, the rate of interest of 18%,
presently applicable, will continue to apply. The variable interest rates will
apply only on or after 1st October, 2014.
As an illustration, assume a case where service tax became due, say, on the
6th of July, 2012 and the assessee pays the dues on 6th of December, 2014.
In such a case, the interest to be charged would be as below:
(i) 18% simple interest upto September, 30th, 2014.
(ii) For the period from 1st October, 2014 to 6th December, 2014, the rate
of interest will be 30% since the period of delay is beyond one year.
As specified in the proviso to section 75, three per cent concession on the
applicable rate of interest will continue to be available to the small service
providers.

Penalty for late payment of service tax


As per section 76 of the Finance Act, 1994, ‘Any person, liable to pay service
tax in accordance with the provisions of section 68 or the rules made under
this Chapter, who fails to pay such tax, shall pay, in addition to such tax and

52
Service Tax Rules, 1994 Pertaining to Transportation Sector

the interest on that tax amount in accordance with the provisions of section
75, a penalty which shall not be less than ` 100 for every day during which
such failure continues or at the rate of 1% of such tax, per month, whichever
is higher, starting with the first day after the due date till the date of actual
payment of the outstanding amount of service tax.
However, the total amount of the penalty payable in terms of this section
shall not exceed 50% of the service tax payable.

Advance Payment of Service Tax


Service tax can also be paid in advance. The advance tax so paid can be
utilised in meeting service tax liability as and when becomes due. However,
the assessee is required to intimate the details of the amount of service tax
paid in advance, to the jurisdictional Superintendent of Central Excise within
15 days from the date of such payment and indicate the details of the
advance payment made, and its adjustment, if any in the subsequent return
to be filed under section 70 of the Act. [Rule 6(1A) of Service Tax Rules,
1994]

Adjustment of service tax refunded to the customer


In case where an assessee has issued an invoice, or received any payment,
against a service to be provided which is not so provided by him either wholly
or partially for any reason or where the amount of invoice is renegotiated due
to deficient provision of service, or any terms contained in a contract, the
assessee may take the credit of such excess service tax paid by him, if the
assessee.-
 has refunded the payment or part thereof, so received for the service
provided to the person from whom it was received; or
 has issued a credit note for the value of the service not so provided to
the person to whom such an invoice had been issued. [Rule 6(3) of
Service Tax Rules, 1994]

Adjustment of excess tax paid


Where an assessee has paid to the credit of Central Government any
amount in excess of the amount required to be paid towards service tax
liability for a month or quarter, as the case may be, the assessee may adjust
such excess amount paid by him against his service tax liability for the

53
Technical Guide on Transportation

succeeding month or quarter, as the case may be. [Rule 6(4A) of Service Tax
Rules, 1994]

Records [Rule 5 of Service Tax Rules, 1994]


The assessee is required to keep records. The records may be kept manually
or electronically.
The records are required to be preserved at least for a period of five years
immediately after the financial year to which such records pertain.
A list of all records prepared or maintained by the assessee for accounting of
transactions in regard to,-
(a) providing of any service;
(b) receipt or procurement of input services and payment for such input
services;
(c) receipt, purchase, manufacture, storage, sale, or delivery, as the case
may be, in regard of inputs and capital goods;
(d) other activities, such as manufacture and sale of goods, if any.
as well as all other financial records maintained by him in the normal course
of business is required to be given to the Superintendent of Central Excise
while filing its first return.

Access to a registered premises [Rule 5A of Service Tax


Rules, 1994]
An officer authorised by the Commissioner in this behalf shall have access to
any premises registered under these rules for the purpose of carrying out any
scrutiny, verification and checks as may be necessary to safeguard the
interest of revenue.
Every assessee, shall, on demand make available to the officer empowered
under sub-rule (1) or the audit party deputed by the Commissioner or the
Comptroller and Auditor General of India, or a cost accountant or chartered
accountant nominated under section 72A of the Finance Act, 1994,-
(i) the records maintained or prepared by him in terms of sub-rule (2) of
rule 5;
(ii) the cost audit reports, if any, under section 148 of the Companies Act,
2013 (18 of 2013); and

54
Service Tax Rules, 1994 Pertaining to Transportation Sector

(iii) the income-tax audit report, if any, under section 44AB of the Income-
tax Act, 1961 (43 of 1961),
for the scrutiny of the officer or the audit party, or the cost accountant or
chartered accountant, within the time limit specified by the said officer or the
audit party or the cost accountant or chartered accountant, as the case may
be.”

Returns [Section 70 r.w. Rule 7, 7B and 7C of Service Tax


Rules, 1994]
As per section 70(1) of the Finance Act, 1994, ‘Everyperson liable to pay the
service tax shall is required to himself assess the tax due on the services
provided by him and has to furnish to the Superintendent of Central Excise,
in Form ST-3.
The return is required to be submitted half yearly by 25th of the month
following the particular half-year. The return is required to be filed
electronically by logging into www.aces.gov.in.
In case where return is filed beyond the due date, then the assessee is also
required to pay late fees along with the return. The late fees that is required
to be paid is as under:‘
Period of delay Amount to be paid
15 days ` 500
More than 15 days but upto 30 days ` 1,000
More than 30 days ` 1,000 + ` 100 for every day till the
default continues subject to
maximum amount stated in section
70
[i.e., maximum amount to be paid
is ` 20,000]
Where the gross amount of service tax payable is nil, the Central Excise
officer may, on being satisfied that there is sufficient reason for not filing the
return, reduce or waive the penalty. [3rd proviso to Rule 7C].
The return filed can be revised within a period of 90 days from the date of
filing return. [Rule 7B]

55
Chapter 3
Valuation Rules for Transportation
Sector
Introduction
As per section 66B of the Finance Act, 1994, There shall be levied a tax
(hereinafter referred to as the service tax) at the rate of twelve per cent. on
the value of all services, other than those services specified in the negative
list, provided or agreed to be provided in the taxable territory by one person
to another and collected in such manner as may be prescribed.’
Thus, service tax is on value. Therefore, it is necessary to find out the value
on which service tax will be levied.
Section 67 contains the provision regarding valuation of taxable service for
charging service tax. The section 67 reads as,
‘(1) Subject to the provisions of this Chapter, service tax chargeable on
any taxable service with reference to its value shall,—
(i) in a case where the provision of service is for a consideration in
money, be the gross amount charged by the service provider for
such service provided or to be provided by him;
(ii) in a case where the provision of service is for a consideration not
wholly or partly consisting of money, be such amount in money, with
the addition of service tax charged, is equivalent to the
consideration;
(iii) in a case where the provision of service is for a consideration which
is not ascertainable, be the amount as may be determined in the
prescribed manner.
(2) Where the gross amount charged by a service provider, for the
service provided or to be provided is inclusive of service tax payable, the
value of such taxable service shall be such amount as, with the addition of
tax payable, is equal to the gross amount charged.
(3) The gross amount charged for the taxable service shall include any
Valuation Rules for Transportation Sector

amount received towards the taxable service before, during or after


provision of such service.
(4) Subject to the provisions of sub-sections (1), (2) and (3), the value
shall be determined in such manner as may be prescribed
Explanation.—For the purposes of this section,—
(a) "consideration" includes any amount that is payable for the taxable
services provided or to be provided;
(c) "gross amount charged" includes payment by cheque, credit card,
deduction from account and any form of payment by issue of credit notes or
debit notes and book adjustment, and any amount credited or debited, as
the case may be, to any account, whether called "Suspense account" or by
any other name, in the books of account of a person liable to pay service
tax, where the transaction of taxable service is with any associated
enterprise’
Thus, value of taxable service shall be gross amount charged towards
taxable service.
The term "gross amount charged" includes payment by cheque, credit card,
deduction from account and any form of payment by issue of credit notes or
debit notes and book adjustment, and any amount credited or debited, as the
case may be, to any account, whether called "Suspense account" or by any
other name, in the books of account of a person liable to pay service tax,
where the transaction of taxable service is with any associated enterprise.
As per Rule 5(1) of Service Tax (Determination of Value) Rules, 2006,
‘Where any expenditure or costs are incurred by the service provider in the
course of providing taxable service, all such expenditure or costs shall be
treated as consideration for the taxable service provided or to be provided
and shall be included in the value for the purpose of charging service tax on
the said service’.
For Eg.
(d) Courier agencies undertake comprehensive business and provide
integrated transportation, warehousing, packing, inventory management, etc.
whether, the charges for additional facility will be included in the services of
courier.
Ans: The Government has clarified in its Circular No. 341/43/96-TRU, dated

57
Technical Guide on Transportation

October 31, 1996 the courier agencies undertake comprehensive business


and provide integrated transportation, warehousing, packing, inventory
management, etc. If these facilities are relatable to door-to-
door transportation, the charges for such facilities are to be included in the
value of taxable services.
(e) Courier agency also undertakes import and export of cargo and there
is also provision in this regard in the Customs Act, 1962. Whether the
amount collected towards payment of custom duties, concor charges etc be
included in Gross Amount charged and service tax is payable on such
amount?
Ans: The service tax is required to be paid on the gross amount charged
from the client. However, if any amount is collected as a ‘pure agent’, then on
the same, service tax is not required to be paid. When a courier agency
makes payment of custom duty/ concor on behalf of client, it acts in the
capacity of pure agent. Hence, the same will not be covered in the gross
amount charged.
(f) In case of VPP service, the charges for courier are to be recovered by
the recipient of goods. In case of VPP service, If the addressee of a value
payable postal article omits to take delivery of it within say 7 days following
the date of its first presentation or the date of delivery to him or to his
accredited agent of an intimation of its arrival, the article will be returned to
the sender on the 8th day. However, if in the meantime the addressee has
applied in writing to the post office for detention of the article for a further
period not exceeding seven days beginning with the said 8th day
and pays the prescribed fee the article shall not be returned to the sender
until the expiration of the further period covered by the application. Any fee
so paid shall in no circumstances be refunded. Whether the service tax is
payable on extra amount charged by Post Office?
Ans: As per section 67 of the Finance Act, 1994, service tax is payable on
the gross amount charged. Thus, service tax is also payable on extra fees /
demurrage collected.

Where the gross amount charged is inclusive of service


tax
As per sub-section (2) of section 67 where the gross amount chargeable by
the service provider is inclusive of service tax payable then the value of such

58
Valuation Rules for Transportation Sector

taxable service shall be such amount as, with the addition of such tax
payable, is equal to the gross amount charged.
For example if the gross amount charged for provision of service is ` 1500
then the value of taxable service would be ` 1335.00 (1500 x 100/112.36) as
after including the tax payable at ` 1335 @ 12.36% (which works out to `
165.00) the total amount (1335 + 165) comes to ` 1500. [Para 8.1.3
(modified) of Education guide issued by CBEC]
It has also been held in the case of Municipal Corporation of Delhi v. CST
(2010) 25 STT 411 (CESTAT), the appellant has not recovered service tax
separately from the customer. It was held that the value received should be
treated as cum-duty price.
Similarly, it has been held in the case of BholanathOberoi v. CCE (2010) 24
STT 186 (CESTAT SMB) that if the appellant receives less amount that billed
amount, the amount received should be calculated as inclusive of service tax
and service tax should be calculated by treating such amount as cum duty
value.
In under mentioned cases,inter alia, the benefit of cum duty/tax has been
given.
 Gyanganga Education Institute Versus Commissioner Of Central
Excise, Rajkot (2012) 7 TMI 502
 M/s S. P. Construction & Others Versus CCE, Jaipur-I (2011) 8 TMI
300
 CCE, Jaipur-I Versus M/s Daswani Classes (Tri-Delhi) (2008) 11 STR
189
 PSL Corrosion Control Services Ltd v. CCE, Daman (2008) 16 STT
320 (Tri-Ahd). This case has been affirmed by Hon’ High Court of
Gujarat (2011) 33 STT 318.

Exclusion of amount received as pure agent


The amount collected which is in nature of pure agent will not be included in
the value of taxable services. In this regard, the provisions are contained in
Rule 5 of Service Tax (Determination of Value) Rules, 2006 and the related
extracts of the same is reproduced below.

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Technical Guide on Transportation

Rule 5(1) ‘ Where any expenditure or costs are incurred by the service
provider in the course of providing taxable service, all such expenditure or
costs shall be treated as consideration for the taxable service provided or to
be provided and shall be included in the value for the purpose of charging
service tax on the said service. **’
Rule 5(2), ‘Subject to the provisions of sub-rule (1), the expenditure or costs
incurred by the service provider as a pure agent of the recipient of service,
shall be excluded from the value of the taxable service if all the following
conditions are satisfied, namely:-
(i) the service provider acts as a pure agent of the recipient of service
when he makes payment to third party for the goods or services
procured;
(ii) the recipient of service receives and uses the goods or services so
procured by the service provider in his capacity as pure agent of the
recipient of service;
(iii) the recipient of service is liable to make payment to the third party;
(iv) the recipient of service authorises the service provider to make
payment on his behalf;
(v) the recipient of service knows that the goods and services for which
payment has been made by the service provider shall be provided by
the third party;
(vi) the payment made by the service provider on behalf of the recipient of
service has been separately indicated in the invoice issued by the
service provider to the recipient of service;
(vii) the service provider recovers from the recipient of service only such
amount as has been paid by him to the third party; and
(viii) the goods or services procured by the service provider from the third
party as a pure agent of the recipient of service are in addition to the
services he provides on his own account.
Explanation1.-For the purposes of sub- rule (2), "pure agent" means a
person who-
(a) enters into a contractual agreement with the recipient of service to act
as his pure agent to incur expenditure or costs in the course of
providing taxable service;

60
Valuation Rules for Transportation Sector

(b) neither intends to hold nor holds any title to the goods or services so
procured or provided as pure agent of the recipient of service;
(c) does not use such goods or services so procured; and
(d) receives only the actual amount incurred to procure such goods or
services.
Explanation2.- For the removal of doubts it is clarified that the value of the
taxable service is the total amount of consideration consisting of all
components of the taxable service and it is immaterial that the details of
individual components of the total consideration is indicated separately in the
invoice.
For eg.,
(a) Courier agency also undertakes import and export of cargo and there
is also provision in this regard in the Customs Act, 1962. Whether the
amount collected towards payment of custom duties, concor charges etc be
included in Gross Amount charged and service tax is payable on such
amount?
Ans: The service tax is required to be paid on the gross amount charged
from the client. However, if any amount is collected as a ‘pure agent’, then on
the same, service tax is not required to be paid. When a courier agency
makes payment of custom duty/ concor on behalf of client, it acts in the
capacity of pure agent. Hence, the same will not be covered in the gross
amount charged.
(b) In the course of providing a taxable service, a service provider incurs
costs such as traveling expenses, postage, telephone, etc., and may indicate
these items separately on the invoice issued to the recipient of service. In
such a case, the service provider is not acting as an agent of the recipient of
service but procures such inputs or input service on his own account for
providing the taxable service. Such expenses do not become reimbursable
expenditure merely because they are indicated separately in the invoice
issued by the service provider to the recipient of service. [Illustration 2 to
Rule 5(2) of Service Tax (Determination of Value) Rules, 2006]

Where the value is not ascertainable


As per section 67(1)(iii) of the Finance Act, 1994, the value of service in a
case where the provision of service is for a consideration which is not

61
Technical Guide on Transportation

ascertainable, be the amount as may be determined in the prescribed


manner.
As per Rule 3 of Service Tax (Determination of Value) Rules, 2006, which
states that Subject to the provisions of section 67, the value of taxable
service, where such value is not ascertainable, shall be determined by the
service provider in the following manner:-
the value of such taxable service shall be equivalent to the gross amount
charged by the service provider to provide similar service to any other person
in the ordinary course of trade and the gross amount charged is the sole
consideration;
(a) where the value cannot be determined in accordance with clause (a),
the service provider shall determine the equivalent money value of such
consideration which shall, in no case be less than the cost of provision of
such taxable service.
Rule 3 comes into play when the value cannot be ascertained. Where the
value can be ascertained, Rule 3 does not come into play. Rule 3 does not
say that the value shall be uniform for all service.
Where the value cannot be ascertainable, in such casevalue of such taxable
service shall be equivalent to the gross amount charged by the service
provider to provide similar service to any other person in the ordinary course
of trade and the gross amount charged is the sole consideration. Thus, for
eg., for transportation of goods by Courier of MNP Ltd, ABC airlines do not
charge anything in consideration for MNP delivering consignments of ABC
airlines at desired destination. In such a case, the value of service will for
MNP limited would be the amount that it would have charged to any other
person in the ordinary course of trade and similarly the value for services
provided by ABC airlines would also have to be determined.
Where the services are such that its value cannot be determined based on
value of similar service provided to any other person in the ordinary course of
trade, then the value of such service shall be equivalent money value of such
consideration which shall, in no case be less than the cost of provision of
such taxable service. The cost of provision of service may be determined as
per Cost Accounting Standards.

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Valuation Rules for Transportation Sector

Power to Reject Value determined as per Rule 3: [Rule 4:


Rejection of value]
Nothing contained in rule 3 shall be construed as restricting or calling into
question the power of the Central Excise Officer to satisfy himself as to the
accuracy of any information furnished or document presented for valuation.
Where the Central Excise Officer is satisfied that the value so determined by
the service provider is not in accordance with the provisions of the Act or
these rules, he shall issue a notice to such service provider to show cause
why the value of such taxable service for the purpose of charging service tax
should not be fixed at the amount specified in the notice.
The Central Excise Officer shall, after providing reasonable opportunity of
being heard, determine the value of such taxable service for the purpose of
charging service tax in accordance with the provisions of the Act and these
rules.

63
Chapter 4
Reverse Charge Mechanism, 2012
forTransportation Sector
Part A
Introduction
Generally it is the service provider who is required to make payment of
service tax. However, there are certain instances wherein it is the service
recipient who is required to make payment of service tax. The provision in
this regard is contained in section 68(2) of the Finance Act, 1994.
As per Rule 2(1)(d)(ii) of the Service Tax Rules, 1994, except the cases
where recipient is required to make the payment of service tax, it is the
service provider who is the person liable to make payment of service tax.
As the entities engaged in transportation sector a part from providing
numerous services, also receives many services. There are certain services
wherein the recipient of service is required to make payment of service tax.
The services wherein the entities would be required to make payment of
service tax has been discussed hereinafter.
Government has also notified Notification No 30/2012-ST whereby the
service tax payable by service provider and service recipient in this regard.
The person liable to make payment of service tax as a recipient of service
w.r.t entities engaged in transportation sector with respect to the services
notified under section 68(2) of the Finance Act, 1994, means
(A) .in relation to service provided or agreed to be provided by an
insurance agent to any person carrying on the insurance business, the
recipient of the service.
(AA). in relation to service provided or agreed to be provided by a recovery
agent to a banking company or a financial institution or a non-banking
financial company, the recipient of the service;
(B) As per Rule 2(1)(d)(i)(B) of Service Tax Rules, 1994, ‘person liable for
paying service taxin relation to service provided or agreed to be
Reverse Charge Mechanism, 2012 forTransportation Sector

provided by a goods transport agency in respect of transportation of


goods by road, where the person liable to pay freight is,—
(i) any factory registered under or governed by the Factories Act,
1948 (63 of 1948);
(ii) any society registered under the Societies Registration Act,
1860 (21 of 1860) or under any other law for the time being in
force in any part of India;
(iii) any co-operative society established by or under any law;
(iv) any dealer of excisable goods, who is registered under
the Central Excise Act, 1944 (1 of 1944) or the rules made
thereunder;
(v) any body corporate established, by or under any law; or
(vi) any partnership firm whether registered or not under any law
including association of persons;
any person who pays or is liable to pay freight either himself or
through his agent for the transportation of such goods by road in a
goods carriage:
Provided that when such person is located in a non-taxable territory,
the provider of such service shall be liable to pay service tax.
(C) in relation to service provided or agreed to be provided by way of
sponsorship to anybody corporate or partnership firm located in the
taxable territory, the recipient of such service;
(D) in relation to service provided or agreed to be provided by,-
(I) an arbitral tribunal, or
(II) an individual advocate or a firm of advocates by way of legal
services, to any business entity located in the taxable territory,
the recipient of such service;
(E) in relation to support services provided or agreed to be provided by
Government or local authority except,-
(a) renting of immovable property, and
(b) services specified sub-clauses (i), (ii) and (iii) of clause (a) of
section 66D of the Finance Act,1994, to any business entity
located in the taxable territory, the recipient of such service;

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Technical Guide on Transportation

(EE) in relation to service provided or agreed to be provided by a director of


a company or a body corporate to the said company or the body
corporate, the recipient of such service;
(F) in relation to services provided or agreed to be provided by way of :-
(a) renting of a motor vehicle designed to carry passengers, to any
person who is not engaged in a similar business; or
(b) supply of manpower for any purpose or security services; or
(c) service portion in execution of a works contract-
by any individual, Hindu Undivided Family or partnership firm, whether
registered or not, including association of persons, located in the
taxable territory to a business entity registered as a body corporate,
located in the taxable territory, both the service provider and the
service recipient to the extent notified under sub-section (2) of section
68 of the Act, for each respectively.
(FA) security services” means services relating to the security of any
property, whether movable or immovable, or of any person, in any
manner and includes the services of investigation, detection or
verification, of any fact or activity;
(G) in relation to any taxable service provided or agreed to be provided by
any person which is located in a non-taxable territory and received by
any person located in the taxable territory, the recipient of such
service;
(ii) in a case other than sub-clause (i), means the provider of
service.

Use of specified by services by an entity engaged in


transportation sector
Goods Transport Agency service
Entities engaged in transportation sector may use the services of Goods
Transport Agency service. For eg, A Ltd, a courier agency, collects parcels to
be delivered to the client located at Mumbai from various persons. At the
end, the parcels are arranged and then a services of goods transportation
agency for delivering the goods to Mumbai is availed. The freight for the
same is paid by A Ltd. In this case, the person paying freight is falling into

66
Reverse Charge Mechanism, 2012 forTransportation Sector

one of the specified persons; hence, the person liable to pay tax is A Ltd,
recipient of service.
Where the person liable to pay freight is
 Not falling in the specified category of persons; or
 Is located in a nontaxable territory,
in such case, it is the service provider who has to make payment of service
tax.
In all other cases, it is the service recipient who makes payment of service
tax.
As per Sr No 21 of Notification No 25/2012-ST dated 20.06.2012, ‘there is
exemption for services provided by a goods transport agency, by way of
transport in a goods carriage of,-
(a) agricultural produce;
(b) goods, where gross amount charged for the transportation of goods
on a consignment transported in a single carriage does not exceed
one thousand five hundred rupees;
(c) goods, where gross amount charged for transportation of all such
goods for a single consignee does not exceed rupees seven hundred
fifty;
(d) foodstuff including flours, tea, coffee, jaggery, sugar, milk products,
salt and edible oil, excluding alcoholic beverages;
(e) chemical fertilizer, organic manure and oil cakes;
(f) newspaper or magazines registered with the Registrar of
Newspapers;
(g) relief materials meant for victims of natural or man-made disasters,
calamities, accidents or mishap; or
(h) defence or military equipments;
(i) cotton, ginned or baled.
With respect to service of transportation of goods by Road, Central
Government has provided an abatement of 75% of the value of services. [Sr
No 7 of the Notification no 26/2012-ST]. Thus, service tax is required to be

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Technical Guide on Transportation

paid only on 25% of the value of services.The abatement has been granted
subject to the condition that CENVAT credit on inputs, capital goods and
input services, used for providing the taxable service, has not been taken by
the service provider under the provisions of the CENVAT Credit Rules, 2004.
Entire service tax after abatement, if any, has to be paid by service receiver,
in case, service receiver is located in a taxable territory and the person
responsible for making payment of freight is in the list of one of the specified
person.

Sponsorship service
The entities engaged in transportation sector may be any entity. The entities
may also sponsor any event. The person liable to pay service tax in relation
to service provided or agreed to be provided by way of sponsorship to
anybody corporate or partnership firm located in the taxable territory, the
recipient of such service;
The entire service tax has to be paid by service recipient of service who is a
body corporate or a partnership firm.

Services provided by Arbitral Tribunal / advocate


The person liable to pay tax in relation to service provided or agreed to be
provided by,-
(I) an arbitral tribunal, or
(II) an individual advocate or a firm of advocates by way of legal services,
to any business entity located in the taxable territory, the recipient of
such service;
Meaning of Arbitral Tribunal :
 “Arbitral tribunal” has the meaning assigned to it in clause (d) of
section 2 of the Arbitration and Conciliation Act, 1996 (26 of 1996);
[Para 2(c) of Notification No 25/2012-ST dated 20.06.2012]
 As per section 2(1)(d) of Arbitration and Conciliation Act, 1996,
‘arbitral tribunal” means a sole arbitrator or a panel of arbitrators’.
 It is to be noted that as per section 10 of Arbitration and Conciliation
Act, 1996, the parties are free to determine the number of arbitrators,
provided that such number shall not be an even number.

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Reverse Charge Mechanism, 2012 forTransportation Sector

 Thus, in simple terms, arbitration is an alternate dispute mechanism


whereby disputes are resolved outside court.
Meaning of term Legal service: “legal service” means any service provided in
relation to advice, consultancy or assistance in any branch of law, in any
manner and includes representational services before any court, tribunal or
authority; [Para 2(w) of Notification No 25/2012-ST dated 20.06.2012]
Since, the entities engaged in transportation sector are legal entities,
therefore, if they are availing services of an arbitral tribunal or an individual
advocate or a firm of advocates by way of legal services, then such entities
will have to pay service tax as a recipient of services.
However, business entities having a turnover up to rupees ten lakh in the
preceding financial year is exempted for making payment of service tax as a
recipient of service w.r.t services provided by an arbitral tribunal or legal
services provided by an individual as an advocate or a partnership firm of
advocates. [Sr No 6 of Notification No 25/2012-ST dated 20.06.2012]
The entire service tax has to be paid by the service recipient who is a
business entity.

Service received from Government


Where the services are received from Government by a business entity
located in a taxable territory except the services of
(i) renting of immovable property, and
(ii) services specified sub-clauses (i), (ii) and (iii) of clause (a) of section
66D of the Finance Act,1994.
in such a case, it is the recipient of service who will be a person liable for
making payment of service tax.
Sub-clauses (i), (ii) and (iii) of Section 66D(a) of the Finance Act, 1994
comprises of
(i) services by the Department of Posts by way of speed post, express
parcel post, life insurance and agency services provided to a person
other than Government;
(ii) services in relation to an aircraft or a vessel, inside or outside the
precincts of a port or an airport;

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Technical Guide on Transportation

(iii) transport of goods or passengers; or


Thus, where support services other than renting of property is provided by
the Government, than it is the recipient of service who is the person liable to
make payment of service tax.
Entire tax is required to be paid by service recipient.

Services provided by a director to a company or body


corporate
The entities engaged in transportation sector can be any person. If such an
entity happens to be a company or a body corporate, then if the service of a
director is received by the company or body corporate, then such company or
body corporate receiving services of a director has to make payment of
service tax as recipient of service.
Entire service tax has to be paid by service recipient.

Partial reverse charge


In relation to services provided or agreed to be provided by way of
 renting of a motor vehicle designed to carry passengers, to any person
who is not engaged in a similar business; or
 supply of manpower for any purpose or security services; or
 service portion in execution of a works contract-
by any individual, Hindu Undivided Family or partnership firm, whether
registered or not, including association of persons, located in the taxable
territory to a business entity registered as a body corporate, located in the
taxable territory, then the service tax payable by service provider and service
recipient notified under Notification No 30/2012-ST dated 20.06.2012 is as
under:
No Description of a service Percentage of Percentage of
service tax service tax
payable by the payable by the
person providing person receiving
service the service
(1) (2) (3) (4)]

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Reverse Charge Mechanism, 2012 forTransportation Sector

7 (a) in respect of services Nil 100 %


provided or agreed to be
provided by way of renting of a
1[50%] 2[50%]
motor vehicle designed to carry
passengers on abated value to
any person who is not engaged
in the similar line of business
(b) in respect of services
provided or agreed to be
provided by way of renting of a
motor vehicle designed to carry
passengers on non abated
value to any person who is not
engaged in the similar line of
business
8. in respect of services provided 25% 75 %
or agreed to be provided by way
of supply of manpower for any
purposeor security services
9. in respect of services provided 50% 50%
or agreed to be provided in
service portion in execution of
works contract
1. Substituted vide Notification No.10/2014-Service Tax, dated 11th July,
2014 w.e.f. 1st day of October, 2014, before it was read as, “60%”
2. Substituted vide Notification No.10/2014-Service Tax, dated 11th July,
2014 w.e.f. 1st day of October, 2014, before it was readas, 40%”
It is to be noted that the partial reverse charge will be applicable only when
the services are provided by an entity other than body corporate to a body
corporate.
Thus, partial reverse charge provision will not apply when the services are
provided by an entity other than body corporate to an entity other than body
corporate;
Similarly, partial reverse charge provision will also not apply when the
services are provided by a body corporate to body corporate.

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Technical Guide on Transportation

The term body corporate has the meaning assigned to it in clause (7) of
section 2 of the Companies Act, 1956 (1 of 1956);
As per section 2(7) of the Companies Act, 1956, ‘"body corporate" or
"corporation" includes a company incorporated outside India but does not
include-
(i) a corporation sole;
(ii) a co-operative society registered under any law relating to co-
operative societies; and
(iii) any other body corporate (not being a company as defined in this Act),
which the Central Government may, by notification in the Official
Gazette, specify in this behalf;
After introduction of Companies Act, 2013, the body corporate is defined
under section 2(11) of the said Act which reads as "body corporate" or
"corporation" includes a company incorporated outside India, but does not
include—
(i) a co-operative society registered under any law relating to co-
operative societies; and
(ii) any other body corporate (not being a company as defined in this Act),
which the Central Government may, by notification, specify in this
behalf;
Thus, the provision of partial reverse charge will not apply to a cooperative
society who is a recipient of service, because cooperative society is excluded
from the definition of a body corporate.

Services are provided by a person located in non-taxable


territory
“Person liable for paying service tax”, in relation to any taxable service
provided or agreed to be provided by any person which is located in a non-
taxable territory and received by any person located in the taxable
territory, is the recipient of such service;

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Reverse Charge Mechanism, 2012 forTransportation Sector

Part B
Point of Taxation for Transportation Sector
Introduction
Point of Taxation Rules, 2011 has been introduced with effect from
01.04.2011. Prior to said date, service tax was required to be paid on receipt
basis for services provided or to be provided.
The purpose of these rules is to introduce clarity and certainty in the matter
of levy and collection of Service Tax particularly in situations of change of
rate of service tax or imposition of service tax on new services. Prior to this,
there was a lack of clarity as to the date from which the changed rate or a
new levy of service tax become payable and tax payers as well as tax
officials face uncertainty in this regard as the provisions are not explicit.
Similar uncertainty prevails in regard to cases of continuous supply of
services. So far these issues have been addressed by CBEC through
clarificatory circulars that accompany such changes. A need has been felt to
put the regulatory frame work on a transparent, clear and durable basis and
hence these rules have been introduced.
In both Central Excise and VAT, tax payment is required on accrual basis –
upon manufacture and clearance of goods in the former and issue of invoice
in the latter. In neither case is the tax payment linked actual receipt of
payment for the goods. The GST regime is likely to follow this practice and it
is necessary to align the service tax regime with it so that transition to GST
will be smooth. The change in the point of payment of tax will also simplify
accounting for the taxpayers.
The point of taxation with respect to the entities engaged in transportation
sector is described below.

Determination of Point of taxation [Rule 3]


Rule 3 determine the point in time when the services shall be deemed to be
provided.
For the purposes of these rules, unless otherwise provided, “point of taxation
shall be,-
 The time when the invoice for the service provided or to be provided is
issued.

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Technical Guide on Transportation

 However, where the invoice is not issued within 30 days of the


completion of the provision of the service, the point of taxation shall be
date of such completion of provision of service. [Rule 3(a) ofPoint of
Taxation Rules, 2011]
In a case, where the person providing the service, receives a payment before
the time specified in clause (a), the time, when he receives such payment, to
the extent of such payment. [Rule 3(b) of Point of Taxation Rules, 2011]
Explanation. For the purpose of this rule, wherever any advance by
whatever name known, is received by the service provider towards the
provision of taxable service, the point of taxation shall be the date of receipt
of each such advance.”.
Wherever the provider of taxable service receives a payment up to ` 1000/-
in excess of the amount indicated in the invoice, the point of taxation to the
extent of such excess amount, at the option of the provider of taxable
service, shall be when the invoice for the service provided or to be provided
is issued. Invoice is required to be issued within 30 days of completion of
service when the provision of service is completed.
Thus, the summary of above provision reads as: ‘The point of taxation will be
 Date of invoice or payment, whichever is earlier, if the invoice is
issued within the prescribed period of 30 days from the date of
completion of the provision of service.
 Date of completion of the provision of service or payment, if the
invoice is not issued within the prescribed period as above. Its effect
has been illustrated in the below mentioned table [CBEC LETTER
[F.NO.341/34/2010-TRU], DATED 31-3-2011 (modified as per
amended provision]
Sr Date of Date of Date on Point of Remarks
No. completion invoice which Taxation
of service payment
recd.
1. April 10, April 20, April 30, 2014 April 20, Invoice
2014 2014 2014 issued in
30 days
and before
receipt of

74
Reverse Charge Mechanism, 2012 forTransportation Sector

payment
2. April 10, May 25, May 30, 2014 April 10, Invoice not
2014 2014 2014 issued
within 30
days and
payment
received
after
completion
of service
3. April 10, April 30, April 15, 2014 April 15, Invoice
2014 2014 2014 issued in
30 days
but
payment
received
before
invoice
4. April 10, May 25, April 5, 2014 April 5, Invoice not
2014 2014 (part) and 2014 and issued in
May30, 2014 April 10, 30 days.
(remaining) 2014 for Part
respective payment
amounts before
completion,
remaining
later

Meaning of date of payment


The date of payment has been explained in Rule 2A of Point of Taxation
Rules, 2011. For the purposes of these rules, “date of payment” shall be the
earlier of the dates on which the payment is entered in the books of accounts
or is credited to the bank account of the person liable to pay tax.
However, the date of payment shall be the date of credit in the bank account
when
 there is a change in effective rate of tax or when a service is taxed for

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Technical Guide on Transportation

the first time during the period between such entry in books of
accounts and its credit in the bank account; and
 the credit in the bank account is after four working days from the date
when there is change in effective rate of tax or a service is taxed for
the first time; and
 the payment is made by way of an instrument which is credited to a
bank account,
if any rule requires determination of the time or date of payment received, the
expression “date of payment” shall be construed to mean such date on which
the payment is received;

Continuous supply service


As per Rule 2(c) of Point of Taxation Rules, 2011, ‘“continuous supply of
service” means any service which is provided or agreed to be
provided continuously or on recurrent basis, under a contract, for a period
exceeding three months with the obligation for payment periodically or from
time to time, or where the Central Government, by a notification in the Official
Gazette, prescribes provision of a particular service to be a continuous
supply of service, whether or not subject to any condition;’
Thus, when a courier agency agrees to provide a service to PQR Ltd for
taking their courier and delivering to the desired destination for all couriers of
PQR Ltd for a period of one year, in this case, it is a continuous supply
service.
The point of taxation with respect to continuous supply service is as under:
 Where the provision of the whole or part of the service is determined
periodically on the completion of an event in terms of a contract, which
requires the receiver of service to make any payment to service
provider, the date of completion of each such event as specified in the
contract shall be deemed to be the date of completion of provision of
service;

Determination of point of taxation in case of change of


rate of tax
“Change in effective rate of tax” shall include a change in the portion of value
on which tax is payable in terms of a notification issued in the Official

76
Reverse Charge Mechanism, 2012 forTransportation Sector

Gazette under the provisions of the Act, or rules made thereunder [Rule
2(ba) of Point of Taxation Rules, 2011]. Thus, even if the change in
percentage of abatement will constitute “change in effective rate of tax”.
It states that notwithstanding anything contained in rule 3, the point of
taxation in cases where there is a change in effective rate of tax in respect of
a service, shall be determined in the following manner, namely:-
Time of provision of Time of Time of Point of taxation
taxable service issue of receipt of
invoice payment
Taxable service has After the After the Date of payment
been provided before change of change of or issuing of
the change of rate effective rate effective rate invoice, whichever
of tax of tax is earlier;
Before After the Date of issuing
change in change of invoice
effective rate effective rate
of tax of tax
After the Before change Date of Payment
change of in effective
effective rate rate of tax
of tax
Taxable service has Before the After change Date of issuing
been provided after change of in effective Payment
the change in effective rate rate of tax
effective rate of tax of tax
Before the Before change Date of payment
change of in effective or issuing of
effective rate rate of tax invoice, whichever
of tax is earlier;
After change Before the Date of issuing of
in effective change of invoice.
rate of tax effective rate
of tax
For eg., in case of transport of goods by vessel, the abatement was 50% as
per Sr No 10 of Notification No 26/2012-ST subject to condition that credit on
inputs, capital goods and input services, used for providing the taxable

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Technical Guide on Transportation

service, has not been taken under the provisions of the CENVAT Credit
Rules, 2004. Thus, effective rate of tax is 6.18% (12.36% * 50%). From
01.10.2014, the abatement has been increased to 60% meaning thereby tax
is to be paid only on 40% of the value. Thus, effective rate of tax reduces to
4.944%.
In this case, if the service has been provided before 01.10.2014 and invoice
has been issued before 01.10.2014, then the point of taxation will be date of
invoice.
In this case, if the service has been provided before 01.10.2014 and payment
has been received before 01.10.2014, then the point of taxation will be date
of payment.
In this case, if the service has been provided before 01.10.2014 and invoice
and payment has been received after 01.10.2014, then the point of taxation
will be date of invoice or payment, whichever is earlier.
The rate of tax should ideally be the date of provision of service, hence,
where the service has been provided after change in tax i.e., 01.10.2014, but
invoice has been made before change in tax and payment has been received
after change in tax, then the point of taxation will be the date of payment.
Similarly when the service has been provided after change in tax i.e.,
01.10.2014, but payment has been received before change in tax and invoice
has been received after change in tax, then the point of taxation will be the
date of invoice.
In this case, if the service has been provided after 01.10.2014 and invoice
and payment has been received before 01.10.2014, then the point of taxation
will be date of invoice or payment, whichever is earlier.

Payment of tax in case of new services


Where a service is taxed for the first time, then,
 no tax shall be payable to the extent the invoice has been issued and
the payment received against such invoice before such service
became taxable;
 no tax shall be payable if the payment has been received before the
service becomes taxable and invoice has been issued within fourteen
days of the date when the service is taxed for the first time.

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Reverse Charge Mechanism, 2012 forTransportation Sector

Point of taxation where person is required to pay service


tax under reverse charge mechanism.
The provision in this regard is contained in Rule 7 of the Point of Taxation
Rules, 2011. From 01.10.2014, there is an amendment in the said rule.
Rule 7 of the Point of Taxation Rules, 2011 upto 30.09.2014 read as under:
 ‘Notwithstanding anything contained in these rules, the point of
taxation in respect of the persons required to pay tax as recipients of
service under the rules made in this regard in respect of services
notified under sub-section (2) of section 68 of the Act, shall be the
date on which payment is made:
Provided that, where the payment is not made within a period of six
months of the date of invoice, the point of taxation shall be determined
as if this rule does not exist:
Provided further that in case of “associated enterprises”, where the
person providing the service is located outside India, the point of
taxation shall be the date of debit in the books of account of the
person receiving the service or date of making the payment whichever
is earlier’
 From 01.10.2014, the above rule will read as
‘Notwithstanding anything contained in Rule 3, 4 or 8, the point of
taxation in respect of the persons required to pay tax as recipients of
service under the rules made in this regard in respect of services
notified under sub-section (2) of section 68 of the Act, shall be the
date on which payment is made:
Provided that, where the payment is not made within a period of three
months of the date of invoice, the point of taxation shall be the date
immediately following the said period of three months:
Provided further that in case of “associated enterprises”, where the
person providing the service is located outside India, the point of
taxation shall be the date of debit in the books of account of the
person receiving the service or date of making the payment whichever
is earlier’
Rule 10 in the Point of Taxation Rules, 2011 has been inserted w.e.f
01.10.2014, which reads as:

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Technical Guide on Transportation

 Notwithstanding anything contained in the first proviso to rule 7, if the


invoice in respect of a service, for which point of taxation is
determinable under rule 7 has been issued before the 1st day of
October, 2014 but payment has not been made as on the said day, the
point of taxation shall,–
(a) if payment is made within a period of six months of the date of
invoice, be the date on which payment is made;
(b) if payment is not made within a period of six months of the date
of invoice, be determined as if rule 7 and this rule do not exist
 The effect of above is summarised as under:
 Where the freight is payable as a recipient of service and the invoice is
issued on or before 30.09.2014, in such case, the point of taxation will
be the date of payment where the payment is made within six months.
If the payment is not made within six months, in such a case, the point
of taxation will be determined as if Rule 7 does not exist. Thus, the
matter will fall back to the date of invoice and interest liability will
commence from the date of invoice.
 From 01.10.2014, the change has been made from 6 months to 3
months which would indicate that generally the point of taxation in
case where service tax is payable under reverse charge would be the
date of payment, provided the payment is made within 3 months.
 Where the payment is not made within 3 months, in such case, the
point of taxation will be immediately following the expiration of three
months. Thus, interest liability commences from the completion of
three months.
 It needs to be noted that point of taxation is 3 months from the date of
invoice. Thus, where consignment note is received on 25.10.2014 for
payment of ` 1,00,000/-, in such a case,
(a) Where payment is made on 25.01.2015, then the due date of
payment of service tax will be 06.02.2015 in case of entities
other than proprietorship and partnerships.
(b) Where payment is made on 31.01.2015, then the due date of
payment of service tax will be 06.02.2015 in case of entities
other than proprietorship and partnerships.

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Reverse Charge Mechanism, 2012 forTransportation Sector

(c) Where payment is made on 06.02.2015, then the due date of


payment of service tax will be 06.02.2015 in case of entities
other than proprietorship and partnerships.
(d) Where payment is made on 10.02.2015, then the due date of
payment of service tax will be 06.02.2015 in case of entities
other than proprietorship and partnerships. Thus, interest of 4
days is required to be paid.
 Since the above provisions are to come w.e.f 01.10.2014, transition
provisions are made which are contained in Rule 10.

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Chapter 5
Place of Provision of Service Rules,
2012 Pertaining to Transportation
Sector
Introduction
The provisions relating to service tax are contained in Chapter V of Finance
Act, 1994.
The provisions of the Chapter V of Finance Act, 1994 extends to the whole of
India except Jammu and Kashmir. [Section 64(1)]
As per section 66B, ‘There shall be levied a tax (hereinafter referred to as the
service tax) at the rate of twelve per cent on the value of all services, other
than those services specified in the negative list, provided or agreed to be
provided in the taxable territory by one person to another and collected in
such manner as may be prescribed.’ [Section 66B]
As per Rule 2(1)(dd) of Service Tax Rules, 1994, “place of provision” shall be
the place as determined by Place of Provision of Services Rules 2012;
Section 65B(52) interprets "taxable territory" as "taxable territory" means the
territory to which the provisions of this Chapter apply;
Section 65B(35) interprets "non-taxable territory" as "non-taxable territory"
means the territory which is outside the taxable territory;
Thus, from the above, provisions of service tax apply only when the services
are provided in India except Jammu and Kashmir. If the services are
provided outside India, then, provisions of Chapter V of Finance Act, 1994
will not apply.
To determine where the services have been provided, there is place of
Provision of Services Rules, 2012.

Place of Provision of Rules, 2012 in brief


Under section 66B of the Finance Act, 1994, the service will be taxable only
Place of Provision of Service Rules, 2012 pertaining to Transportation Sector

when it is provided or agreed to be provided in a taxable territory. The ‘Place


of Provision of Services Rules, 2012’ primarily determines whether the
services are provided in taxable territory or not.
Rule 14 of Place of Provision of Services Rules, 2012 states that later rule
will prevail over earlier rule, when the service is determinable in more than
one rule. Thus, the rules will apply in a reverse order.
For certain specified services, specific provision has been made in the Rules,
which are as under:
 The services provided on board a conveyance during the course of a
passenger transport operation, including services intended to be
wholly or substantially consumed while on board, shall be the first
scheduled point of departure of that conveyance for the journey. (Rule
12)
 The services of passenger transportation shall be the place where the
passenger embarks on the conveyance for a continuous journey. (Rule
11)
 The services of transportation of goods, other than by way of mail or
courier, shall be the place of destination of the goods. However, in
case of service of GTA, the place of provision of service shall be the
person liable to pay tax. (Rule 10)
 The place of provision of service shall be the location of service
provider for under mentioned services:
 Services provided by a banking company, or a financial
institution, or a non-banking financial company, to account
holders;
 Online information and database access or retrieval services;
 Intermediary services;
 Service consisting of hiring of means of transport, upto a period
of one month. [Rule 9]
 Place of provision of a service, where the location of the provider of
service as well as that of the recipient of service is in the taxable
territory, shall be the location of the recipient of service. [Rule 8]
 Where any service referred to in rules 4, 5, or 6 is provided at more

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Technical Guide on Transportation

than one location, including a location in the taxable territory, its place
of provision shall be the location in the taxable territory where the
greatest proportion of the service is provided. [Rule 7]
 In case of services relating to event, Place of Provision of Service is
where the event (relating to fair, conference, seminar etc) is actually
held [Rule 6]
 Place of Provision of services provided directly in relation to an
immovable property, including services provided in this regard by
experts and estate agents, provision of hotel accommodation by a
hotel, inn, guest house, club or campsite, by whatever, name called,
grant of rights to use immovable property, services for carrying out or
co-ordination of construction work, including architects or interior
decorators, shall be the place where the immovable property is located
or intended to be located. [Rule 5]
 In case of performance based services (relating to goods), Place of
Provision of Service is where service is actually performed (except
where goods are temporarily imported in India for repairs and are re-
exported subsequently) [Rule 4(a)]. The logic for excluding goods
which are temporarily imported into India for repair is that ultimately, it
will be re-exported and exports are free of taxes.
 In case of performance based services (where physical presence of
service receiver or person acting on behalf of recipient of service is
required), Place of Provision of Service is where service is actually
performed [Rule 4(b)]
 In all other cases, the place of provision of service shall be location of
service receiver. However, where the location of service receiver is not
available in the ordinary course of business, in such case, place of
provision of service shall be location of service provider. [Rule 3]

Place of provision of services with respect to


transportation sector
Rule 10 of Place of Provision of Service Rules, 2012 reads as, ‘The place of
provision of services of transportation of goods, other than by way of mail or
courier, shall be the place of destination of the goods:
Provided that the place of provision of services of goods transportation
agency shall be the location of the person liable to pay tax.

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Place of Provision of Service Rules, 2012 pertaining to Transportation Sector

Place of Provision for service of Goods Transportation Agency


The place of provision of services of goods transportation agency shall be
the location of the person liable to pay tax. [Proviso to Rule 10 of Place of
Provision of Service Rules, 2012]
As per Rule 2(1)(d)(i)(B) of Service Tax Rules, 1994, ‘person liable for paying
service taxin relation to service provided or agreed to be provided by a goods
transport agency in respect of transportation of goods by road, where the
person liable to pay freight is,—
(i) any factory registered under or governed by the Factories Act, 1948
(63 of 1948);
(ii) any society registered under the Societies Registration Act, 1860 (21
of 1860) or under any other law for the time being in force in any part
of India;
(iii) any co-operative society established by or under any law;
(iv) any dealer of excisable goods, who is registered under the Central
Excise Act, 1944 (1 of 1944) or the rules made thereunder;
(v) any body corporate established, by or under any law; or
(vi) any partnership firm whether registered or not under any law including
association of persons;
any person who pays or is liable to pay freight either himself or through his
agent for the transportation of such goods by road in a goods carriage:
Provided that when such person is located in a non-taxable territory, the
provider of such service shall be liable to pay service tax.
Thus, for the services provided by goods transport agency, place of provision
is the person liable to pay freight. If the person liable to pay freight falls into
any of the specified category of persons, in such a case, the place of
provision of service is the location of such person.
If the person liable for making payment of freight falls under any of the
specified category of persons, then, to such person, benefit of Small Service
Provider Exemption as contained in Notification No 33/2012- ST shall not be
availed.
If the person liable for making payment of freight is not in the category of
specified persons, then, place of provision of service falls on the service

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Technical Guide on Transportation

provider i.e., goods transport agency.


For Eg.,
 When A Ltd of Punjab avails the services of goods transport agency
located in Gujarat and makes the payment of freight for ` 40000/-, in
such a case, the place of provision of service becomes Punjab as the
person liable to make freight is one of the specified persons.
 When Mr A of Punjab avails the services of goods transport agency
located in Gujarat and makes the payment of freight for ` 40000/-, in
such a case, the place of provision of service becomes Gujarat as the
person liable to make freight is not falling in one of the specified
persons.
 When Mr A of Punjab is registered with Central Excise Department as
a manufacturer and to whom, Factories Act, 1948 do not apply avails
the services of goods transport agency located in Gujarat and makes
the payment of freight for ` 40000/-, in such a case, the place of
provision of service becomes Gujarat as the person liable to make
freight is not falling in one of the specified persons.
 When Mr A of Punjab is registered with Central Excise Department as
a dealer avails the services of goods transport agency located in
Gujarat and makes the payment of freight for ` 40000/-, in such a
case, the place of provision of service becomes Punjab as the person
liable to make freight is one of the specified persons.
When a specified person liable to pay freight such person is located in a non-
taxable territory, the provider of such service shall be liable to pay service
tax.
For Eg.,
 When A Ltd of Kashmir avails the services of goods transport agency
located in Gujarat and makes the payment of freight for ` 40000/-, in
such a case, the place of provision of service becomes Gujarat and
the tax, if any has to be paid by service provider i.e., goods transport
agency as the person liable to make freight is one of the specified
persons, but is located in a non taxable territory.
 When Mr A of Kashmir avails the services of goods transport agency
located in Gujarat and makes the payment of freight for ` 40000/-, in

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Place of Provision of Service Rules, 2012 pertaining to Transportation Sector

such a case, the place of provision of service becomes the place of


service provider, i.e, Gujarat as the person liable to make freight is not
falling in one of the specified persons.
 When A Ltd of China avails the services of goods transport agency
located in Gujarat and makes the payment of freight for ` 40000/-, in
such a case, the place of provision of service becomes Gujarat and
the tax, if any has to be paid by service provider i.e., goods transport
agency as the person liable to make freight is one of the specified
persons, but is located in a non taxable territory.
 When A Ltd of Rajasthan avails the services of goods transport
agency located in Nepal and makes the payment of freight for `
40000/-, in such a case, the place of provision of service becomes
Rajasthan as the place of provision of service will be the person
responsible for making payment of freight, if it is located in a taxable
territory.
 When Mr A of Rajasthan avails the services of goods transport agency
located in Nepal and makes the payment of freight for ` 40000/-, in
such a case, the place of provision of service becomes Nepal as the
place of provision of service will be the place of service provider as the
person making payment of freight is not one of the specified person.

Place of provision of service for transportation of goods by


air/ sea
1. As per Rule 10 of Place of Provision of Service Rules, 2012, ‘The
place of provision of services of transportation of goods, other than by way of
mail or courier, shall be the place of destination of the goods’
Any service of transportation of goods, by any mode of transport (air, vessel,
rail or goods transport agency), is covered by Rule 10 of place of provision of
service Rules, 2012. However, transportation of goods by courier or mail is
not covered here.
Place of provision of a service of transportation of goods is the place of
destination of goods, except in the case of services provided by a Goods
Transportation Agency in respect of transportation of goods by road, in which
case the place of provision is the location of the person liable to pay tax.
Eg.,

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Technical Guide on Transportation

 A consignment of cut flowers is consigned from Chennai to Amsterdam


by air/vessel. The place of provision of goods transportation service
will be Amsterdam (outside India, hence not liable to service tax).
Conversely, if a consignment of crystal ware is consigned from Paris to
New Delhi, the place of provision will be New Delhi. [para 5.10.2 of
Education Guide]
 A Ltd of Kerala sent the electrical goods to Mr B located in Jammu and
Kashmir via Rail. Here, the place of provision of service is Jammu and
Kashmir, which is outside taxable territory, hence, not taxable.
 Mr B of Jammu and Kashmir sent the electrical goods to Mr A located
in Kerala via Rail. Here, the place of provision of service is Kerala,
which is located in the taxable territory, hence, taxable.

Transportation of goods by courier


2. Rule 10 of place of provision of Services Rules, 2012 states that he
place of provision of services of transportation of goods, other than by way of
mail or courier, shall be the place of destination of the goods.
Thus, for courier, Rule 10 will not apply as it specifically excludes ‘service of
transportation of goods by mail or courier’.
The provision of courier service commences as soon as the goods or parcels
are delivered to the courier agency and concludes when the goods or parcels
are delivered to the destination.
As per Rule 3of place of provision of Services Rules, 2012, ‘The place of
provision of a service shall be the location of the recipient of service’.
Thus, after exclusion of the courier service from Rule 10, it falls under Rule
3. It is not covered in Rule 4 to 9.
Thus, ‘the place of provision of a service shall be the location of the recipient
of service’.

Export of service
As per Rule 6A of the Service Tax Rules, 1994, the provision of any service
provided or agreed to be provided shall be treated as an export of service
when,-
(a) the provider of service is located in the taxable territory ,

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Place of Provision of Service Rules, 2012 pertaining to Transportation Sector

(b) the recipient of service is located outside India,


(c) the service is not a service specified in the section 66D of the Act,
(d) the place of provision of the service is outside India,
(e) the payment for such service has been received by the provider of
service in convertible foreign exchange, and
(f) the provider of service and recipient of service are not merely
establishments of a distinct person in accordance with item (b) of
Explanation 3 of clause (44) of section 65B of the Act.
Thus, based on above, let us analyse as to when the export of service takes
place.

Courier
# Case # 1
The applicant collects parcel from the clients located in India and delivers
them outside of India. The clients located in India are paying for courier
charges in Indian Rupees.
Ans: In this case, though the parcels are to be delivered outside India and as
per Rule 3of place of provision of Services Rules, 2012, ‘The place of
provision of a service shall be the location of the recipient of service’.
Location of service recipient is in India, therefore, place of provision of
service falls in India
# Case # 2
The applicant collects parcel from the clients located in India and delivers
them outside of India. The clients located being an exporter makes the
payment from EEFC Account.
Ans: In this case, though the parcels are to be delivered outside India and as
per Rule 3of place of provision of Services Rules, 2012, ‘The place of
provision of a service shall be the location of the recipient of service’.
Location of service recipient is in India, therefore, place of provision of
service falls in India. Even if the payment is received in foreign currency, still
as the location of service recipient is in India, hence, the place of provision of
service falls into taxable territory which is India.

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Technical Guide on Transportation

# Case # 3
The applicant collects parcel from the clients located in India and delivers
them outside of India. The clients located outside India are paying for courier
charges like in case of VPP (Value Payable Post).
Ans: In this case, the parcels are to be delivered outside India and as per
Rule 3of place of provision of Services Rules, 2012, ‘The place of provision
of a service shall be the location of the recipient of service’. Location of
service recipient is in outside India, therefore, place of provision of service
falls outside India.
If the consideration for services is received in convertible foreign exchange,
then the said activity will be considered as Export of Service.
# Case # 4
UPS:United Parcel Service, Inc., located in US generally known as UPS
collects parcels from their clients to be delivered to India. For delivering the
clients, UPS enters into an agreement with Poonam Couriers located in India
for delivering the parcels to the destination based in India. For this, Poonam
Courier charges UPS. What will be the place of provision of this transaction.
Ans: The place of provision of service as per Rule 3 is location of service
recipient which is located in USA. Hence, the place of provision of service is
USA. [This principle has also been held in UPSJetair Express Pvt Ltd V. CCE
(Tri Mumbai) 2014 (10) TMI 523.]
# Case # 5
The applicant collects parcel from the clients located abroad and delivers
them in India. The clients located abroad are paying for courier charges in
convertible foreign exchange.
Ans: In this case, the place of provision of service is located outside India
and will also qualify as export as service provider is located in India as the
service recipient is located outside India, the place of provision of service is
located outside India and amount is received in convertible foreign currency.
For transport of goods by Road
 In case of transport of goods service, when the person paying freight
is located in a non-taxable territory, in such a case, the place of provision of
service will be the place of service provider.

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Place of Provision of Service Rules, 2012 pertaining to Transportation Sector

Where the place of provision of service in case of goods transport agency


becomes India, even though the consideration for service is received in
foreign exchange, it will not be considered as Export Service. It will not be
considered as export of service because the place of provision of service
becomes India, whereas for export, the place of provision of service should
be in India.
Thus, the services provided by GTA in neighbouring countries such as
Pakistan, Nepal, Bhutan and Bangladesh will not be treated as Export.
For transport of goods by Rail / Air / Vessel
In case of transportation of goods by Air / Rail / Vessel, the place of provision
of service shall be the destination of goods.
# Case # 1
The applicant collects consignment from the clients located in India and
delivers them Japan. The clients located in India are paying for consignment
charges in Indian Rupees.
Ans: In this case, though the consignment is to be delivered outside India
and as per Rule 10of place of provision of Services Rules, 2012, ‘The place
of provision of a service shall be the destination of goods’. Destination of
goods is Japan, which is outside India, therefore, place of provision of
service becomes outside India; hence, this transaction will not be taxable.
However, it will not qualify for export because, the consideration is not
received in convertible foreign exchange.
If the client located in India is an exporter and pays for foreign exchange in
EEFC account, then the transaction will be considered as export of service.
# Case # 2
The airlines in India take goods from Brazil to India. The client in Brazil
makes payment for the same in convertible foreign exchange.
Ans: In this case, the place of provision of goods is destination of goods
which is in India. Thus, place of provision of goods is located in India, hence,
the same will be taxable.
# Case # 3
The airlines in India takes goods from Brazil to China
Ans: The place of provision of service will be destination of goods which is

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Technical Guide on Transportation

China. Here, the provider of service is located in India, the recipient of


service is located outside India and if the consideration is received in
convertible foreign exchange, then the activity will be treated as export.

Import of service
The service tax is on services provided in India. As per Rule 2(1)(d)(G) of
Service Tax Rules, 1994, ‘“person liable for paying service tax” in relation
to any taxable service provided or agreed to be provided by any person
which is located in a non-taxable territory and received by any person located
in the taxable territory, the recipient of such service.
As per Sr No 34 of Notification No 25/2012-ST, ‘Services received from a
provider of service located in a non- taxable territory by –
 Government, a local authority, a governmental authority or an
individual in relation to any purpose other than commerce, industry or
any other business or profession;
 an entity registered under section 12AA of the Income tax Act, 1961
(43 of 1961) for the purposes of providing charitable activities; or
 a person located in a non-taxable territory;
is exempt.
For this, let us understand this the taxability w.r.t transportation sector
The place of provision of service for courier shall be location of recipient of
service.
# Case # 1
The UPS, an international courier collects parcel from the clients located
outside in India and delivers them client in India. The clients located in India
are paying for courier charges in Indian Rupees to UPS.
Ans: In this case, the place of provision of service falls in India as per Rule
3of place of provision of Services Rules, 2012. , ‘The place of provision of a
service shall be the location of the recipient of service’. The person liable to
pay tax is the recipient of such service.
# Case # 2
British Airways takes the goods from Britian to India, here the place of
provision of service becomes India.The person located in India has made the
booking of consignment and makes payment to British Airways.

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Place of Provision of Service Rules, 2012 pertaining to Transportation Sector

Ans: In this case, the place of provision of service is India as per Rule 10 as
destination of goods is India. In this case, service provider is located in a
non-taxable territory and received by any person located in the taxable
territory, the recipient of such service is liable to pay tax.

93
Chapter 6
CENVAT Credit Rules, 2004
Pertaining to Transportation Sector
Introduction
The transportation sector relating to goods comprises of services provided by
Transport of goods by Road, by Rail, by air, vessel and ocean.
In certain cases, abatement is granted under Notification No 26/2012-ST
dated 20.06.2012 subject to certain conditions. In case of transport of goods
by Road and transport of goods in a vessel, abatement of 75% and 60% has
been granted subject to the condition that CENVAT credit on inputs, capital
goods and input services, used for providing the taxable service, has not
been taken by the service provider under the provisions of the CENVAT
Credit Rules, 2004. Thus, where service provider providing service of
transport of goods by road or in a vessel avails the benefit of abatement,
benefit of CENVAT credit will not be available. In case where the said service
provider wants to avail the benefit of CENVAT credit, he has to forego the
abatement and has to pay service tax at full rate.
In this chapter, the provisions relating to CENVAT credit which has direct or
indirect impact on transportation sector only has been discussed.

Meaning of CENVAT Credit


While providing services, the service provider may be utilizing inputs, capital
goods and input services in providing the output service. The inputs and
capital goods may have been subject to Central Excise and input service
would have been subject to service tax. CENVAT credit provisions provide
credit of duties or taxes paid on input services to be utilized for making
payment of service tax on out put services subject to limitations, if any. The
provisions in this regard are contained in CENVAT Credit Rules, 2004. The
related provisions are discussed in the below mentioned paragraphs.

Availment of CENVAT Credit


The entities engaged in transportation sector can avail CENVAT credit of
Place of Provision of Service Rules, 2012 pertaining to Transportation Sector

duty paid capital goods, inputs and input services. The very first thing is
availment of credit. Credit can be utilised only after availment of the same.
To ‘avail’ means to take credit.
The following credit on duty paid capital goods, inputs and input services can
be availed by a service provider engaged in transportation sector.
 Basic Excise duty (Duties as specified in the First Schedule of the
Central Excise Tariff Act, 1985). [Rule 3(1)(i) of CENVAT Credit Rules,
2004]
 However, credit shall not be allowed on the goods which avails
benefit of Notification No 1/2011-CE dated 01.03.2011. In this
notification, the duty has been imposed on 130 goods initially at
1%. Now, the same is 2%. The lesser duty is there on the
condition, inter alia, that the CENVAT credit of inputs and input
services shall not be taken. Similarly, the purchaser shall also
not be able to utilise the credit on goods where duty has been
paid at 1% / 2%.
 Credit will also not allowed on coal and fertilizers which are
contained in Sr No 67 and 128 in respect of which the benefit of
an exemption under Notification No. 12/2012-CE, dated the
17th March, 2012 is availed. In that also, the rate of duty is 1%.
 Credit of service tax leviable under section 66B of the Finance Act,
1994 (w.e.f 01.07.2012, prior to that, credit of service tax paid under
section 66 and 66A were also allowed)
 Education cess and Secondary and Higher Secondary Education Cess
on goods and services.
 In case of imported goods, the CENVAT credit equivalent to
countervailing duty as contained in section 3 of the Customs Tariff Act,
1975 shall be admissible. However, credit of additional duty of
customs leviable under section 3(5) of the Customs Tariff Act, 1975
shall not be allowed to a service provider.
As the credit of duty paid inputs, capital goods and input services is allowed,
it is necessary to understand the meaning of capital goods, inputs and input
services and conditions on which CENVAT credit can be availed under each
of them has been discussed in below mentioned paragraphs.

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Technical Guide on Transportation

Provisions pertaining to Capital Goods


The definition of "capital goods" is contained in Rule 2(a) of CENVAT Credit
Rules which states that ‘Capital goods’ means:-
A. the following goods, namely:-
(i) all goods falling under Chapter 82, Chapter 84, Chapter 85,
Chapter 90, heading 6805, grinding wheels and the like, and
parts thereof falling under heading 6804 of the First Schedule to
the Excise Tariff Act;
(ii) pollution control equipment;
(iii) components, spares and accessories of the goods specified at
(i) and (ii);
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof;
(vii) storage tank and
(viii) motor vehicles other than those falling under tariff headings
8702, 8703, 8704, 8711 and their chassis, but including
dumpers and tippers
used-
(1) in the factory of the manufacturer of the final products, but does not
include any equipment or appliance used in an office; or
(1A) outside the factory of the manufacturer of the final products for
generation of electricity for captive use within the factory; or
(2) for providing output service;
B. Motor vehicle designed for transportation of goods including their
chassis registered in the name of the service provider, when used for-
(i) providing an output service of renting of such motor vehicle; or
(ii) transportation of inputs and capital goods used for providing an output
service; or
(iii) providing an output service of courier agency

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Place of Provision of Service Rules, 2012 pertaining to Transportation Sector

C. Motor vehicle designed to carry passengers including their chassis,


registered in the name of the provider of service, when used for providing
output service of-
(i) transportation of passengers; or
(ii) renting of such motor vehicle; or
(iii) imparting motor driving skills
D. Components, spares and accessories of motor vehicles which are
capital goods for the assesse,

Comments
The provider of service relating to transportation of sector utilizes many
capital goods. For e.g., courier agency and person providing service of
transport of goods by Road services uses the services of truck, any other
goods transport vehicles, the airlines also utilises many capital goods. The
provisions in this regard are explained in the undermentioned paragraphs.
Part (A)(i) of the definition states that the good falling in Chapter 82, Chapter
84, Chapter 85, Chapter 90, heading 6805, grinding wheels and the like, and
parts thereof falling under heading 6804 of the First Schedule to the Tariff
Act, 1985 shall be capital goods. The goods covered in this chapter are
 Chapter 82: Tools, implements, cutlery, spoons and forks, of base
metal; parts thereof of base metal
 Chapter 84: Nuclear reactors, boilers, machinery and mechanical
appliances; parts thereof
 Chapter 85: Electrical machinery and equipment and parts thereof;
sound recorders and reproducers, television image and sound
recorders and reproducers, and parts and accessories of such articles
 Chapter 90: Optical, photographic, cinematographic, measuring,
checking, precision, medical or surgical instruments and apparatus;
parts and accessories thereof
 Heading 6805: Natural Or Artificial Abrasive Powder Or Grain, On A
Base Of Textile Material, Of Paper, Of Paperboard Or Of Other
Materials, Whether Or Not Cut To Shape Or Sewn Or Otherwise Made
Up

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Technical Guide on Transportation

 Heading 6804: Millstones, Grindstones, Grinding Wheels And The


Like, Without Frameworks, For Grinding, Sharpening, Polishing,
Trueing Or Cutting, Hand Sharpening Or Polishing Stones, And Parts
Thereof, Of Natural Stone, Of Agglomerated Natural Or Artificial
Abrasives, Or Of Ceramics, With Or Without Parts Of Other Materials
Only the goods which fall in the specific chapter heading will fall into the
definition of capital goods will be considered as capital goods as far as
CENVAT Credit Rules are concerned. The concept of capital goods may be
different as far as Income Tax Act, 1961 or accounting standard is
concerned. Thus, in case of difference, a reconciliation statement be made
between the capital goods as per CENVAT Credit Rules, 2004 and as per
accounts or Income Tax Act.
Pollution control equipment is also capital goods. Thus, where pollution
control equipment is set up in the vehicles by which the pollution reduces,
credit of duty paid on pollution control equipment is eligible.
It is to be noted that whatever is defined in the definition of capital goods only
will be considered as capital goods. An item can be treated as "capital
goods" under CENVAT Credit Rules only if it satisfies that the goods fell
under one of the specified chapters or headings of the Tariff or it is a spare
part, component or accessory or that it falls under one of the specified items.
[para 19 of Vikarm Cements v. CCE (Indore) 2005 8 TMI 659 = 2005 (7) SCC
74]
Generally, motor vehicles except other than those falling under tariff
headings 8702, 8703, 8704, 8711 and their chassis, but including dumpers
and tippers are considered as capital goods in part (A) of the definition. In
this regard, it is the details of the tariff headings which will not be qualified for
credit of capital goods is as under:
8702: Motor vehicles for the transport of ten or more persons, including the
driver;
8703: Motor cars and other motor vehicles principally designed for the
transport of persons (other than those of heading 8702), including
station wagons and racing cars
8704: Motor vehicles for the transport of goods. However, credit of dumpers
and tippers falls into the definition of capital goods.
8711: Motorcycles (including mopeds) and cycles fitted with an auxiliary
motor, with or without side- cars;

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For transportation of goods sector, the credit of motor vehicle is permissible


and the same is contained in Part (B) of the definition which states that the
credit of motor vehicle which is designed for transportation of goods including
their chassis registered in the name of the service provider, when used for
 providing an output service of renting of such motor vehicle; or
 transportation of inputs and capital goods used for providing an output
service; or
 providing an output service of courier agency
Thus, the goods transport agency and / or courier agency can take the credit
of any motor vehicle which it utilises in providing output service.
Even the components, spares and accessories of motor vehicles which are
capital goods for the assesse shall be treated as capital goods.
It is to be noted that aircrafts, space crafts and parts thereof (falling under
chapter 88 of CETA, 85) and ships boats and other floating structures (falling
under chapter 89 of CETA, 85) is not covered in the definition of capital
goods.

Other salient features for availment of credit of capital


goods.
Quantum of CENVAT Credit on capital goods [Rule 4(2) of
CENVAT Credit Rules]
The CENVAT credit in respect of capital goods received in the premises of
the provider of output service at any point of time in a given financial year
shall be taken only for an amount not exceeding 50% of the duty paid on
such capital goods in the same financial year.
However, where the said capital goods are cleared in the same financial
year, the duty on such capital shall be allowed for the whole of the amount.
Credit of additional duties of customs leviable under section 3(5) of the
Customs Tariff Act, 1975 shall not be admissible to the service provider.
The balance of CENVAT credit may be taken in any financial year
subsequent to the financial year in which the capital goods were received in
the factory of the manufacturer, or in the premises of the provider of output
service, if the capital goods, other than components, spares and accessories,

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refractories and refractory materials, moulds and dies and goods falling
under heading 6805, grinding wheels and the like, and parts thereof falling
under heading 6804 of the First Schedule to the Excise Tariff Act, are in the
possession of the provider of output service in such subsequent years,
Example
A service provider received a truck on 16th day of March, 2013 in his
premises. CENVAT of two lakh rupees is paid on this truck. The provider of
output service can take credit upto a maximum of one lakh rupees in the
financial year 2012-13, and the balance in subsequent years i.e., in 14-15 or
any other subsequent year, provided that in the year in which credit is taken,
the goods must be in the possession of service provider.

Ownership not necessary


The CENVAT credit in respect of the capital goods shall be allowed to a
manufacturer, provider of output service even if the capital goods are
acquired by him on lease, hire purchase or loan agreement, from a financing
company. [Rule 4(3) of CENVAT Credit Rules, 2004]
Ownership of goods is no criteria for denying Modvat credit. This principle
has also been held in Sharda Motors Industries Ltd. v. CCE, Chennai, 2002
(150) E.L.T. 759; His Automotives Ltd. v. CCE, Chennai 2004 (163) E.L.T.
116; Commissioner Of Central Excise, Ludhiana Versus Pepsi Foods Ltd.
2010 (254) E.L.T. 284 (P & H) = 2010 (2) TMI 608(P & H).

No CENVAT credit, if the depreciation has been claimed on


duty amount
In order to check that a double benefit shall not be taken by the assessee, it
has been specified that where a person claims depreciation on duty amount,
then its CENVAT credit shall not be allowed. The provisions are contained in
Rule 4(4) of the CENVAT Credit Rules, 2004 which states that, ‘ The
CENVAT credit in respect of capital goods shall not be allowed in respect of
that part of the value of capital goods which represents the amount of duty
on such capital goods, which the manufacturer or provider of output service
claims as depreciation under section 32 of the Income-tax Act, 1961( 43 of
1961)’
Similar provision has been contained in section 43 of the Income Tax Act,
1961 whose explanation 9 states that where a credit has been taken of

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excise duty or additional duty of excise u/s 3(5) of the Custom Tariff Act,
1975, then the cost of asset will be reduced to that extent.
Thus, it is upto assessee to select as to whether it wants to claim
depreciation or wants to avail CENVAT credit. Double benefit shall not be
admissible.

If the capital goods are removed


If the capital goods are removed ‘as such’ from the factory, or premises of
the provider of output service (before put to use), the manufacturer of the
final products or provider of output service, as the case may be, shall pay an
amount equal to the credit availed in respect of such inputs or capital goods.
The capital goods are required to be removed under a cover of an invoice
referred to in Rule 9 of CENVAT Credit Rules, 2004. This situation may occur
when the capital goods has been received, but is not according to the needs
of the manufacturer or provider of out put service and is required to be
returned to the manufacturer for replacement or returned.
If the capital goods are removed outside the premises of the provider of
output service for providing the output service, then no credit is required to
be reversed.
If the capital goods, on which CENVAT credit has been taken, are removed
after being used, the manufacturer or provider of output services shall pay an
amount equal to the CENVAT Credit taken on the said capital goods reduced
by the percentage points calculated by straight line method as specified
below for each quarter of a year or part thereof from the date of taking the
CENVAT Credit, namely:-
 for computers and computer peripherals:
 for each quarter in the first year @ 10%
 for each quarter in the second year @ 8%
 for each quarter in the third year @ 5%
 for each quarter in the fourth and fifth year @ 1%
 for capital goods, other than computers and computer peripherals @
2.5% for each quarter.
However, if the amount so calculated is less than the amount equal to the
duty leviable on transaction value, the amount to be paid shall be equal to

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the duty leviable on transaction value. [Rule 3(5A)(a) of CENVAT Credit


Rules, 2004]
Where the capital goods are cleared as waste and scrap, the manufacturer
shall pay an amount equal to the duty leviable on transaction value. [Rule
3(5A)(b) of CENVAT Credit Rules, 2004]
If the value of any capital goods before being put to use, on which CENVAT
credit has been taken is written off fully or partially or where any provision to
write off fully or partially has been made in the books of account then the
manufacturer or service provider, as the case may be, shall pay an amount
equivalent to the CENVAT credit taken in respect of the said input or capital
goods. However, when the said capital goods is subsequently used in the
manufacture of final products or the provision of output services, the
manufacturer or output service provider, as the case may be, shall be entitled
to take the credit of the amount equivalent to the CENVAT credit paid earlier
subject to the other provisions of these rules. [Rule 3(5B) of CENVAT Credit
Rules, 2004]
It is to be noted that credit is required to be written off with respect to capital
goods only when the same has been written off before put to use. If the
capital goods are written off after put to use, either fully or partially, then no
credit is required to be reversed. Thus, when capital goods are written off on
account of depreciation, then no duty is required to be reversed.

No CENVAT credit on capital goods when utilised exclusively


for providing exempted services or manufacture of exempted
goods
No CENVAT credit shall be allowed on capital goods which are used
exclusively in the manufacture of exempted goods or in providing exempted
services, other than the final products which are exempt from the whole of
the duty of excise leviable thereon under any notification where exemption is
granted based upon the value or quantity of clearances made in a financial
year. [Rule 6(4) of CCR’04]
Can credit of capital goods be availed of when used in manufacture of
dutiable goods on which benefit under Notification 1/2011- CE is availed or in
provision of a service whose part of value is exempted on the condition that
no credit of inputs and input services is taken?
As per Rule 6(4) no credit can be availed on capital goods used exclusively

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in manufacture of exempted goods or in providing exempted service. Goods


in respect of which the benefit of an exemption under notification No. 1/2011-
CE, dated the 1st March, 2011 is availed are exempted goods [Rule 2(d)].
Taxable services whose part of value is exempted on the condition that no
credit of inputs and input services, used for providing such taxable service,
shall be taken, are exempted services [Rule 2(e)]. Hence credit of capital
goods used exclusively in manufacture of such goods or in providing such
service is not allowed. [Para 1 of Circular No.943/04/2011-CX dated
29.04.2011]

Provisions pertaining to Inputs


The input is defined in Rule 2(k) of CENVAT credit Rules, 2004 which reads
as “input” means–
(i) all goods used in the factory by the manufacturer of the final product;
or
(ii) any goods including accessories, cleared along with the final product,
the value of which is included in the value of the final product and
goods used for providing free warranty for final products; or
(iii) all goods used for generation of electricity or steam for captive use; or
(iv) all goods used for providing any output service; but excludes-
A. light diesel oil, high speed diesel oil or motor spirit, commonly
known as petrol;
B. any goods used for –
(a) construction or execution of works contract of a building
or a civil structure or a part thereof; or
(b) laying of foundation or making of structures for support of
capital goods,
except for the provision of service portion in the execution of a
works contract or construction service as listed under clause (b)
of section 66E of the Act;
C. Capital goods except when used as parts or components in the
manufacture of a final product;
D. motor vehicles;

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E. any goods, such as food items, goods used in a guesthouse,


residential colony, club or a recreation facility and clinical
establishment, when such goods are used primarily for personal
use or consumption of any employee; and
F. any goods which have no relationship whatsoever with the
manufacture of a final product.
Explanation.– For the purpose of this clause, “free warranty” means a
warranty provided by the manufacturer, the value of which is included in the
price of the final product and is not charged separately from the customer;
Thus, for a service provider engaged in transportation sector, CENVAT credit
of inputs will be allowed which are utilized in providing output service and
those input should not fall in the exclusion category.

Credit of under mentioned goods will be allowed


CENVAT credit of tyres and other consumables required for providing
services relating to transportation of goods will be allowed.
As the aircrafts, space crafts and parts thereof (falling under chapter 88 of
CETA, 85) and ships boats and other floating structures (falling under
chapter 89 of CETA, 85) is not covered in the definition of capital goods.
However, they are essential for providing services of transportation of goods
by air and sea respectively; hence, credit of the same will be available as
inputs.

Credit of under mentioned goods will not be allowed


The entities engaged in transportation sector will be consuming fuel for
transportation. However, CENVAT credit of light diesel oil, high speed diesel
oil or motor spirit, commonly known as petrol will not be allowed.
The definition of inputs as contained in Rule 2(k) of CENVAT Credit Rules,
2004 do not permit CENVAT credit of light diesel oil, high speed diesel oil or
motor spirit, commonly known as petrol. Thus, the entities engaged in
transporation sector consumes fuel known as light diesel oil, high speed
diesel oil or motor spirit, its credit is not admissible. In the following cases,
the credit has been denied.
 The credit of LDO and HSD is not available as credit whatsoever its
use may. Even if it is used for generation of electricity, the same is not

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admissible. M/s. Spetech Plant Equipment Pvt. Ltd. v. CCE [2012 (4)
TMI 534] =2013 (289) E.L.T. 348 (Tri. - Ahmd.).
 Credit on HSD not admissible. Sangam Spinners Ltd. Versus UOI and
Ors [2011 (3) TMI 4 (SC)] =2011 (266) E.L.T. 145 (SC).
Similarly, credit of any goods such as food items, goods used in a
guesthouse, residential colony, club or a recreation facility and clinical
establishment, when such goods are used primarily for personal use or
consumption of any employee. What is to be noted is that if the same is for
personal consumption of any employee, then its credit is not allowed. When
the same is not for personal consumption of employee, then the credit is
allowed.
Similarly, the input used in construction of works contract of a building or a
civil structure or a part thereof; or for laying of foundation or making of
structures for support of capital goods will not be allowed to an entity
engaged in transportation sector.
Can credit of inputs utilised in manufacture of capital goods be allowed? In
this regard, an instruction from F No F.No.267/11/2010-CX8 dated
08.07.2010 is reproduced for ready reference.
 CESTAT Larger Bench in the case of Vandana Global Ltd. V/s CCE,
Raipur [2010-TIOL-624-CESTAT-DEL-LB] delivered on 30.04.10, on
admissibility of credit on capital goods and inputs and to state that the
Tribunal has ruled that 'capital goods' defined in the CENVAT Credit
Rules, in the context of providing credit of duty paid, have to be
excisable goods. Whether a particular plant or structure embedded to
earth can be considered as excisable goods or not has to be
determined in the light of settled decisions of Supreme Court on the
issue. The Tribunal has further ruled that goods like cement and steel
items used for laying 'foundation' and for building 'supporting
structures' cannot be treated as either inputs for capital goods or as
inputs in relation to the final products and therefore, no credit of duty
paid on the same can be allowed under the CENVAT Credit Rules. It
has also been stated by Tribunal that amendment to Explanation 2
to Rule 2(k) of CENVAT Credit Rules, 2004 inserted vide Notification
No. 16/2009-CE (NT) dated 07.07.09, is clarificatory in nature and has
retrospective effect.
 Attention is also drawn to the Tribunal's judgement in the case

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of Vikram Cement V/s CCE, Indore [2009 (242) ELT 545 (Tri-Del)],
where the Tribunal held that credit on welding electrodes used for
repair and maintenance, is not available as input. It may also be noted
that in the case of Vikram Cements V/s CCE, Indore [2005 (187) ELT
145 (SC)], it has been conclusively held by the Apex Court that the
definition of capital goods is not inclusive and only the items covered
under the definition and used in the factory of the manufacturer can be
treated as capital goods.
 It thus follows from the above judgements that credit on capital goods
is available only on items, which are excisable goods covered under
the definition of 'capital goods' under CENVAT Credit Rules, 2004 and
used in the factory of the manufacturer. As regards 'inputs', they have
to be covered under the definition of 'input' under the CENVAT Credit
Rules, 2004 and used in or integrally connected with the process of
actual manufacture of the final product for admissibility of CENVAT
credit. The credit on inputs used in the manufacture of capital goods,
which are further used in the factory of the manufacturer is also
available, except for items like cement, angles, channels, CTD or TMT
bars and other items used for construction of factory shed, building or
laying of foundation or making of structures for support of capital
goods. Further, credit shall also not be admissible on inputs used for
repair and maintenance of capital goods.

Other salient features for availment of credit on inputs.


The CENVAT credit in respect of inputs may be taken immediately on receipt
of the inputs in the premises of the provider of output service. [Rule 4(1) of
CENVAT Credit Rules, 2004]
The CENVAT credit in respect of inputs may be taken by the provider of
output service when the inputs are delivered to such provider, subject to
maintenance of documentary evidence of delivery and location of the inputs.
[2nd Proviso to Rule 4(1) of CENVAT Credit Rules, 2004]
The manufacturer or the provider of output service shall not take CENVAT
credit of inputs after six months of the date of issue of any of the documents
specified in Rule 9(1) of CENVAT Credit Rules, 2004. [3rd Proviso to Rule
4(1) of CENVAT Credit Rules, 2004]. Thus, CENVAT credit should be taken
within a period of six months w.e.f 01.09.2014, else the credit will lapse.

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When the inputs are removed from the premises of provider of output service
as such other than for providing output service, in such a case, the provider
of output service shall pay an amount equal to the credit availed in respect of
such inputs and such removal shall be made under the cover of an invoice
referred to in rule 9 of CENVAT Credit Rules, 2004
If the value of any inputs, on which CENVAT credit has been taken is written
off fully or partially or where any provision to write off fully or partially has
been made in the books of account then the manufacturer or service
provider, as the case may be, shall pay an amount equivalent to the
CENVAT credit taken in respect of the said input or capital goods. However,
when the said inputs is subsequently used in the manufacture of final
products or the provision of output services, the manufacturer or output
service provider, as the case may be, shall be entitled to take the credit of
the amount equivalent to the CENVAT credit paid earlier subject to the other
provisions of these rules. [Rule 3(5B) of CENVAT Credit Rules, 2004].

Provision relating to Input Services


Input service is defined in Rule 2(l) of CENVAT Credit Rules, 2004 which
reads as “input service” means any service, -
(i) used by a provider of output service for providing an output service; or
(ii) used by a manufacturer, whether directly or indirectly, in or in relation
to the manufacture of final products and clearance of final products
upto the place of removal,
and includes services used in relation to modernisation, renovation or repairs
of a factory, premises of provider of output service or an office relating to
such factory or premises, advertisement or sales promotion, market
research, storage upto the place of removal, procurement of inputs,
accounting, auditing, financing, recruitment and quality control, coaching and
training, computer networking, credit rating, share registry, security, business
exhibition, legal services, inward transportation of inputs or capital goods and
outward transportation upto the place of removal; but excludes,-
(A) service portion in the execution of a works contract and construction
services including service listed under clause (b) of section 66E of the
Finance Act (hereinafter referred as specified services) in so far as
they are used for -

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(a) construction or execution of works contract of a building or a


civil structure or a part thereof; or
(b) laying of foundation or making of structures for support of
capital goods,except for the provision of one or more of the
specified services; or
(B) services provided by way of renting of a motor vehicle, in so far as
they relate to a motor vehicle which is not a capital goods; or
(BA) service of general insurance business, servicing, repair and
maintenance , in so far as they relate to a motor vehicle which is
not a capital goods, except when used by -
(a) a manufacturer of a motor vehicle in respect of a motor
vehicle manufactured by such person ; or
(b) an insurance company in respect of a motor vehicle
insured or reinsured by such person; or
(C) such as those provided in relation to outdoor catering, beauty
treatment, health services, cosmetic and plastic surgery, membership
of a club, health and fitness centre, life insurance, health insurance
and travel benefits extended to employees on vacation such as Leave
or Home Travel Concession, when such services are used primarily for
personal use or consumption of any employee;”
Thus, from the definition, following is derived.
The credit of any service which are utilized by provider of output service shall
be eligible unless otherwise restricted in the definition stated supra.
The definition specifically includes in the definition of input services the
services which are used in relation to modernisation, renovation or repairs of
a factory, premises of provider of output service or an office relating to such
factory or premises, advertisement or sales promotion, market research,
storage upto the place of removal, procurement of inputs, accounting,
auditing, financing, recruitment and quality control, coaching and training,
computer networking, credit rating, share registry, security, business
exhibition, legal services, inward transportation of inputs or capital goods and
outward transportation upto the place of removal.
It is to be noted that the list is illustrative before stating the list, it commences
with the word ‘includes’.

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Credit of input services provided by way of renting of a motor vehicle, in so


far as they relate to a motor vehicle which is not a capital goods is not
allowed. As far as entities which are in the transportation sector, motor
vehicles which are designed for transportation of goods including their
chassis registered in the name of the service provider, when used for (a)
providing an output service of renting of such motor vehicle; or (b)
transportation of inputs and capital goods used for providing an output
service; or (c) providing an output service of courier agency, such motor
vehicles are capital goods for them. Thus, when the entities which are in
transportation sector taken on rent such a vehicle, then its input credit is
available.
Similarly, credit on input services relating to general insurance business,
servicing, repair and maintenance on motor vehicles is available to the
entities in transportation sector for the motor vehicles which are designed for
transportation of goods including their chassis registered in the name of the
service provider.
It is to be noted that when entity engaged in transportation sector and either
takes services of motor vehicle on rent or of general insurance business,
servicing, repair and maintenance on motor vehicles for such motor vehicle
which do not qualify to be called as capital goods, then its credit is not
allowable. For eg., Mr A is engaged in courier agency business. It has taken
3 trucks on rent for transportation of good by way of courier and one motor
car (eg., Wagon R of Maruti Suzuki or equivalent) for personal purpose on
rent. In such a case, courier agency will be able to claim CENVAT credit of
service tax paid on 3 trucks but will not be able to claim CENVAT credit on
(eg., Wagon R of Maruti Suzuki or equivalent) motor car.

Credit of input services not admissible


Similarly, credit of input services which are provided in relation to outdoor
catering, beauty treatment, health services, cosmetic and plastic surgery,
membership of a club, health and fitness centre, life insurance, health
insurance and travel benefits extended to employees on vacation such as
Leave or Home Travel Concession, when such services are used primarily
for personal use or consumption of any employee shall not be available.
 Is the credit of only specified goods and services listed in the definition
of inputs and input services not allowed such as goods used in a club,
outdoor catering etc, or is the list only illustrative?

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 The list is only illustrative. The principle is that CENVAT credit is


not allowed when any goods and services are used primarily for
personal use or consumption of employees. [para 2 ofCircular
No.943/04/2011-CX dated 29.04.2011]
 Is the credit of Business Auxiliary Service (BAS) on account of sales
commission now disallowed after the deletion of expression “activities
related to business”?
 The definition of input services allows all credit on services used
for clearance of final products upto the place of removal.
Moreover activity of sale promotion is specifically allowed and
on many occasions the remuneration for same is linked to actual
sale. Reading the provisions harmoniously it is clarified that
credit is admissible on the services of sale of dutiable goods on
commission basis. [para 5 ofCircular No.943/04/2011-CX dated
29.04.2011]
 However, Hon’ Gujarat High Court in the case of CC v. Cadila
Healthcare Ltd., reported in 2013 (30) STR 3 (Guj.) and in the
case of Commissioner Versus Dynamic Industries Ltd. 2014 (35)
S.T.R. 674 (Guj) = 2014 (8) TMI 713 (Guj (HC) has held that
commission paid to foreign agents is not allowed as the same is
neither used directly or indirectly in the manufacture or
clearance of final product. The decision of Gujarat High Court
has been challenged in Hon’ Supreme Court and the decision is
awaited on this matter.
Similarly, credit of service portion on input services which in execution of a
works contract and construction services including services listed in section
66E(b) of the Finance Act, 1994 which are used for (a) construction or
execution of works contract of a building or a civil structure or a partthereof;
or (b) laying of foundation or making of structures for support of capital
goods, shall not be available to the entities engaged in transportation sector.

Other salient features for availment of credit on input


services.
The CENVAT credit in respect of input service shall be allowed, on or after
the day on which the invoice, bill or, as the case may be, challan referred to
in rule 9 of CENVAT Credit Rules, 2004 is received.

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The service tax is required to be paid by the service provider on the out put
service as well as by the person who receives service in terms of Notification
No 30/2012-ST dated 20.06.2012. The said notification states the cases
wherein for certain payments, entire service tax is required to be paid by
service provider and certain payments, wherein part of the tax is paid by
service provider as well as part by service recipient.
The credit of service tax on reverse charge can be availed only when the
payment is made to the service provider of the invoice amount as well as the
tax has been paid. The related provision as contained in First Proviso to Rule
4(7) of the CENVAT Credit Rules, 2004 reads as under:
(i) Provide that in case of an input service where the service tax is paid
on reverse charge by the recipient of the service, the CENVAT credit
in respect of such input service shall be allowed on or after the day on
which payment is made of the value of input service and the service
tax paid or payable as indicated in invoice, bill or, as the case may be,
challan referred to in rule 9:
The said proviso has been amended w.e.f 11.07.2014 and the amended
Proviso reads as under:
(i) Provided that in respect of input service where whole of the service tax
is liable to be paid by the recipient of service, credit shall be allowed
after the service tax is paid.
(ii) Provided further that in respect of an input service, where the service
recipient is liable to pay a part of service tax and the service provider
is liable to pay the remaining part, the CENVAT credit in respect of
such input service shall be allowed on or after the day on which
payment is made of the value of input service and the service tax paid
or payable as indicated in invoice, bill or, as the case may be, challan
referred to in rule 9
The effect of the above is that where whole of the service tax is liable to be
paid by the recipient of service, credit shall be allowed after the service tax is
paid. For E.g., A Ltd made import payment of ` 10,00,000/- on which service
tax under reverse charge is required to be paid of ` 112360/-. Earlier, the
credit could be allowed only when the import payment as well as tax, both
the amount has been paid. Now, after above amendment, the credit can be
taken the moment payment of tax has been made.

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Thus, there can be situation where a supplier is giving a higher credit, say of
nine months. Rule 7 of point of taxation says that the point of taxation in
respect of the persons required to pay tax as recipients of service under the
rules made in this regard in respect of services notified under sub-section (2)
of section 68 of the Act, shall be the date on which payment is made and
further it states that when the payment is not made within six months, the
point of taxation shall be determined as if this rule does not exist. Thus, it will
be fine if the service tax is paid within six months and payment to service
provider as per the terms of agreement. In such case, the credit of service
tax can be availed after making payment of service tax. However, it is to be
noted that this provision applies only when whole of the service tax is to be
paid by recipient of service. Thus, it do not apply when part of the service tax
is payable by provider and part by service recipient of service.
With respect to the service tax which is required to be paid by service
provider as well as service receiver, in such case, the CENVAT credit in
respect of such input service shall be allowed on or after the day on which
payment is made of the value of input service and the service tax paid or
payable as indicated in invoice, bill or, as the case may be, challan referred
to in rule 9. Thus, what it wants to convey is that with respect to service tax
under reverse charge, the tax credit can be obtained once the payment of tax
is made and also, the amount is paid to the service provider.
Where in case the payment of the value of input service and the service tax
paid or payable as indicated in the invoice, bill or, as the case may be,
challan referred to in rule 9, except in respect of input service where the
whole of the service tax is liable to be paid by the recipient of service, is not
made within three months of the date of the invoice, bill or, as the case may
be, challan, the manufacturer or the service provider who has taken credit on
such input service, shall pay an amount equal to the CENVAT credit availed
on such input service and in case the said payment is made, the
manufacturer or output service provider, as the case may be, shall be entitled
to take the credit of the amount equivalent to the CENVAT credit paid earlier
subject to the other provisions of these rules.
The above point is further strengthened by substituting second proviso to
Rule 4(7) which, before its substitution, reads as under:
 Provided further that in case the payment of the value of input
service and the service tax paid or payable as indicated in the invoice,

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bill or, as the case may be, challan referred to in rule 9, is not made
within three months of the date of the invoice, bill or, as the case may
be, challan, the manufacturer or the service provider who has taken
credit on such input service, shall pay an amount equal to the
CENVAT credit availed on such input service and in case the said
payment is made, the manufacturer or output service provider, as the
case may be, shall be entitled to take the credit of the amount
equivalent to the CENVAT credit paid earlier subject to the other
provisions of these rules:
The Amended proviso reads as under:
 Provided also that in case the payment of the value of input service
and the service tax paid or payable as indicated in the invoice, bill or,
as the case may be, challan referred to in rule 9, except in respect of
input service where the whole of the service tax is liable to be paid by
the recipient of service, is not made within three months of the date of
the invoice, bill or, as the case may be, challan, the manufacturer or
the service provider who has taken credit on such input service, shall
pay an amount equal to the CENVAT credit availed on such input
service and in case the said payment is made, the manufacturer or
output service provider, as the case may be, shall be entitled to take
the credit of the amount equivalent to the CENVAT credit paid earlier
subject to the other provisions of these rules.
Where if any payment or part thereof, made towards an input service is
refunded or a credit note is received by the manufacturer or the service
provider who has taken credit on such input service, he shall pay an amount
equal to the CENVAT credit availed in respect of the amount so refunded or
credited.
The manufacturer or the provider of output service shall not take CENVAT
credit after six months of the date of issue of any of the documents specified
in sub-rule (1) of rule 9.

Clarification of the Ministry regarding non availment of credit


beyond six months.
The ministry has issued clarification regarding the query over the concerns
w.r.t non availment of credit beyond six months. The undermentioned
concerns were expressed by the industry.

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(i) 3rd proviso to Rule 4(7) of CCR, 2004 prescribes that if the payment of
value of input service and service tax payable is not made within three
months of date of invoice, bill or challan, then the CENVAT Credit
availed is required to be paid back by the manufacturer or service
provider. Subsequently, when such payment of value of input service
and service tax is made, the amount so paid back can be re-credited.
(ii) According to Rule 3(5B) of CCR, 2004, if the value of any input or
capital goods before being put to use on which CENVAT Credit has
been taken, is written off or such provisions made in Books of
Account, the manufacturer or service provider is required to pay an
amount equal to credit so taken. However, when the inputs or capital
goods are subsequently used, the amount so paid can be re-credited
in the account.
(iii) Rule 4(5)(a) of CCR, 2004 prescribes that in case inputs sent to job
worker are not received back within 180 days, the manufacturer or
service provider is required to pay an amount equal to credit taken on
such inputs in the first instance. However, when the inputs are
subsequently received back from job worker, the amount so paid can
be re-credited in the account.
To this, Ministry has clarified that the purpose of the amendment made
by Notification No. 21/2014-CE (NT) dated 11.07.2014 is to ensure that after
the issue of a document undersub-rule (1) of Rule 9, credit is taken for the
first time within six months of the issue of the document. Once this condition
is met, the limitation has no further application. It is, therefore, clarified that
in each of the three situations described above pertaining to Rule 4(7), Rule
3(5B)or Rule 4(5) (a) of CCR, 2004, the limitation of six months would apply
when the credit is taken for the first time on an eligible document. It would
not apply for taking re-credit of amount reversed, after meeting the conditions
prescribed in these rules.

Utilization of CENVAT Credit


The service provider in transportation sector CENVAT credit of inputs, input
services and capital goods so availed can be utilized for payment of
o service tax on any output service:
o an amount equal to CENVAT credit taken on inputs if such inputs are
removed as such or after being partially processed; or

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o an amount equal to the CENVAT credit taken on capital goods if such


capital goods are removed as such.
However, while paying duty of excise or service tax, as the case may be, the
CENVAT credit shall be utilized only to the extent such credit is available on
the last day of the month or quarter, as the case may be, for payment of duty
or tax relating to that month or the quarter, as the case may be. [1st proviso
to Rule 3(4) of CCR’04]. Thus, for eg.,A Ltd has to make payment for the
month of May 2014 on 6th June, 2014. However, credit can be utilised only to
the extent the balance which is there as at 31st May, 2014.
Whether the arrears of duty can be paid by utilizing the CENVAT credit which
has accrued subsequent to the period to which the arrears pertained. As per
first proviso to rule 3(4) of the CENVAT Credit Rules, 2004. As per this
proviso, “while paying duty of excise or service tax, as the case may be, the
CENVAT credit shall be utilized only to the extent such credit is available on
the last day of the month or quarter, as the case may be, for payment of duty
or tax relating to that month or the quarter, as the case may be.?
It has been clarified by the ministry through Circular No.962/05/2012-CX
dated 28.03.2012 that A harmonious reading of rule 8 of Central Excise
Rules’ 2002 and first proviso to rule 3 (4)of the CENVAT Credit Rules,
2004 indicates that the restriction with regard to the utilization of CENVAT
credit is relating to the normal payment of duty in terms of rule 8 of the
Central Excise Rules, 2002, where duty for a particular month or quarter is to
be discharged by the 5th of the next month. For this proviso, the CENVAT
credit allowed to be used is what was in balance on the last date of that
month or quarter and not what accrued thereafter. Even in case of duty paid
late in terms of rule 8, the credit available for utilization will remain same i.e.
the credits in balance on the last date of month or quarter, as the case may
be.
Further duty payable under rule 8 is on a different footing from duty payable
under Section 11A. Duty under Rule 8 is paid after self determination by the
assessee unlike Duty payable under Section 11A where generally the duty is
determined by the Central Excise officer and the payment is mandated after
such determination. There is no time limit prescribed under section 11A i.e.,
monthly or quarterly unlike the date prescribed under Rule 8 (i.e., 5th of the
next month). Therefore, the restriction on the utilization of the CENVAT credit
accruing subsequent to the last date of the month or quarter in which the

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arrears arise, is not applicable to the demands confirmed under Section


11A of the Central Excise Act, 1944.
The provision of section 11A of Central Excise Act, 1944 and section 73 of
the Finance Act, 1994 are similar, hence, it also applies for arrears payment
in case of service tax.
The CENVAT credit shall not be utilized for payment of service tax in respect
of services where the person liable to pay tax is the service recipient.
[Explanation to Rule 3(4) of CENVAT Credit Rules, 2004]. Thus, person who
is required to make payment of service tax under reverse charge mechanism
has to pay service tax by PLA (other than by utilizing CENVAT credit). The
reason for this is that when a person is making payment under reverse
charge, it is its input service and not output service whereas CENVAT credit
can be utilised for making payment of output services only.
The credit of service tax can be utilised for making payment of Education
Cess and Secondary Education Cess.
Credit of Education Cess on goods can be utilised for payment of Education
Cess on Services and vice versa.
Credit of Secondary and Higher Secondary Education Cess on goods can be
utilised for payment of Secondary and Higher Secondary Education Cess on
Services and vice versa.
Credit of Education Cess cannot be utilized for making payment of service
tax or Secondary and Higher secondary Education cess. Similarly, credit of
Secondary and Higher secondary Education cess cannot be utilized for
making payment of service tax or Education cess. [Rule 3(7)(b) of CENVAT
Credit Rules, 2004]

Distribution of CENVAT Credit (Rule 7)


The input service distributor may distribute the CENVAT credit in respect of
the service tax paid on the input service to its manufacturing units or units
providing output service, subject to the following conditions, namely.
 the credit distributed against a document referred to in rule 9 does not
exceed the amount of service tax paid thereon;
 credit of service tax attributable to service used by one or more units
exclusively engaged in manufacture of exempted goods or providing of

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exempted services shall not be distributed;


 credit of service tax attributable to service 5[used wholly by a unit]
shall be distributed only to that unit; and
 credit of service tax attributable to service used by more than one unit
shall be distributed pro rata on the basis of the turnover of such units
during the relevant period to the total turnover of all its units, which are
operational in the current year, during the said relevant period.
For the purposes of this rule (Rule 7) ,
 “unit” includes the premises of a provider of output service and the
premises of a manufacturer including the factory, whether registered
or otherwise.
 the total turnover shall be determined in the same manner as
determined under rule 5.
 the ‘relevant period’ shall be,-
 If the assessee has turnover in the ‘financial year’ preceding to
the year during which credit is to be distributed for month or
quarter, as the case may be, the said financial year; or
 If the assessee does not have turnover for some or all the units
in the preceding financial year, the last quarter for which details
of turnover of all the units are available, previous to the month
or quarter for which credit is to be distributed.
Example
An ISD has a common input service credit of ` 12000 pertaining to more
than one unit. The ISD has 4 units namely ‘A’, ‘B’, ‘C’ and ‘D’ which are
operational in the current year.
Unit Turnover in the
previous year (in ` )
A (Manufacturing excisable goods) 25,00,000
B (Manufacturing excisable and exempted goods) 30,00,000
C (providing exclusively exempted service) 15,00,000
D (providing taxable and exempted service) 30,00,000
Total 1,00,00,000

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The common input service relates to units ‘A’, ‘B’ and ‘C’, the distribution will
be as under:
(i) Distribution to ‘A’ =12000 * 2500000/ 10000000
= 3000
(ii) Distribution to ‘B’ =12000 * 3000000/ 10000000
= 3600
(iii) Distribution to ‘C’ = 12000 * 1500000/10000000
= 1800
(iv) Distribution to ‘D’ = 12000 * 3000000/ 10000000
= 3600
The distribution for the purpose of rule 7(d), will be done in this ratio in all
cases, irrespective of whether such common input services were used in all
the units or in some of the units. [From Circular No 178/4/2014-ST dated
11.07.2014]

Credit when there arises change in taxability of goods or


provision of services from dutiable or taxable to
exempted and vice versa
Notwithstanding anything contained in Rule 3(1) of CCR’04, the manufacturer
or producer of final products shall be allowed to take CENVAT credit of the
duty paid on inputs lying in stock or in process or inputs contained in the final
products lying in stock on the date on which any goods manufactured by the
said manufacturer or producer cease to be exempted goods or any goods
become excisable. [Rule 3(2) of CCR’04]
A manufacturer or producer of a final product shall be required to pay an
amount equivalent to the CENVAT credit, if any, taken by him in respect of
inputs received for use in the manufacture of the said final product and is
lying in stock or in process or is contained in the final product lying in stock,
if,-
 he opts for exemption from whole of the duty of excise leviable on the
said final product manufactured or produced by him under a
notification issued under section 5A of the Act; or
 the said final product has been exempted absolutely under section 5A
of the Act, and after deducting the said amount from the balance of

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CENVAT credit, if any, lying in his credit, the balance, if any, still
remaining shall lapse and shall not be allowed to be utilized for
payment of duty on any other final product whether cleared for home
consumption or for export, or for payment of service tax on any output
service, whether provided in India or exported. [Rule 11(3) of CCR’04]
A provider of output service shall be required to pay an amount equivalent to
the CENVAT credit, if any, taken by him in respect of inputs received for
providing the said service and is lying in stock or is contained in the taxable
service pending to be provided, when he opts for exemption from payment of
whole of the service tax leviable on such taxable service under a notification
issued under section 93 of the Finance Act, 1994(32 of 1994) and after
deducting the said amount from the balance of CENVAT credit, if any, lying
in his credit, the balance, if any, still remaining shall lapse and shall not be
allowed to be utilized for payment of duty on any excisable goods, whether
cleared for home consumption or for export or for payment of service tax on
any other output service, whether provided in India or exported. [Rule 11(4)
of CCR’04]

When an entity is engaged in providing exempted


services and taxable services and / or manufacturing
dutiable and exempted goods. [Rule 6 of CENVAT Credit
Rules, 2004]
(a) Provisions of rule 6 of the CCR, 2004 deals with reversal of credit
when a manufacturer manufactures both excisable & dutiable products and
excisable & exempted products. Similarly a service provider may provide
both or taxable and exempted services to which provisions of rule
6 apply. Rule 6 provides machinery provision for quantification of credit
needed to be reversed on inputs and input services used in manufacture of
exempted goods or in supply of exempted services.
(b) The CENVAT credit shall be allowed only for utilizing payment towards
taxable service or making payment of duty on dutiable goods. In this regard,
first of all let us reproduce the definition of exempted goods and exempted
services.
(i) Exempted Goods: [Rule 2(d) of CCR’04]: ‘Exempted goods’ means
excisable goods which are exempt from the whole of the duty of excise
leviable thereon, and includes goods which are chargeable to "Nil" rate of

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dutygoods in respect of which the benefit of an exemption under Notification


No. 1/2011-CE, dated the 1st March, 2011 or under entries at serial numbers
67 and 128 of Notification No. 12/2012-CE, dated the 17th March, 2012 is
availed.
(ii) Exempted Service: [Rule 2(e) of CCR’04]: “Exempted service”
means a-
1. taxable service which is exempt from the whole of the service tax
leviable thereon; or
2. service, on which no service tax is leviable under section 66B of the
Finance Act; or
3. taxable service whose part of value is exempted on the condition that
no credit of inputs and input services, used for providing such taxable
service, shall be taken;
but shall not include a service which is exported in terms of rule 6A of
the Service Tax Rules, 1994.
(c) The person engaged in transportation sector may provide taxable as
well as exempted service or may also manufacture dutiable and exempted
goods. For example, when a person is providing services of transportation of
goods by air and transportation of goods by Vessel. In such a case, if a
service provider avails the benefit of abatement in case of transportation of
goods by vessel, then such service will become exempted services for the
purpose of CENVAT credit Rules, 2004. Since CENVAT credit is available
only for providing taxable services and for dutiable goods and is not available
when the person provides exempt services or manufactures exempt goods,
therefore, the obligations in this regard are explained in subsequent
paragraphs.
(d) The CENVAT credit shall not be allowed on such quantity of input
used in or in relation to the manufacture of exempted goods or for provision
of exempted services, or input service used in or in relation to the
manufacture of exempted goods and their clearance upto the place of
removal or for provision of exempted services. When a person is providing
taxable services or providing dutiable goods, in such a case, either separate
accounts be kept or any of the option contained in Rule 6(3) be followed.
(e) Rule 6(2) of the CENVAT Credit Rules, 2004 states that where a
manufacturer or provider of output service avails of CENVAT credit in respect

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of any inputs or input services and manufactures such final products or


provides such output service which are chargeable to duty or tax as well as
exempted goods or services, then, the manufacturer or provider of output
service shall maintain separate accounts for-
(a) the receipt, consumption and inventory of inputs used-
(i) in or in relation to the manufacture of exempted goods;
(ii) in or in relation to the manufacture of dutiable final products
excluding exempted goods;
(iii) for the provision of exempted services;
(iv) for the provision of output services excluding exempted
services; and
(b) the receipt and use of input services-
(i) in or in relation to the manufacture of exempted goods and their
clearance upto the place of removal;
(ii) in or in relation to the manufacture of dutiable final products,
excluding exempted goods, and their clearance upto the place
of removal;
(iii) for the provision of exempted services; and
(iv) for the provision of output services excluding exempted
services,
The credit shall be taken of inputs and input services only when they are
used in or in relation to the manufacture of dutiable final products or for the
provision of output services.
(f) If the person is not able to maintain CENVAT credit, then Rule 6(3) of
the CENVAT credit Rules, 2004 states provides three alternatives of which
any one has to be elected which are as under:
The manufacturer or provider of output service, opting not to maintain
separate accounts, shall follow any one of the following options, as
applicable to him, namely:
(i) pay an amount equal to 6% of value of the exempted goods and
exempted services (in case of transportation of goods or passengers by rail
the amount required to be paid shall be equal to 2 % of value of the
exempted services); or

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 In this, if any part of the value of a taxable service has been exempted
on the condition that no CENVAT credit of inputs and input services,
used for providing such taxable service, shall be taken then the
amount specified in this clause shall be 6% / 2% of the value so
exempted.
 if any duty of excise is paid on the exempted goods, the same shall be
reduced from the amount payable under this clause.
(ii) pay an amount as determined under sub-rule (3A); (i.e., proportionate
credit)
(iii) Maintain separate account with respect to inputs and credit of inputs
shall be taken only to the extent they are utilized in manufacture of dutiable
goods and provision of taxable service and with respect to input services,
only proportionate credit has to be availed as per Rule 6(3A) of CENVAT
Credit Rules, 2004.
If the manufacturer of goods or the provider of output service, avails any of
the option stated above, he shall exercise such option for all exempted goods
manufactured by him or, as the case may be, all exempted services provided
by him, and such option shall not be withdrawn during the remaining part of
the financial year.
Payment of an amount under Rule 6(3) shall be deemed to be CENVAT
credit not taken for the purpose of an exemption notification wherein any
exemption is granted on the condition that no CENVAT credit of inputs and
input services shall be taken. [Rule 6(3D) of CCR’04]
Rule 6(3A) states that the credit shall be taken only in proportion of turnover
of dutiable goods and taxable services to the total turnover.
For determination and payment of amount payable under clause (ii) of sub-
rule (3), the manufacturer of goods or the provider of output service shall
follow the following procedure and conditions, namely:-
(iv) while exercising this option, the manufacturer of goods or the provider
of output service shall intimate in writing to the Superintendent of Central
Excise giving the following particulars, namely:-
 name, address and registration No. of the manufacturer of goods or
provider of output service;
 date from which the option under this clause is exercised or proposed
to be exercised;

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 description of dutiable goods or output services;


 description of exempted goods or exempted services;
 CENVAT credit of inputs and input services lying in balance as on the
date of exercising the option under this condition;
(v) In this, it has been stated that the manufacturer of goods or the
provider of output service shall, determine and pay, provisionally, for every
month the amount which is attributable to inputs and input services which are
utilised in providing exempted goods and exempted services. The amount
that is required to be paid provisionally is as under;
(i) A The amount equivalent to CENVAT credit
attributable to inputs used in or in relation
to manufacture of exempted goods
B Total value of exempted services
provided during the preceding financial
year
C Total value of dutiable goods
manufactured and removed plus the total
value of output services provided plus the
total value of exempted services
provided, during the preceding financial
year
D Total CENVAT credit taken on inputs
during the month minus A
(ii) CENVAT credit on inputs = D x (B/C)
attributable to provision
of exempted services
E Total value of exempted services
provided plus the total value of exempted
goods manufactured and removed during
the preceding financial year
F Total value of taxable and exempted
services provided, and total value of
dutiable and exempted goods
manufactured and removed, during the
preceding financial year

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G Total CENVAT credit taken on input


services during the month;
(iii) CENVAT credit on inputs
services used in or in
relation to manufacture = G x (E/F)
of exempted goods and
their clearance up to the
place of removal or
provision of exempted
services
(i) + (ii) + (iii) Total amount to be debited provisionally
during the month.
The amounts are required to be debited provisionally at the end of every
month from the balance of CENVAT credit. In case the balance falls short,
then the amount is required to be paid by PLA.
(vi) Since the amounts have been debited provisionally based on previous
years turnover, at the end of the year, it requires to be determined the actual
amounts that should have been debited at the end of the year. At the end of
the year, the actual figures of manufacture of dutiable and exempted goods
will be available as well as of taxable and exempted service. At the end of
the year, the amount that have to be reversed will be determined as under.
(i) H The amount of CENVAT credit
attributable to inputs used in or in relation
to manufacture of exempted goods, on
the basis of total quantity of inputs used
in or in relation to manufacture of said
exempted goods
J Total value of exempted services
provided during the financial year
K Total value of dutiable goods
manufactured and removed plus the total
value of output services provided plus the
total value of exempted services
provided, during the financial year
L Total CENVAT credit taken on inputs
during the financial year minus H

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(ii) CENVAT credit on inputs = L x (J/K)


attributable to provision
of exempted services
M Total value of exempted services
provided plus the total value of exempted
goods manufactured and removed during
the preceding year
N Total value of taxable and exempted
services provided, and total value of
dutiable and exempted goods
manufactured and removed, during the
financial year
P Total CENVAT credit taken on input
services during the financial year;
(iii) CENVAT credit on inputs = P x (M/N)
services used in or in
relation to manufacture
of exempted goods and
their clearance up to the
place of removal or
provision of exempted
services
(i) + (ii) + (iii) Total amount that should have been
debited for the year.
At the end of the year, where the amount debited provisionally is less than
the amount which should have been debited, then the difference is required
to be paid (or debited) on or before the 30th June of the succeeding financial
year. If the amount that falls short is not paid upto 30th June of the
succeeding financial year, then the said amount will be recovered along with
interest at 24% p.a from the due date i.e, 30th June.
At the end of the year, where the amount debited provisionally is more than
the amount which should have been debited, then manufacturer of goods or
the provider of output service may adjust the excess amount on his own, by
taking credit of such amount;
Whether the assessee makes the payment or adjusts the same, he is
required to intimate to the jurisdictional Superintendent of Central Excise,

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within a period of fifteen days from the date of payment or adjustment, the
following particulars, namely:-
(i) details of CENVAT credit attributable to exempted goods and
exempted services, monthwise, for the whole financial year,
determined provisionally.
(ii) CENVAT credit attributable to exempted goods and exempted services
for the whole financial year (on actual basis)
(iii) Where the amount debited provisionally is less than the amount which
should have been debited, then the date of amount short paid.
(iv) interest payable and paid, if any, on the amount short-paid
(v) At the end of the year, where the amount debited provisionally is more
than the amount which should have been debited, then credit taken on
account of excess payment, if any.
Where the amount equivalent to CENVAT credit attributable to exempted
goods or exempted services cannot be determined provisionally, due to
reasons that no dutiable goods were manufactured and no output service
was provided in the preceding financial year, then the manufacturer of goods
or the provider of output service is not required to determine and pay such
amount provisionally for each month, but shall determine the CENVAT credit
attributable to exempted goods or exempted services for the whole year and
pay the amount so calculated on or before 30thJune of the succeeding
financial year in case of late payment, along with interest at 24% p.a.
(g) The “Value” for the purpose of sub-rules (3) and (3A),—
(i) shall have the same meaning as assigned to it under section 67 of the
Finance Act, read with rules made thereunder or, as the case may be,
the value determined under section 3, 4 or 4A of the Excise Act, read
with rules made thereunder;
(ii) in the case of a taxable service, when the option available under sub-
rules (7),(7A),(7B) or (7C) of rule 6 of the Service Tax Rules,
1994, has been availed, shall be the value on which the rate of service
tax under section 66B of the Finance Act, read with an exemption
notification, if any, relating to such rate, when applied for calculation of
service tax results in the same amount of tax as calculated under the
option availed; or

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(iii) in case of trading, shall be the difference between the sale price and
the cost of goods sold (determined as per the generally accepted
accounting principles without including the expenses incurred towards
their purchase) or ten per cent of the cost of goods sold, whichever is
more.
(iv) in case of trading of securities, shall be the difference between the
sale price and the purchase price of the securities traded or one per
cent. of the purchase price of the securities traded, whichever is more.
(v) shall not include the value of services by way of extending deposits,
loans or advances in so far as the consideration is represented by way
of interest or discount;
(h) The amount mentioned in sub-rules (3), (3A) unless specified
otherwise, shall be paid by the manufacturer of goods or the provider of
output service by debiting the CENVAT credit or otherwise on or before the
5th day of the following month except for the month of March, when such
payment shall be made on or before the 31st day of the month of March.
(i) If the manufacturer of goods or the provider of output service fails to
pay the amount payable under sub-rule (3), (3A), it shall be recovered, in the
manner as provided in rule 14, for recovery of CENVAT credit wrongly taken.
(j) In case of a manufacturer who avails the exemption under a
notification based on the value of clearances in a financial year and a service
provider who is an individual or proprietary firm or partnership firm, the
expressions, “following month” and “month of March” occurring in sub-rules
(3) and (3A) shall be read respectively as “following quarter” and “quarter
ending with the month of March.
Clarifications- Circular No. 868/6/2008-CX dated 09.05.2008
 Whether an assessee availing option (i) or option (ii) under rule 6(3) is
allowed to take CENVAT Credit of duty paid on inputs and input
services which are used for both dutiable and exempted goods or
services.
 Yes, credit on such inputs and input services is allowed. However, an
assessee following option (i) or (ii) under rule 6(3) shall not be allowed
to take CENVAT credit of duty paid on those inputs and input services
which are used exclusively for the manufacture of exempted goods or
provision of exempted services [refer Explanation II of rule 6(3)].

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 For the purpose of the calculation of amount under formula given


under rule 6(3A), the total CENVAT credit taken on inputs and input
services does not include excise duty paid on inputs or service tax
paid on input services which are used exclusively for the manufacture
of exempted goods or provision of exempted services.
 Whether an assessee availing option (i) in respect of certain exempted
goods/services can also avail option (ii) in respect of other exempted
goods or services simultaneously?
 An assessee opting for either of the option is required to avail the said
option for all the exempted goods manufactured by him and all the
exempted services provided by him and the option once exercised
during a financial year (F.Y.) cannot be withdrawn during the
remaining part of the FY. Therefore, the same assessee cannot avail
both option (i) and option (ii) simultaneously during a financial year.
[Explanation I to Rule 6(3)].
 Whether input services distributor can also opt for option (i) or option
(ii)?
 As ISD does not provide any service, and is like a trader, the question
of availing either of the options would not arise.
 Whether export of service without payment of service tax under Export
of Service Rules shall be treated as exempted service for the purpose
of rule 6(3)?
 No, export of services without payment of service tax are not to be
treated exempted services.
 What is the manner for calculation of CENVAT Credit amount
attributable to inputs used in or in relation to the manufacture of
exempted goods?
 It is required to be done on the basis of actual consumption of inputs
used and the quantification may be made based upon the
stores/production records maintained by the manufacturer. Further, a
certificate from Cost Accountant/Chartered Accountant giving details
of quantity of inputs used in the manufacture of exempted goods,
value thereof and CENVAT credit taken on these input may be
submitted at the end of the year.

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Clarifications - Circular No. 943/04/2011-CX dated 29.04.2011


 Can the credit of input or input services used exclusively in trading, be
availed?
 Trading is an exempted service. Hence the credit of any inputs or input
services used exclusively in trading cannot be availed.
 While calculating the value of trading what principle to follow- FIFO,
LIFO or one to one correlation?
 The method normally followed by the concern for its accounting
purpose as per generally accepted accounting principles should be
used.
 Are the taxes and year end discounts to be included in the sale price
and cost of goods sold while calculating the value of trading?
 Generally accepted accounting principles need to be followed in this
regard. All taxes for which set off or credit is available or are
refundable/ refunded may not be included. Discounts are to be
included.
 Does the expression “in or in relation” used in Rule 6 override the
definition of “input” under Rule 2(k) for determining the eligibility of
CENVAT credit?
 The definition of “input” is given in Rule 2(k) and Rule 6 only intends to
segregate the credits of inputs used towards dutiable goods and
exempted goods. While applying Rule 6, the expression “in or in
relation” must be read harmoniously with the definition of “inputs”.
(k) The provisions of sub-rules (1), (2), (3) and (4) to Rule 6 of CCR’04
shall not be applicable in case the taxable services are provided, without
payment of service tax, to a Unit in a Special Economic Zone or to a
Developer of a Special Economic Zone for their authorised operation. [Rule
6(6A) of CCR’04]. Thus, where the services are provided to SEZ, it will not
be considered as exempted service for the purpose of CCR’04.
(l) The provisions of sub-rules (1), (2), (3) and (4) to Rule 6 of CCR’04
shall not be applicable in case the taxable services are provided, without
payment of service tax, to a unit in a Special Economic Zone or to a
developer of a Special Economic Zone for their authorised operations or
when a service is exported.

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(m) For the purpose of Rule 6 of CCR’04, a service provided or agreed to


be provided shall not be an exempted service when:-
(i) the service satisfies the conditions specified under rule 6A of
the Service Tax Rules, 1994 and the payment for the service is to be
received in convertible foreign currency; and
(ii) such payment has not been received for a period of six months or
such extended period as maybe allowed from time-to-time by the
Reserve Bank of India, from the date of provision.
However, if such payment is received after the specified or extended period
allowed by the Reserve Bank of India but within one year from such period,
the service provider shall be entitled to take the credit of the amount
equivalent to the CENVAT credit paid earlier in terms of sub rule (3) to the
extent it relates to such payment, on the basis of documentary evidence of
the payment so received.[Rule 6(8) of CCR’04].]
Since Rule 6A of Service Tax Rules, 1994 do not speak about receipt of
foreign exchange, therefore, government has brought in an additional
condition which states that if the amount is not received within six months or
extended period, then, the service will be considered as exempted service
and accordingly CENVAT credit attributable to such service as per Rule 6(3)
is required to be reversed. When the payment is received within one year
from the time specified by Reserve Bank of India, in such case, credit of the
amount paid as per Rule 6(3) of CCR’04 shall be taken. This is the intention
of Rule 6(8) of CCR’04, though has not been drafted in that manner.

Documents based on which CENVAT credit can be availed


1. The CENVAT credit shall be taken by the manufacturer or the provider
of output service or input service distributor, as the case may be, on the
basis of any of the following documents, namely :-
(a) an invoice issued by-.
(i) a manufacturer for clearance of –
1. inputs or capital goods from his factory or depot or from the
premises of the consignment agent of the said manufacturer or
from any other premises from where the goods are sold by or on
behalf of the said manufacturer;
2. inputs or capital goods as such;

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Place of Provision of Service Rules, 2012 pertaining to Transportation Sector

(ii) an importer;
(iii) an importer from his depot or from the premises of the consignment
agent of the said importer if the said depot or the premises, as the
case may be, is registered in terms of the provisions of Central Excise
Rules, 2002;
(iv) a first stage dealer or a second stage dealer, as the case may be, in
terms of the provisions of Central Excise Rules, 2002; or
(b) a supplementary invoice, issued by a manufacturer or importer of
inputs or capital goods in terms of the provisions of Central Excise Rules,
2002 from his factory or depot or from the premises of the consignment
agent of the said manufacturer or importer or from any other premises from
where the goods are sold by, or on behalf of, the said manufacturer or
importer, in case additional amount of excise duties or additional duty
leviable under section 3 of the Customs Tariff Act, has been paid, except
where the additional amount of duty became recoverable from the
manufacturer or importer of inputs or capital goods on account of any non-
levy or short-levy by reason of fraud, collusion or any wilful misstatement or
suppression of facts or contravention of any provisions of the Excise Act, or
of the Customs Act, 1962 (52 of 1962) or the rules made there under with
intent to evade payment of duty.
Explanation.- For removal of doubts, it is clarified that supplementary
invoice shall also include challan or any other similar document evidencing
payment of additional amount of additional duty leviable under section 3 of
the Customs Tariff Act; or
bb. a supplementary invoice, bill or challan issued by a provider of output
service, in terms of the provisions of Service Tax Rules, 1994 except where
the additional amount of tax became recoverable from the provider of service
on account of non-levy or non-payment or short-levy or short-payment by
reason of fraud or collusion or wilful mis-statement or suppression of facts or
contravention of any of the provisions of the Finance Act or of the rules made
thereunder with the intent to evade payment of service tax.
(c) a bill of entry; or
(d) a certificate issued by an appraiser of customs in respect of goods
imported through a Foreign Post Office; or
(e) a challan evidencing payment of service tax, by the service recipient
as the person liable to pay service tax; or

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(f) an invoice, a bill or challan issued by a provider of input service on or


after the 10th day of, September, 2004; or
fa. a Service Tax Certificate for Transportation of goods by Rail (herein after
referred to as STTG Certificate) issued by the Indian Railways, along with the
photocopies of the railway receipts mentioned in the STTG certificate; or
(g) an invoice, bill or challan issued by an input service distributor under
rule 4A of the Service Tax Rules, 1994.
The credit of additional duty of customs levied under sub-section (5) of
section 3 of the Customs Tariff Act, 1975 (51 of 1975) shall not be allowed if
the invoice or the supplementary invoice, as the case may be, bears an
indication to the effect that no credit of the said additional duty shall be
admissible;]

Can the CENVAT credit be availed, if all the prescribed


documents are not there in the duty paying document
2. No CENVAT credit based on document specified under Rule 9(1) of
CCR’04 shall be taken unless all the particulars as prescribed under the
Central Excise Rules, 2002 or the Service Tax Rules, 1994, as the case may
be, are contained in the said document.
However, if the said document does not contain all the particulars but
contains the details of duty or service tax payable, description of the goods
or taxable service, assessable value, Central Excise or Service Tax
registration number of the person issuing the invoice, as the case may be,
name and address of the factory or warehouse or premises of first or second
stage dealers or provider of output service, and the Deputy Commissioner of
Central Excise or the Assistant Commissioner of Central Excise, as the case
may be, is satisfied that the goods or services covered by the said document
have been received and accounted for in the books of the account of the
receiver, he may allow the CENVAT credit;
 Rule 11 of Central Excise Rules, 2002 states that the invoice shall be
serially numbered and shall contain the registration number, address
of the concerned Central Excise division, name of the consignee,
description, classification, time and date of removal, mode of transport
and vehicle registration number, rate of duty, quantity and value, of
goods and the duty payable thereon. In case of a proprietary concern
or a business owned by Hindu Undivided Family, the name of the

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Place of Provision of Service Rules, 2012 pertaining to Transportation Sector

proprietor or Hindu Undivided Family, as the case may be, shall also
be mentioned in the invoice.
 As per Rule 4A of service tax Rules, 1994, the invoice shall contain
the following, namely:-
 the name, address and the registration number of such person;
 the name and address of the person receiving taxable service;
 description and value of taxable service provided or agreed to
be provided; and
 the service tax payable thereon.

Transfer of CENVAT Credit


3. The provisions regarding transfer of credit are contained in Rule 10 of
CCR’ 04 which reads as under:
 If a manufacturer of the final products shifts his factory to another site
or the factory is transferred on account of change in ownership or on
account of sale, merger, amalgamation, lease or transfer of the factory
to a joint venture with the specific provision for transfer of liabilities of
such factory, then, the manufacturer shall be allowed to transfer the
CENVAT credit lying unutilized in his accounts to such transferred,
sold, merged, leased or amalgamated factory.
 If a provider of output service shifts or transfers his business on
account of change in ownership or on account of sale, merger,
amalgamation, lease or transfer of the business to a joint venture with
the specific provision for transfer of liabilities of such business, then,
the provider of output service shall be allowed to transfer the CENVAT
credit lying unutilized in his accounts to such transferred, sold,
merged, leased or amalgamated business.
 The transfer of the CENVAT credit shall be allowed only if the stock of
inputs as such or in process, or the capital goods is also transferred
along with the factory or business premises to the new site or
ownership and the inputs, or capital goods, on which credit has been
availed of are duly accounted for to the satisfaction of the Deputy
Commissioner of Central Excise or, as the case may be, the Assistant
Commissioner of Central Excise.

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 Credit not to be denied when thereis physically no stock of inputs atthe


old premises as per sub-rule(21) of Rule 57F of the erstwhile CERules,
1944. – AAR AAY Products P Ltd v. CCE (2003) 157 ELT 40
 Transfer of plant and machinery of one factory of Appellant to another
factory set up by him – unutilized credit lying in RG 23A for first factory
to be transferred to RG 23A at the second one. Rules 57(F) (20) and
(21) [Now Rule 10 of CCR ‘04]or erstwhile CE Rules do no indicate or
stipulate a co-relation between the transfer of an amount of credit with
physical transfer of such input as such or in process. – APCO
Industries Ltd v. CCE (2004) 177 ELT 647.
 Transfer of unutilized credit from one registered factory to another in
case of change of ownership resulting from merger,
amalgamation/transfer etc., permissible. - CCE v. Usha Iron and
Ferrous Metals Corporation Ltd. – 1999 (106) E.L.T. 543
 Duty debited from PLA instead of availing of credit at the request of
Department as a revenue collection drive-subsequently unutilized
credit allowed to be transferred to another place, without transfer of
inputs or manufactured goods - held that the assessee was entitled to
use unutilized credit at the transferred place. - Castrol India Ltd. v. UOI
– 2003 (154) E.L.T. 19
 If the manufacturer of the final products shifts his factory to another
site, the manufacturer shall be allowed to transfer the CENVAT credit
lying unutilized in his account to such transferred place. -CCE, Noida
v. D.S. Foods Ltd. -2004 (173) E.L.T. 24.
 That words and phrases - ‘Sale, Merger, Amalgamation or transfer’
contemplated under the Rules 57F (20/21) and 57S (5)(6) of CE Rules
are not ‘Sale, Merger, Amalgamation etc’ of a company but of a
factory. - Orient Ceramics (P) Ltd., v. CCE -2001(130) E.L.T. 528.
 Rule 10 - transfer of second unit to the first unit - Held that:- When
Rule 10 was invoked, we have perused the legislative intent appearing
in Rule 10(1) of the CENVAT Credit Rules, 2004 dealing with the
cases of shifting of units from one site to another site and also the
occasions of merger/amalgamation/lease or transfer of the factory to a
joint venture permitting CENVAT credit to be utilised. In between these
two situations, we notice both the situations appearing in law have
their own independent existence and speak for themselves. Ld. DR

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Place of Provision of Service Rules, 2012 pertaining to Transportation Sector

argues that the factory as a whole need to be shifted. This appears to


be an absurd proposal and shall make the rule unworkable. It is
elementary principle of law that the interpretation which fosters the
legislative intent should be preferred to the interpretation of law which
brings chaos. - Fabrico (India) Pvt. Ltd. v. CCE (2013) 9 TMI 814 (Tri-
Delhi)
 No prior permission from the competent authority is required before
transfer of credit – Solaris Biochemicals Ltd v. CCE (Tri-Mumbai)
 Assessee acquired two companies under Business Transfer
Agreements and took credit of input services taken by them by way of
transfer under rule 10 - Department denied transfer of credit
contending that rule 10 applied only to transfer of credit of inputs and
capital goods - HELD : On a conjoint reading of sub-rules (1), (2) and
(3) of rule 10, prima facie, case was in favour of assessee and stay
granted fully – CCE&ST, LTU, Bangalore v. IBM India (P.) Ltd [2013]
29 taxmann.com 328 (Bangalore - CESTAT)

Recovery of erroneous credit taken


4. Where the CENVAT credit has been taken and utilised wrongly or has
been erroneously refunded, the same along with interest shall be recovered
from the manufacturer or the provider of the output service and the
provisions of sections 11A and 11AA of the Excise Act or sections 73 and 75
of the Finance Act, shall apply mutatis mutandis for effecting such
recoveries. [Rule 14 of CCR’04]
 If the CENVAT credit has only been taken but not utilised, then no
interest liability arises. Prior to 17.03.2012, the CENVAT credit if taken
or utilized wrongly, then the same could be recovered along with
interest.

Penal Provisions
5. If any person, takes or utilises CENVAT credit in respect of input or
capital goods or input services, wrongly or in contravention of any of the
provisions of these rules, then, all such goods shall be liable to confiscation
and such person, shall be liable to a penalty not exceeding the duty or
service tax on such goods or services, as the case may be, or two thousand
rupees, whichever is greater. [Rule 15(1) of CCR’04]

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 In a case, where the CENVAT credit in respect of input or capital


goods or input services has been taken or utilised wrongly by reason
of fraud, collusion or any wilful mis-statement or suppression of facts,
or contravention of any of the provisions of the Excise Act, or of the
rules made thereunder with intent to evade payment of duty, then, the
manufacturer shall also be liable to pay penalty in terms of the
provisions of section 11AC of the Excise Act. [Rule 15(2) of CCR’04]
 In a case, where the CENVAT credit in respect of input or capital
goods or input services has been taken or utilised wrongly by reason
of fraud, collusion or any wilful mis-statement or suppression of facts,
or contravention of any of the provisions of these rules or of
the Finance Act or of the rules made thereunder with intent to evade
payment of service tax, then, the provider of output service shall also
be liable to pay penalty in 78 of the Finance Act. [Rule 15(3) of
CCR’04]
 Any order under sub-rule (1), sub-rule (2) or sub-rule (3) of Rule 15 of
CCR’04 shall be issued by the Central Excise Officer following the
principles of natural justice. [Rule 15(4) of CCR’04]
 Whoever contravenes the provisions of these rules for which no
penalty has been provided in the rules, he shall be liable to a penalty
which may extend to five thousand rupees. [Rule 15A of CCR’04]

136
Chapter 7
Notification and Circular Pertaining to
Transportation Sector
PART-I: NOTIFICATIONS
[A]
Small Scale Exemption Notification
Notification No 33/2012-ST dt. 20.06.2012
--------------------------------------------------------------------
Gist of Notification No 33/2012-ST
The service provider is not required to make payment of service tax from the
very first invoice / receipt. The service provider can claim exemption from
payment of service tax upto aggregate value of taxable services provided of
` 10 lakhs provided, inter alia,
 The value of taxable services provided in the previous year do not
exceed ` 10 lakhs;
 It should not be under brand name or trade name of any other person;
 The exemption notification will not apply for the services wherein a
person is required to make payment of service tax under reverse
charge mechanism.
The detailed notification is reproduced below:
Notification - Service Tax - Service Tax
[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY,
PART II, SECTION 3, SUB-SECTION (i)]
Government of India
Ministry of Finance
(Department of Revenue)
Notification No. 33/2012 - Service Tax
New Delhi, the 20th June, 2012
Technical Guide on Transportation

G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of


section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as
the said Finance Act), and in supersession of the Government of India in
the Ministry of Finance (Department of Revenue) notification No. 6/2005-
Service Tax, dated the 1st March, 2005, published in the Gazette of India,
Extraordinary, Part II, Section 3, Sub-section (i), vide G.S.R. number
140(E), dated the 1st March, 2005, except as respects things done or
omitted to be done before such supersession, the Central Government,
being satisfied that it is necessary in the public interest so to do, hereby
exempts taxable services of aggregate value not exceeding ten lakh rupees
in any financial year from the whole of the service tax leviable thereon
under section 66B of the said Finance Act:
Provided that nothing contained in this notification shall apply to,-
(i) taxable services provided by a person under a brand name or trade
name, whether registered or not, of another person; or
(ii) such value of taxable services in respect of which service tax shall
be paid by such person and in such manner as specified under sub-
section (2) of section 68 of the said Finance Act read with Service
Tax Rules,1994.
2. The exemption contained in this notification shall apply subject to the
following conditions, namely:-
(i) the provider of taxable service has the option not to avail the
exemption contained in this notification and pay service tax on the
taxable services provided by him and such option, once exercised in
a financial year, shall not be withdrawn during the remaining part of
such financial year;
(ii) the provider of taxable service shall not avail the CENVAT credit of
service tax paid on any input services, under rule 3 or rule 13 of
the CENVAT Credit Rules, 2004 (herein after referred to as the said
rules), used for providing the said taxable service, for which
exemption from payment of service tax under this notification is
availed of;
(iii) the provider of taxable service shall not avail the CENVAT credit
under rule 3 of the said rules, on capital goods received, during the
period in which the service provider avails exemption from payment
of service tax under this notification;

138
Notification and Circular Pertaining to Transportation Sector

(iv) the provider of taxable service shall avail the CENVAT credit only on
such inputs or input services received, on or after the date on which
the service provider starts paying service tax, and used for the
provision of taxable services for which service tax is payable;
(v) the provider of taxable service who starts availing exemption under
this notification shall be required to pay an amount equivalent to the
CENVAT credit taken by him, if any, in respect of such inputs lying in
stock or in process on the date on which the provider of taxable
service starts availing exemption under this notification;
(vi) the balance of CENVAT credit lying unutilised in the account of the
taxable service provider after deducting the amount referred to in
sub-paragraph (v), if any, shall not be utilised in terms of provision
under sub-rule (4) of rule 3 of the said rules and shall lapse on the
day such service provider starts availing the exemption under this
notification;
(vii) where a taxable service provider provides one or more taxable
services from one or more premises, the exemption under this
notification shall apply to the aggregate value of all such taxable
services and from all such premises and not separately for each
premises or each services; and
(viii) the aggregate value of taxable services rendered by a provider of
taxable service from one or more premises, does not exceed ten
lakh rupees in the preceding financial year.
3. For the purposes of determining aggregate value not exceeding ten
lakh rupees, to avail exemption under this notification, in relation to taxable
service provided by a goods transport agency, the payment received
towards the gross amount charged by such goods transport agency under
section 67 of the said Finance Act for which the person liable for paying
service tax is as specified under sub-section (2) of section 68 of the said
Finance Act read with Service Tax Rules, 1994, shall not be taken into
account.
Explanation. For the purposes of this notification,-
(A) “brand name” or “trade name” means a brand name or a trade name,
whether registered or not, that is to say, a name or a mark, such as
symbol, monogram, logo, label, signature, or invented word or writing which

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Technical Guide on Transportation

is used in relation to such specified services for the purpose of indicating,


or so as to indicate a connection in the course of trade between such
specified services and some person using such name or mark with or
without any indication of the identity of that person;
(B) “aggregate value” means the sum total of value of taxable services
charged in the first consecutive invoices issued during a financial year but
does not include value charged in invoices issued towards such services
which are exempt from whole of service tax leviable thereon under section
66B of the said Finance Act under any other notification.”
4. This notification shall come into force on the 1st day of July, 2012.

[F.No. 334 /01/2012- TRU]

(Raj Kumar Digvijay)


Under Secretary to the Government of India

[B]
Mega Exemption Notification for Transportation of Goods
Notification No 25/2012-STdt. 20.06.2012
--------------------------------------------------------------------
Gist of Notification No 25/2012-ST
Government has introduced mega exemption Notification No 25/2012-ST
dated 20.06.2012. This notification grants exemption to either service
provider or service recipient when the same performs any of the specified
activity.
As far as transportation sector is concerned, undermentioned is the summary
of the exemptions applicable to the said sector.
 Sr No 1: It exempts the services when provided to the United Nations
or a specified international organization
 Sr No 6: Transport sector may also be in need of legal services or
arbitral tribunal. As per Notification No 30/2012-ST, the recipient of

140
Notification and Circular Pertaining to Transportation Sector

legal service is required to pay service tax thereon, if the recipient is a


business entity. Since the entities in transportation sector is a
business entity, hence, they would be required to make payment on
legal services received by them, however, if their turnover in a
preceding year is less than ` 10 lakhs, then they will be exempted
from making payment of service tax. It is to be noted that total turnover
from all activities is to be seen and not merely turnover of taxable
services.
 Sr No 13: It grants exemption to services of construction for use by
transportation sector. Thus, services provided by way of
construction, erection, commissioning, installation, completion, fitting
out, repair, maintenance, renovation, or alteration of a road, bridge,
tunnel, or terminal for road transportation for use by general public is
exempted;
 Sr No 14: It grants exemption to services of construction for use by
transportation sector. In this, services by way of construction, erection,
commissioning, or installation of original works pertaining to an airport,
port or railways, including monorail or metro is exempt.
 Sr No 20: In this, certain goods when transported by rail, exemption
has been given.
 Sr No 21: In this, certain goods when transported by Goods transport
agency, exemption has been given.
 Sr No 22: When a person gives a means of transportation of goods to
a goods transport agency, then the activity of a person providing
service of providing a means of transportation of goods is not taxable.
 Sr No 34: It grants exemption in cases where services are provided by
a person located outside India.
The related text of the notification is reproduced below for ready reference:

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Technical Guide on Transportation

Notification - Service Tax - Service Tax


[TO BE PUBLISHED IN THE GAZZETE OF INDIA, EXTRAORDINARY,
PART II, SECTION 3, SUB-SECTION (i)]
Government of India
Ministry of Finance
(Department of Revenue)
Notification No. 25/2012-Service Tax
New Delhi, the 20th June, 2012
G.S.R. 467(E).- In exercise of the powers conferred by sub-section (1) of
section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as
the said Act) and in supersession of notification number 12/2012- Service
Tax, dated the 17th March, 2012, published in the Gazette of India,
Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 210
(E), dated the 17th March, 2012, the Central Government, being satisfied
that it is necessary in the public interest so to do, hereby exempts the
following taxable services from the whole of the service tax leviable thereon
under section 66B of the said Act, namely:-
1. Services provided to the United Nations or a specified international
organization;
**
6, Services provided by-
(a) an arbitral tribunal to -
(i) any person other than a business entity; or
(ii) a business entity with a turnover up to rupees ten lakh in the
preceding financial year;
(b) an individual as an advocate or a partnership firm of advocates by
way of legal services to,-
(i) an advocate or partnership firm of advocates providing legal
services ;
(ii) any person other than a business entity; or
(iii) a business entity with a turnover up to rupees ten lakh in the
preceding financial year; or

142
Notification and Circular Pertaining to Transportation Sector

(c) a person represented on an arbitral tribunal to an arbitral tribunal;


******
13. Services provided by way ofconstruction, erection, commissioning,
installation, completion, fitting out, repair, maintenance, renovation,
or alteration of,-
(a) a road, bridge, tunnel, or terminal for road transportation for
use by general public;
****;
14. Services by way of construction, erection, commissioning, or
installation of original works pertaining to,-
(a) an airport, port or railways, including monorail or metro;
*****
20. Services by way of transportation by rail or a vessel from one place
in India to another of the following goods -
(a) [***]
(b) relief materials meant for victims of natural or man-made
disasters, calamities, accidents or mishap;
(c) defence or military equipments;
(d) [***]
(e) [***]
(f) newspaper or magazines registered with the Registrar of
Newspapers;
(g) railwayequipments or materials;
(h) agricultural produce;
(i) foodstuff including flours, tea, coffee, jaggery, sugar, milk
products, salt and edible oil, excluding alcoholic beverages; or
(j) chemical fertilizer, organic manure and oil cakes;
(k) cotton, ginned or baled.]
21. Services provided by a goods transport agency, by way of transport
in a goods carriage of,-

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Technical Guide on Transportation

(a) agricultural produce;


(b) goods, where gross amount charged for the transportation of
goods on a consignment transported in a single carriage does
not exceed one thousand five hundred rupees;
(c) goods, where gross amount charged for transportation of all
such goods for a single consignee does not exceed rupees
seven hundred fifty;
(d) foodstuff including flours, tea, coffee, jaggery, sugar, milk
products, salt and edible oil, excluding alcoholic beverages;
(e) chemical fertilizer, organic manure and oil cakes; ]
(f) newspaper or magazines registered with the Registrar of
Newspapers;
(g) relief materials meant for victims of natural or man-made
disasters, calamities, accidents or mishap; or
(h) defence or military equipments;]
(i) cotton, ginned or baled.]
22. Services by way of giving on hire -
*****
(b) to a goods transport agency, a means of transportation of
goods;
34. Services received from a provider of service located in a non-
taxable territory by -
(a) Government, a local authority, a governmental authority or an
individual in relation to any purpose other than commerce,
industry or any other business or profession;
(b) an entity registered under section 12AA of the Income tax Act,
1961 (43 of 1961) for the purposes of providing charitable
activities; or
(c) a person located in a non-taxable territory;
2. Definitions. - For the purpose of this notification, unless the context
otherwise requires, –

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(a) “Advocate” has the meaning assigned to it in clause (a) of sub-


section (1) of section 2 of the Advocates Act, 1961 ( 25 of 1961);
(c) “arbitral tribunal” has the meaning assigned to it in clause (d) of
section 2 of the Arbitration and Conciliation Act, 1996 (26 of 1996);
(q)“general public” means the body of people at large sufficiently
defined by some common quality of public or impersonal nature;
(r) “goods carriage” has the meaning assigned to it in clause (14) of
section 2 of the Motor Vehicles Act, 1988 (59 of 1988);
(w)“legal service” means any service provided in relation to advice,
consultancy or assistance in any branch of law, in any manner and
includes representational services before any court, tribunal or
authority;
(y) “original works” means has the meaning assigned to it in Rule
2A of the Service Tax (Determination of Value) Rules, 2006;
3. This notification shall come into force on the 1st day of July, 2012.
[F. No.334/1/2012 -TRU]

(RajkumarDigvijay)
Under Secretary to the Government of India
[C]
Mega Exemption Notification for Transportation of Goods
Notification No 27/2012-STdt. 20.06.2012
--------------------------------------------------------------------
Gist of Notification No 27/2012-ST
When the services are provided any person for the official use of a foreign
diplomatic mission or consular post in India, or for personal use or for the use
of the family members of diplomatic agents or career consular officers posted
therein, then the service tax is exempted. Thus, services of transportation of
goods when provided for the official use of a foreign diplomatic mission or
consular post in India, or for personal use or for the use of the family
members of diplomatic agents or career consular officers posted therein is
exempted.

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The notification in this regard is reproduced for ready reference.


Notification - Service Tax - Service Tax
[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY,
PART II, SECTION 3, SUB-SECTION (i)]
Government of India
Ministry of Finance
(Department of Revenue)
Notification No. 27/2012 - Service Tax
New Delhi, the 20th June, 2012
G.S.R. (E).- In exercise of the powers conferred by section 93 of
the Finance Act, 1994 (32 of 1994), the Central Government, being
satisfied that it is necessary in the public interest so to do, hereby exempts
taxable services provided by any person, for the official use of a foreign
diplomatic mission or consular post in India, or for personal use or for the
use of the family members of diplomatic agents or career consular officers
posted therein from whole of the service tax leviable under section 66B of
the said Act, subject to the following conditions, namely:-
(i) that the foreign diplomatic mission or consular post in India, or
diplomatic agents or career consular officers posted therein, are
entitled to exemption from service tax, as stipulated in the certificate
issued by the Protocol Division of the Ministry of External Affairs,
based on the principle of reciprocity;
(ii) that in case of diplomatic agents or career consular officers posted in
the foreign diplomatic mission or consular post in India, the Protocol
Division of the Ministry of External Affairs or the Protocol Department
of the State concerned issues to each of such diplomatic agent or
career consular officer an identification card bearing unique
identification number and containing a photograph and name of such
diplomatic agent or career consular officer and the name of the
foreign diplomatic mission or consular post in India, where he is
posted;
(iii) that the head of the foreign diplomatic mission or consular post, or
any person of such mission or post authorised by him, shall furnish
to the provider of taxable service, a copy of such certificate duly

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Notification and Circular Pertaining to Transportation Sector

authenticated by him or the authorised person, alongwith an


undertaking in original, signed by him or the authorised person,
bearing running serial number commencing from a financial year and
stating that the services received are for official purpose of the said
foreign diplomatic mission or consular post; or for personal use of
the said diplomatic agent or career consular officer or members of
his/her family mentioning the unique identification number as
appearing in the identification card issued to them and stating that
the services received are for personal use of the said diplomatic
agent or career consular officer or members of his/her family;
(iv) that the head of the foreign diplomatic mission or consular post or
the authorized person shall maintain an account of the undertakings
issued during a financial year and the account shall contain;-
(a) the serial number and date of issue of the undertakings;
(b) in case of personal use of diplomatic agents or career
consular officers posted in the foreign diplomatic mission or
consular post in India, the name, designation and unique
identification number of the diplomatic agent or career
consular officer in favour of whom the undertaking has been
issued;
(c) the name and the registration number of the provider of
taxable service; and
(d) the description of taxable service and invoice number.
(v) The invoice or bill, or as the case may be, the challan issued under
the provisions contained in rule 4A of the Service Tax Rules, 1994,
shall, in addition to the information required to be furnished under
the said rule, contain the serial number and the date of the
undertaking furnished by the said head of foreign diplomatic mission
or consular post or in case of diplomatic agents or career consular
officers posted in such foreign diplomatic mission or consular post in
India, the unique identification number of the diplomatic agent or
career consular officer, as the case may be; and
(vi) that the provider of taxable service shall retain the documents
referred to in the conditions (i), (ii) and (iii) alongwith a duplicate
copy of the invoice issued, for the purposes of verification.

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2. In case the Protocol Division of the Ministry of External Affairs, after


having issued a certificate to any foreign diplomatic mission or consular
post in India or as the case may be, the identification card issued to a
diplomatic agent or career consular officer, decides to withdraw any one or
both of them subsequently, it shall communicate the withdrawal of such
certificate or identification card, as the case may be, to the foreign
diplomatic mission or consular post.
3. The exemption from the whole of the service tax granted to the
foreign diplomatic mission or consular post in India for official purpose or
for the personal use or use of their family members shall not be available
from the date of withdrawal of such certificate or identification card, as the
case may be.
4. This notification shall come into force on the 1st day of July, 2012.

[F.No. 334 /1/ 2012-TRU]

(RajkumarDigvijay)
Under Secretary to the Government of India

[D]
Notification relating to abatement
Notification No 26/2012-ST
--------------------------------------------------------------------
Gist of Notification No 26/2012-ST
 This notification prescribes abatement on the gross amount charged
towards services and conditions thereto. Prior to this, the provisions were
contained in Notification No 1/2006-ST. The relevant portion related to
transportation sector as contained in Notification No 26/2012-ST is
reproduced below for ready reference:
Notification - Service Tax - Service Tax

148
Notification and Circular Pertaining to Transportation Sector

[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY,


PART II, SECTION 3, SUB-SECTION (i)]
Government of India
Ministry of Finance
(Department of Revenue)
Notification No. 26/2012- Service Tax
New Delhi, the 20th June, 2012
G.S.R….. (E). - In exercise of the powers conferred by sub-section (1) of
section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as
the said Act), and in supersession of notification number 13/2012- Service
Tax, dated the 17th March, 2012, published in the Gazette of India,
Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 211
(E), dated the 17th March, 2012, the Central Government, being satisfied
that it is necessary in the public interest so to do, hereby exempts the
taxable service of the description specified in column (2) of the Table
below, from so much of the service tax leviable thereon under section 66B
of the said Act, as is in excess of the service tax calculated on a value
which is equivalent to a percentage specified in the corresponding entry in
column (3) of the said Table, of the amount charged by such service
provider for providing the said taxable service, unless specified otherwise,
subject to the relevant conditions specified in the corresponding entry in
column (4) of the said Table, namely;-
Table
Sl. Description of Percent- Conditions
No. taxable
Age
service
(1) (2) (3) (4)
2 Transport of 30% Nil.
goods by rail
7 Services of goods 25% CENVAT credit on inputs,
transport agency capital goods and input
in relation to services, used for
transportation of providing the taxable
goods. service, has not been

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Technical Guide on Transportation

taken by the service


provider under the
provisions of the CENVAT
Credit Rules, 2004.
10 Transport of 40 CENVAT credit on inputs,
goods in a vessel capital goods and input
(Upto
services, used for
30.09.2014,
providing the taxable
it was 30%)
service, has not been
taken by the service
provider under the
provisions of the CENVAT
Credit Rules, 2004.

3. This notification shall come into force on the 1st day of July, 2012.
[F.No. 334 /1/ 2012-TRU]

(Rajkumar Digvijay)
Under Secretary to the Government of India

[E]
Notification relating to reverse charge
Notification No 30/2012-STdt. 20.06.2012
--------------------------------------------------------------------
Gist of Notification No 30/2012-ST
Generally, it is the service provider who is required to make payment of
service tax. However, with respect to certain services, it is the service
recipient who is required to make payment of service tax.
The provisions in this regard are contained in Notification No 30/2012-ST
which is reproduced below for ready reference.
Notification - Service Tax - Service Tax

150
Notification and Circular Pertaining to Transportation Sector

[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY,


PART II, SECTION 3, SUB-SECTION (i)]
Government of India
Ministry of Finance
(Department of Revenue)
Notification No. 30/2012-Service Tax
New Delhi, the 20th June, 2012
GSR.…..(E).—In exercise of the powers conferred by sub-section (2) of
section 68 of the Finance Act, 1994 (32 of 1994), and in supersession of (i)
notification of the Government of India in the Ministry of Finance
(Department of Revenue), No. 15/2012-Service Tax, dated the 17th March,
2012, published in the Gazette of India, Extraordinary, Part II, Section 3,
Sub-section (i),vide number G.S.R 213(E), dated the 17th March, 2012,
and (ii) notification of the Government of India in the Ministry of Finance
(Department of Revenue), No. 36/2004-Service Tax, dated the 31st
December, 2004, published in the Gazette of India, Extraordinary, Part II,
Section 3, Sub-section (i), vide number G.S.R 849 (E), dated
the 31st December, 2004, except as respects things done or omitted to be
done before such supersession, the Central Government hereby notifies
the following taxable services and the extent of service tax payable thereon
by the person liable to pay service tax for the purposes of the said sub-
section, namely:—
I. The taxable services,—
(A) (i) provided or agreed to be provided by an insurance agent to any
person carrying on the insurance business;
6[(ia) provided or agreed to be provided by a recovery agent to a banking
company or a financial institution or a non-banking financial company; ]
(ii) provided or agreed to be provided by a goods transport agency in
respect of transportation of goods by road, where the person liable to pay
freight is,—
(a) any factory registered under or governed by the Factories Act, 1948 (63
of 1948);
(b) any society registered under the Societies Registration Act, 1860 (21 of
1860) or under any other law for the time being in force in any part of India;

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Technical Guide on Transportation

(c) any co-operative society established by or under any law;


(d) any dealer of excisable goods, who is registered under the Central
Excise Act, 1944 (1 of 1944) or the rules made thereunder;
(e) any body corporate established, by or under any law; or
(f) any partnership firm whether registered or not under any law including
association of persons;
(iii) provided or agreed to be provided by way of sponsorship to anybody
corporate or partnership firm located in the taxable territory;
(iv) provided or agreed to be provided by,-
(A) an arbitral tribunal, or
(B) an individual advocate or a firm of advocates by way
of 5[legal] services, or
(C) Government or local authority by way of support services excluding,-
(1) renting of immovable property, and
(2) services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section
66D of the Finance Act,1994, to any business entity located in the taxable
territory;
7[(iva) provided or agreed to be provided by a director of a company or a
body corporate to the said company or the body corporate; ]
(v) provided or agreed to be provided by way of renting of a motor vehicle
designed to carry passengers to any person who is not in the similar line of
business or supply of manpower for any purpose 2[or security
services] or service portion in execution of works contract by any individual,
Hindu Undivided Family or partnership firm, whether registered or not,
including association of persons, located in the taxable territory to a
business entity registered as body corporate, located in the taxable
territory;
(B) provided or agreed to be provided by any person which is located in a
non-taxable territory and received by any person located in the taxable
territory;
(II) The extent of service tax payable thereon by the person who provides
the service and the person who receives the service for the taxable

152
Notification and Circular Pertaining to Transportation Sector

services specified in (I) shall be as specified in the following Table,


namely:-
Table
8[Sl.No Description of a service Percentage Percentage
of service of service tax
tax payable payable by
by the the person
person receiving the
providing service
service
(1) (2) (3) (4)]
1 in respect of services Nil 100%
provided or agreed to be
provided by an insurance
agent to any person
carrying on insurance
business
9[1A in respect of services Nil 100%]
provided or agreed to be
provided by a recovery
agent to a banking
company or a financial
institution or a non-
banking financial
company
2 in respect of services Nil 100%
provided or agreed to be
provided by a goods
transport agency in
respect of transportation
of goods by road
3 in respect of services Nil 100%
provided or agreed to be
provided by way of
sponsorship
4 in respect of services Nil 100%

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Technical Guide on Transportation

provided or agreed to be
provided by an arbitral
tribunal
5 in respect of services Nil 100%
provided or agreed to be
provided by individual
advocate or a firm of
advocates by way of legal
services
3[5A 10[in respect of services Nil 100%]
provided or agreed to be
provided by a director of a
company or a body
corporate to the said
company or the body
corporate]
6 in respect of services Nil 100%
provided or agreed to be
provided by Government
or local authority by way
of support services
excluding,- (1) renting of
immovable property, and
(2) services specified
in sub-clauses (i), (ii) and
(iii) of clause (a) of
section 66D of
the Finance Act,1994
7 (a) in respect of services Nil 100 %
provided or agreed to be
provided by way of 11[50%] 12[50%]

renting of a motor vehicle


designed to carry
passengers on abated
value to any person who
is not engaged in the
similar line of business

154
Notification and Circular Pertaining to Transportation Sector

(b) in respect of services


provided or agreed to be
provided by way of
renting of a motor vehicle
designed to carry
passengers on non
abated value to any
person who is not
engaged in the similar
line of business
8. in respect of services 25% 75 %
provided or agreed to be
provided by way of supply
of manpower for any
purpose 4[or security
services]
9. in respect of services 50% 50%
provided or agreed to be
provided in service
portion in execution of
works contract
10 in respect of any taxable Nil 100%
services provided or
agreed to be provided by
any person who is located
in a non-taxable territory
and received by any
person located in the
taxable territory
Explanation-I. - The person who pays or is liable to pay freight for the
transportation of goods by road in goods carriage, located in the taxable
territory shall be treated as the person who receives the service for the
purpose of this notification.
Explanation-II. - In works contract services, where both service provider
and service recipient is the persons liable to pay tax, the service recipient
has the option of choosing the valuation method as per choice,
independent of valuation method adopted by the provider of service.

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Technical Guide on Transportation

2. This notification shall come into force on the 1st day of July, 2012.
[F.No. 334/1/2012- TRU]
(Raj Kumar Digvijay)
Under Secretary to the Government of India

[F]
Notification relating to Input stage rebate in case of export of services
Notification No 39/2012-ST dt. 20.06.2012
Gist of Notification No 39/2012-ST
What is to be exported is goods and services and not taxes thereon. In case
of export of services, many inputs as well as input services are utilised. The
Government grants rebate of duty paid on inputs and input services utilized
in providing export services. The procedure in this regard is contained in
Notification No 39/2012-ST which is reproduced below:

Notification - Service Tax - Service Tax


[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY,
PART II, SECTION 3, SUB-SECTION (i)]
Government of India
Ministry of Finance
(Department of Revenue)
Notification No.39/2012 - Service Tax
New Delhi, the 20th June, 2012
GSR …. (E). In exercise of the powers conferred by rule 6A of the Service
Tax Rules, 1994 (hereinafter referred to as the said rules), the Central
Government hereby directs that there shall be granted rebate of the whole
of the duty paid on excisable inputs or the whole of the service tax and
cess paid on all input services (herein after referred to as ‘input services’),
used in providing service exported in terms of rule 6A of the said rules, to
any country other than Nepal and Bhutan, subject to the conditions,
limitations and procedures specified hereinafter,-

156
Notification and Circular Pertaining to Transportation Sector

2. Conditions and limitations:-


(a) that the service has been exported in terms of rule 6A of the said
rules;
(b) that the duty on the inputs, rebate of which has been claimed, has
been paid to the supplier;
(c) that the service tax and cess, rebate of which has been claimed,
have been paid on the input services to the provider of service;
Provided if the person is himself is liable to pay for any input
services; he should have paid the service tax and cess to the Central
Government.
(d) the total amount of rebate of duty, service tax and cess admissible is
not less than one thousand rupees;
(e) no CENVAT credit has been availed of on inputs and input services
on which rebate has been claimed; and
(f) that in case,-
(i) the duty or, as the case may be, service tax and cess, rebate
of which has been claimed, has not been paid; or
(ii) the service, rebate for which has been claimed, has not been
exported; or
(iii) CENVAT credit has been availed on inputs and input services
on which rebate has been claimed,
the rebate paid, if any, shall be recoverable with interest in accordance with
the provisions of section 73 and section 75 of the Finance Act, 1994 (32 of
1994)
3. Procedure.
3.1 Filing of Declaration.- The provider of service to be exported shall,
prior to date of export of service, file a declaration with the jurisdictional
Assistant Commissioner of Central Excise or Deputy Commissioner of
Central Excise, as the case may be, specifying the service intended to be
exported with,-
(a) description, quantity, value, rate of duty and the amount of duty
payable on inputs actually required to be used in providing service to
be exported;

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Technical Guide on Transportation

(b) description, value and the amount of service tax and cess payable
on input services actually required to be used in providing service to
be exported.
3.2 Verification of declaration. The Assistant Commissioner of Central
Excise or the Deputy Commissioner of Central Excise, as the case may be,
shall verify the correctness of the declaration filed prior to such export of
service, if necessary, by calling for any relevant information or samples of
inputs and if after such verification, the Assistant Commissioner of Central
Excise or the Deputy Commissioner of Central Excise is satisfied that there
is no likelihood of evasion of duty, or as the case may be, service tax and
cess, he may accept the declaration.
3.3 Procurement of input materials and receipt of input services.-
The provider of service to be exported shall,-
(i) obtain the inputs required for use in providing service to be exported,
directly from a registered factory or from a dealer registered for the
purposes of the CENVAT Credit Rules, 2004 accompanied by
invoices issued under the Central Excise Rules, 2002;
(ii) receive the input services required for use in providing service to be
exported and an invoice, a bill or, as the case may be, a challan
issued under the provisions of Service Tax Rules, 1994.
3.4 Presentation of claim for rebate.
a.
(i) claim of rebate of the duty paid on the inputs or the service tax and
cess paid on input services shall be filed with the jurisdictional
Assistant Commissioner of Central Excise or Deputy Commissioner
of Central Excise, as the case may be, after the service has been
exported;
(ii) such application shall be accompanied by, –
(a) invoices for inputs issued under the Central Excise Rules,
2002 and invoice, a bill, or as the case may be, a challan for
input services issued under the Service Tax Rules, 1994, in
respect of which rebate is claimed;
(b) documentary evidence of receipt of payment against service
exported, payment of duty on inputs and service tax and cess

158
Notification and Circular Pertaining to Transportation Sector

on input services used for providing service exported, rebate


of which is claimed;
(c) a declaration that such service, has been exported in terms of
rule 6A of the said rules, along with documents evidencing
such export.
b. The jurisdictional Assistant Commissioner of Central Excise or
Deputy Commissioner of Central Excise, as the case may be, having
regard to the declaration, if satisfied that the claim is in order, shall
sanction the rebate either in whole or in part.
******

[G]
Notification relating to rebate of services utilised for export goods
received beyond the place of removal
Notification No 41/2012-ST dt. 20.06.2012
Gist of Notification No 41/2012-ST
The exporter receives many services like transport of goods, transport of
goods by rail, insurance, etc for export of goods beyond the place of
removal.
Government through this notification grants rebate of the services. There are
two procedures for filing a rebate claim. Assessee can claim either based
onpara 2 or para 3 of Notification. The rebate under para 3 can be claimed
only when the difference between amount of rebate as per para 2 and as per
para 3 exceeds 20%. The detailed notification is reproduced below:
Notification - Service Tax - Service Tax
[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY,
PART II, SECTION 3, SUB-SECTION (i)]
Government of India
Ministry of Finance
(Department of Revenue)
NOTIFICATION NO
41/2012-ST, Dated: June 29, 2012

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Technical Guide on Transportation

In exercise of the powers conferred by section 93A of the Finance Act,


1994 (32 of 1994) (hereinafter referred to as the said Act) and in
supersession of the notification of the Government of India in the Ministry
of Finance (Department of Revenue) number 52/2011 - Service Tax, dated
the 30th December, 2011, published in the Gazette of India, Extraordinary,
Part II, Section 3, Sub-section (i) vide number G.S.R. 945(E), dated the
30th December, 2011, except as respects things done or omitted to be
done before such supersession, the Central Government, on being satisfied
that it is necessary in the public interest so to do, hereby grants rebate of
service tax paid (hereinafter referred to as rebate) on the taxable services
which are received by an exporter of goods (hereinafter referred to as the
exporter) and used for export of goods, subject to the extent and manner
specified herein below, namely:-
Provided that–
(a) the rebate shall be granted by way of refund of service tax paid on
the specified services.
Explanation. - For the purposes of this notification,-
(A) “specified services” means-
i. in the case of excisable goods, taxable services that have
been used beyond the place of removal, for the export of said
goods;
ii. in the case of goods other than (i) above, taxable services
used for the export of said goods;
but shall not include any service mentioned in sub-clauses (A), (B),
(BA) and (C) of clause (l) of rule (2) of the CENVAT Credit Rules,
2004;
(B) place of removal” shall have the meaning assigned to it in section
4 of the Central Excise Act,1944(1 of 1944);
(b) the rebate shall be claimed either on the basis of rates specified in
the Schedule of rates annexed to this notification (hereinafter referred to as
the Schedule), as per the procedure specified in paragraph 2 or on the
basis of documents, as per the procedure specified in paragraph 3;
(c) the rebate under the procedure specified in paragraph 3 shall not be
claimed wherever the difference between the amount of rebate under the

160
Notification and Circular Pertaining to Transportation Sector

procedure specified in paragraph 2 and paragraph 3 is less than twenty per


cent of the rebate available under the procedure specified in paragraph 2;
(d) no CENVAT credit of service tax paid on the specified services used
for export of goods has been taken under the CENVAT Credit Rules, 2004;
(e) the rebate shall not be claimed by a u nit or developer of a Special
Economic Zone;
(2) the rebate shall be claimed in the following manner, namely:-
(a) manufacturer-exporter, who is registered as an assessee under
the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder shall
register his central excise registration number and bank account number
with the customs;
(b) exporter who is not so registered under the provisions referred to in
clause (a), shall register his service tax code number and bank account
number with the customs;
(c) service tax code number referred to in clause (b), shall be obtained
by filing a declaration in Form A-2 to the Assistant Commissioner of Central
Excise or the Deputy Commissioner of Central Excise, as the case may be,
having jurisdiction over the registered office or the head office, as the case
may be, of such exporter;
(d) the exporter shall make a declaration in the electronic shipping bill or
bill of export, as the case may be, while presenting the same to the proper
officer of customs, to the effect that--
(i) the rebate of service tax paid on the specified services is claimed as
a percentage of the declared Free On Board(FOB) value of the said
goods, on the basis of rate specified in the Schedule;
(ii) no further rebate shall be claimed in respect of the specified
services, under procedure specified in paragraph 3 or in any other
manner, including on the ground that the rebate obtained is less than
the service tax paid on the specified services;
(iii) conditions of the notification have been fulfilled;
(e) service tax paid on the specified services eligible for rebate under
this notification, shall be calculated by applying the rate prescribed for
goods of a class or description, in the Schedule, as a percentage of the
FOB value of the said goods;

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(f) amount so calculated as rebate shall be deposited in the bank


account of the exporter;
(g) shipping bill or bill of export on which rebate has been claimed on
the basis of rate specified in the Schedule, by way of procedure specified in
this paragraph, shall not be used for rebate claim on the basis of
documents, specified in paragraph 3;
(h) where the rebate involved in a shipping bill or bill of export is less
than rupees fifty, the same shall not be allowed;
(3) the rebate shall be claimed in the following manner, namely:-
(a) rebate may be claimed on the service tax actually paid on any
specified service on the basis of duly certified documents;
(b) the person liable to pay service tax under section 68 of the said Act
on the taxable service provided to the exporter for export of goods shall not
be eligible to claim rebate under this notification;
(c) the manufacturer-exporter, who is registered as an assessee under
the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder,
shall file a claim for rebate of service tax paid on the taxable service used
for export of goods to the Assistant Commissioner of Central Excise or the
Deputy Commissioner of Central Excise, as the case may be, having
jurisdiction over the factory of manufacture in Form A-1;
(d) the exporter who is not so registered under the provisions referred to
in clause (c), shall before filing a claim for rebate of service tax, file a
declaration in Form A-2, seeking allotment of service tax code, to the
Assistant Commissioner of Central Excise or the Deputy Commissioner of
Central Excise, as the case may be, having jurisdiction over the registered
office or the head office, as the case may be, of such exporter;
(e) the Assistant Commissioner of Central Excise or the Deputy
Commissioner of Central Excise, as the case may be, shall, after due
verification, allot a service tax code number to the exporter referred to in
clause (d), within seven days from the date of receipt of the said Form A-2;
(f) on obtaining the service tax code, exporter referred to in clause (d),
shall file the claim for rebate of service tax to the Assistant Commissioner
of Central Excise or the Deputy Commissioner of Central Excise, as the
case may be, having jurisdiction over the registered office or the head
office, as the case may be, in Form A-1 ;

162
Notification and Circular Pertaining to Transportation Sector

(g) the claim for rebate of service tax paid on the specified services
used for export of goods shall be filed within one year from the date of
export of the said goods.
Explanation .- For the purposes of this clause the date of export shall be
the date on which the proper officer of Customs makes an order permitting
clearance and loading of the said goods for exportation undersection 51 of
the Customs Act, 1962 (52 of 1962);
(h) where the total amount of rebate sought under a claim is upto 0.50% of
the total FOB value of export goods and the exporter is registered with the
Export Promotion Council sponsored by Ministry of Commerce or Ministry
of Textiles, Form A-1 shall be submitted along with relevant invoice, bill or
challan, or any other document for each specified service, in original,
issued in the name of the exporter, evidencing payment for the specified
service used for export of the said goods and the service tax paid thereon,
certified in the manner specified in sub-clauses (A) and (B):
(A) if the exporter is a proprietorship concern or partnership firm, the
documents enclosed with the claim shall be self-certified by the
exporter and if the exporter is a limited company, the documents
enclosed with the claim shall be certified by the person authorised by
the Board of Directors;
(B) the documents enclosed with the claim shall also contain a certificate
from the exporter or the person authorised by the Board of Directors,
to the effect that specified service to which the document pertains
has been received, the service tax payable thereon has been paid
and the specified service has been used for export of the said goods
under the shipping bill number;
(i) where the total amount of rebate sought under a claim is more than
0.50% of the total FOB value of the goods exported, the procedure
specified in clause (h) above shall stand modified to the extent that the
certification prescribed thereon, in sub- clauses (A) and (B) shall be made
by the Chartered Accountant who audits the annual accounts of the
exporter for the purposes of the Companies Act, 1956 (1 of 1956) or
the Income Tax Act, 1961(43 of 1961), as the case may be;
(j) where the rebate involved in a claim is less than rupees five
hundred, the same shall not be allowed;

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Technical Guide on Transportation

(k) the Assistant Commissioner of Central Excise or the Deputy


Commissioner of Central Excise, as the case may be, shall, after satisfying
himself,-
(i) that the service tax rebate claim filed in Form A-1 is complete in
every respect;
(ii) that duly certified documents have been submitted evidencing the
payment of service tax on the specified services ;
(iii) that rebate has not been already received on the shipping bills or
bills of export on the basis of procedure prescribed in paragraph
2;and
(iv) that the rebate claimed is arithmetically accurate,
refund the service tax paid on the specified service within a period of one
month from the receipt of said claim:
Provided that where the Assistant Commissioner of Central Excise or the
Deputy Commissioner of Central Excise, as the case may be, has reason
to believe that the claim, or the enclosed documents are not in order or that
there is a reason to deny such rebate, he may, after recording the reasons
in writing, take action, in accordance with the provisions of the said Act and
the rules made thereunder;
(4) Where any rebate of service tax paid on the specified services has
been allowed to an exporter on export of goods but the sale proceeds in
respect of said goods are not received by or on behalf of the exporter, in
India, within the period allowed by the Reserve Bank of India under section
8 of the Foreign Exchange Management Act, 1999 (42 of 1999), including
any extension of such period, such rebate shall be deemed never to have
been allowed and may be recovered under the provisions of the said Act
and the rules made thereunder;
(5) This notification shall come into effect on the 1 st day of July, 2012.

164
Notification and Circular Pertaining to Transportation Sector

[H]
Notification relating to exemption of services of transport of goods by
exporter of goods
Notification No 31/2012-ST dt. 20.06.2012
Gist of Notification No 31/2012-ST
In case of export goods, the rebate of goods and services utilised in export
goods is eligible. However, there are certain services wherein Government
has granted upfront exemption from payment of service tax. The upfront
exemption has been granted so as to avoid chain of first of all payment of tax
and then grant of refund.
The provisions in this regard are contained are contained in Notification No
31/2012-ST dated 20.06.2012. As per the said provision, ‘Service provided to
an exporter for transport of the said goods by goods transport agency in a
goods carriage from any container freight station or inland container depot to
the port or airport, as the case may be, from where the goods are exported;
or Service provided to an exporter in relation to transport of the said goods
by goods transport agency in a goods carriage directly from their place of
removal, to an inland container depot, a container freight station, a port or
airport, as the case may be, from where the goods are exported is exempt
from the payment of service tax.’
The detailed notification is reproduced below:

Notification - Service Tax - Service Tax


[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY,
PART II, SECTION 3, SUB-SECTION (i)]
Government of India
Ministry of Finance
(Department of Revenue)
Notification No. 31/2012 - Service Tax
New Delhi, the 20th June, 2012
G.S.R…. (E). -In exercise of the powers conferred by sub-section (1) of
section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as
the said Act) and in supersession of the notification of the Government of

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Technical Guide on Transportation

India in the Ministry of Finance (Department of Revenue), No. 18/2009-


Service Tax, dated the 7th July, 2009, published in the Gazette of India,
Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R.490
(E), dated the 7th July, 2009, except as respects things done or omitted to
be done before such supersession, the Central Government, being satisfied
that it is necessary in the public interest so to do, hereby exempts the
taxable service received by an exporter of goods (hereinafter referred to as
the exporter) and used for export of goods (hereinafter referred to as the
said goods), of the description specified in column (2) of the Table below
(hereinafter referred to as the specified service), from the whole of the
service tax leviable thereon under section 66B of the said Act, subject to
the conditions specified in column (3) of the said Table, namely:-
Table
Sr.No. Description of the taxable service Conditions
(1) (2) (3)
1. Service provided to an exporter for The exporter shall
transport of the said goods by goods have to produce the
transport agency in a goods carriage consignment note, by
from any container freight station or whatever name
inland container depot to the port or called, issued in his
airport, as the case may be, from name.
where the goods are exported; or
Service provided to an exporter in
relation to transport of the said goods
by goods transport agency in a goods
carriage directly from their place of
removal, to an inland container depot,
a container freight station, a port or
airport, as the case may be, from
where the goods are exported.
Provided that-
(a) the exemption shall be available to an exporter who,-
(i) informs the Assistant Commissioner of Central Excise or the Deputy
Commissioner of Central Excise, as the case may be, having
jurisdiction over the factory or the regional office or the head office,

166
Notification and Circular Pertaining to Transportation Sector

as the case may be, in Form EXP1 appended to this notification,


before availing the said exemption;
(ii) is registered with an export promotion council sponsored by the
Ministry of Commerce or the Ministry of Textiles, as the case may
be;
(iii) is a holder of Import-Export Code Number;
(iv) is registered under section 69 of the said Act;
(v) is liable to pay service tax under sub-section (2) of section 68 of said
Act, read with item (B) of sub-clause (i) of clause (d) of sub-rule (1)
of rule 2 of the Service Tax Rules,1994, for the specified service;
(b) the invoice, bill or challan, or any other document by whatever name
called issued by the service provider to the exporter, on which the exporter
intends to avail exemption, shall be issued in the name of the exporter,
showing that the exporter is liable to pay the service tax in terms of item (v)
of clause (a);
(c) the exporter availing the exemption shall file the return in Form
EXP2, every six months of the financial year, within fifteen days of the
completion of the said six months;
(d) the exporter shall submit with the half yearly return, after
certification, the documents in original specified in clause (b) and the
certified copies of the documents specified in 1[column (3)] of the said
Table;
(e) the documents enclosed with the return shall contain a certification
from the exporter or the authorised person, to the effect that taxable
service to which the document pertains, has been received and used for
export of goods by mentioning the specific shipping bill number on the said
document.
(f) where the exporter is a proprietorship concern or partnership firm,
the documents enclosed with the return shall be certified by the exporter
himself and where the exporter is a limited company, the documents
enclosed with the return shall be certified by the person authorised by the
Board of Directors;
2. This notification shall come into force on the 1st day of July, 2012.

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[I]
Notification relating to exemption of services provided in Special
Economic Zone
Notification No 12/2013-ST dt. 01.07.2013
Gist of Notification No 12/2013-ST
The provisions of Chapter V of Finance Act, 1994 applies when the services
are provided in a taxable territory.
As per Rule 31 of Special Economic Zones Rules, 2006, there is exemption
from payment of service tax on taxable services under section 65 of the
Finance Act, 1994 (32 of 1994) rendered to a Developer or a Unit (including
a Unit under construction) by any service provider shall be available for the
authorized operations in a Special Economic Zone. The SEZ Act has
overriding effect over any of the provisions of the Act for the time being in
force.
For the said purpose, notification has been issued from time to time for
granting upfront exemption to a service provider who provides services in
SEZ or by way of refund to a unit located in SEZ’. The provisions at present
are contained in Notification No 12/2013-ST and are reproduced for a ready
reference.
Notification - Service Tax - Service Tax
[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY,
PART II, SECTION 3, SUB-SECTION (i)]
Government of India
Ministry of Finance
(Department of Revenue)
Notification No. 12 / 2013-Service Tax
New Delhi, the 1st July, 2013
G.S.R.448(E).–In exercise of the powers conferred by sub-section (1) of
section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as
the said Act) read with sub-section 3 of section 95 of Finance (No.2), Act,
2004 (23 of 2004) and sub-section 3 of section 140 of the Finance Act,
2007 (22 of 2007) and in supersession of the notification of the
Government of India in the Ministry of Finance (Department of Revenue),

168
Notification and Circular Pertaining to Transportation Sector

No. 40/2012-Service Tax, dated the 20th June, 2012, published in the
Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide
number G.S.R. 482 (E), dated the 20th June, 2012, except as respects
things done or omitted to be done before such supersession, the Central
Government, on being satisfied that it is necessary in the public interest so
to do, hereby exempts the services on which service tax is leviable
under section 66B of the said Act, received by a unit located in a Special
Economic Zone (hereinafter referred to as SEZ Unit) or Developer of SEZ (
hereinafter referred to as the Developer) and used for the authorised
operation from the whole of the service tax, education cess, and secondary
and higher education cess leviable thereon.
2. The exemption shall be provided by way of refund of service tax paid
on the specified services received by the SEZ Unit or the Developer and
used for the authorised operations:
Provided that where the specified services received by the SEZ Unit or the
Developer are used exclusively for the authorised operations, the person
liable to pay service tax has the option not to pay the service tax ab initio,
subject to the conditions and procedure as stated below.
3. This exemption shall be given effect to in the following manner:
(I) The SEZ Unit or the Developer shall get an approval by the Approval
Committee of the list of the services as are required for the authorised
operations (referred to as the ‘specified services’ elsewhere in the
notification) on which the SEZ Unit or Developer wish to claim exemption
from service tax.
(II) The ab-initio exemption on the specified services received by the
SEZ Unit or the Developer and used exclusively for the authorised
operation shall be allowed subject to the following procedure and
conditions, namely:-
(a) the SEZ Unit or the Developer shall furnish a declaration in Form A-
1, verified by the Specified Officer of the SEZ, along with the list of
specified services in terms of condition (I);
(b) on the basis of declaration made in Form A-1, an authorisation shall
be issued by the jurisdictional Deputy Commissioner of Central Excise or
Assistant Commissioner of Central Excise, as the case may be to the SEZ
Unit or the Developer, in Form A-2 2[within fifteen working days from the

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Technical Guide on Transportation

date of submission of Form A-1];


3[(ba) the authorisation referred to in clause (b) shall be valid from the date
of verification of Form A-1 by the Specified Officer of the SEZ:
Provided that if the Form A-1 is not submitted by the SEZ Unit or the
Developer to the Assistant Commissioner of Central Excise or Deputy
Commissioner of Central Excise having jurisdiction, as the case may be,
within fifteen days of its verification by the Specified Officer of the SEZ, the
authorisation shall be valid from the date on which it is submitted;]
4[(c) the SEZ Unit or the Developer shall provide a copy of the said
authorisation to the provider of specified services, where such provider is
the person liable to pay service tax and on the basis of the said
authorisation, the service provider may provide specified services to the
SEZ Unit or the Developer without payment of service tax:
Provided that pending issuance of said authorisation, the provider of
specified services may, on the basis of Form A-1, provide such specified
services, without payment of service tax, and the SEZ Unit or the
Developer shall provide a copy of authorisation to the service provider
immediately on receipt of such authorisation:
Provided further that if the SEZ Unit or the Developer does not provide a
copy of the said authorisation to the provider of specified services within a
period of three months from the date when such specified services were
deemed to have been provided in terms of the Point of Taxation Rules,
2011, the service provider shall pay service tax on specified services so
provided in terms of the first proviso].
1[(d) the SEZ Unit or the Developer shall furnish to the jurisdictional
Superintendent of Central Excise a quarterly statement, in Form A-3,
furnishing the details of specified services received by it without payment of
service tax, by 30th of the month following the particular quarter:
Provided that for the quarter of July, 2013 to September, 2013, the said
statement shall be furnished by the 15th of December, 2013.]
(e) the SEZ Unit or the Developer shall furnish an undertaking, in Form
A-1, that in case the specified services on which exemption has been
claimed are not exclusively used for authorised operation or were found not
to have been used exclusively for authorised operation, it shall pay to the
government an amount that is claimed by way of exemption from service

170
Notification and Circular Pertaining to Transportation Sector

tax and cesses along with interest as applicable on delayed payment of


service tax under the provisions of the said Act read with the rules made
thereunder.
5[Explanation.– For the purposes of this notification, a service shall be
treated as used exclusively for the authorised operations if the service is
received by the SEZ Unit or the Developer under an invoice in the name of
such Unit or the Developer and the service is used only for furtherance of
authorised operations in the SEZ.]
(III) The refund of service tax on (i) the specified services that are not
exclusively used for authorised operation, or (ii) the specified services on
which ab-initio exemption is admissible but not claimed, shall be allowed
subject to the following procedure and conditions, namely:-
(a) the service tax paid on the specified services that are common to the
authorised operation in an SEZ and the operation in domestic tariff area
[DTA unit(s)] shall be distributed amongst the SEZ Unit or the Developer
and the DTA unit (s) in the manner as prescribed in rule 7 of the CENVAT
Credit Rules. For the purpose of distribution, the turnover of the SEZ Unit
or the Developer shall be taken as the turnover of authorised operation
during the relevant period.
(b) the SEZ Unit or the Developer shall be entitled to refund of the
service tax paid on (i) the specified services on which ab-initio exemption is
admissible but not claimed, and (ii) the amount distributed to it in terms of
clause (a).
(c) the SEZ Unit or Developer who is registered as an assessee under
the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder, or
the said Act or the rules made thereunder, shall file the claim for refund to
the jurisdictional Deputy Commissioner of Central Excise or Assistant
Commissioner of Central Excise, the as the case may be, in Form A-4;
(d) the amount indicated in the invoice, bill or, as the case may be,
challan, on the basis of which this refund is being claimed, including the
service tax payable thereon shall have been paid to the person liable to
pay the service tax thereon, or as the case may be, the amount of service
tax payable under reverse charge shall have been paid under the
provisions of the said Act;
(e) the claim for refund shall be filed within one year from the end of the
month in which actual payment of service tax was made by such Developer

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Technical Guide on Transportation

or SEZ Unit to the registered service provider or such extended period as the
Assistant Commissioner of Central Excise or the Deputy Commissioner of
Central Excise, as the case may be, shall permit;
(f) the SEZ Unit or the Developer shall submit only one claim of refund
under this notification for every quarter:
Explanation.- For the purposes of this notification “quarter” means a period of
three consecutive months with the first quarter beginning from 1st April of
every year, second quarter from 1st July, third quarter from 1st October and
fourth quarter from 1st January of every year.
(g) the SEZ Unit or the Developer who is not so registered under the
provisions referred to in clause (c), shall, before filing a claim for refund
under this notification, make an application for registration under rule 4 of
theService Tax Rules, 1994.
(h) if there are more than one SEZ Unit registered under a common service
tax registration, a common refund may be filed at the option of the assessee.
(IV) The SEZ Unit or Developer, who intends to avail exemption or refund
under this notification, shall maintain proper account of receipt and use of the
specified services, on which exemption or refund is claimed, for authorised
operations in the SEZ.
4. Where any sum of service tax paid on specified services is
erroneously refunded for any reason whatsoever, such service tax refunded
shall be recoverable under the provisions of the said Act and the rules made
there under, as if it is recovery of service tax erroneously refunded;
5. Notwithstanding anything contained in this notification, SEZ Unit or the
Developer shall have the option not to avail of this exemption and instead
take CENVAT credit on the specified services in accordance with
theCENVAT Credit Rules, 2004.
6. Words and expressions used in this notification and defined in
the Special Economic Zones Act, 2005 (28 of 2005) or the rules made
thereunder, or the said Act, or the rules made there under shall apply, so far
as may be, in relation to refund of service tax under this notification as they
apply in relation to a SEZ.
7. This notification shall come into force on the date of its publication in
the Gazette of India

172
Notification and Circular Pertaining to Transportation Sector

Notification and Circular Pertaining to Transportation Sector


PART-II: CIRCULARS
[A]
Circular regarding clarification on exemption w.r.t milk transportation
Circular No.167/2 /2013 – STdt. 01.01.2013
Circular - Service Tax
Circular No.167/2 /2013 - ST
F.No.B-1/2/2010 -TRU
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs
Tax Research Unit
153, North Block,
New Delhi, 1st January, 2013
****
Subject: Service tax on services by way of transportation of goods by
rail/vessel – transportation of milk - regarding.
Representation has been received from the Indian Railways seeking
clarification as to whether service by way of transportation of milk by rail is
covered by Notification No.25/2012-ST dated 20.06.2012, serial number
20(i).
2. The representation has been examined. The expression ‘foodstuff’
appearing in Notification No.25/2012-ST dated 20.06.2012, serial number
20(i) includes milk. Therefore, it is clarified that the service by way of
transportation of milk by rail or a vessel from one place in India to another, is
covered by the Notification No.25/2012-ST dated 20.06.2012.
[B]
Circular regarding transport of goods by Rail
Rates Goods Circular No. 50/2012 dt. 08.09.2012

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Order-Instruction - Service Tax


Rates Goods Circular No. 50/2012
NORTHEAST FRONTIER RAILWAY
Office of the
Chief Commercial Manager/ Rates,
Maligaon, Guwahati-11
NO.C/287/RG/ 1/Service Tax
Dated-28.09.2012.
All SMs/Out Agents - N. F. Railway
Sr.DCMs/ DCMs - KIR, LMG, APDJ, RNY, GHY & TSK; ACM- BPB
DRMs- KIR, LMG, APDJ, RNY, & TSK
Sr. ARMs/ARMs/AM - NJP, NBQ, BPB, RPAN, GHY.
General Manager (Commercial) - All Indian Railways,
General Manager (Operation) - All Indian Railways,
CAO/FOIS/ NDLS,
Principal Zonal Training Centre, Alipurduar Jn.
AGM/CCM/COM/ PDA/ FA&CAO/CFTM/CPTM/ CVO/ CCM (PM)/L0/ S&AO/
Sr. EDPM/ Dv. COM (FOIS)/ Dy. CCM(Claims) /Dy.CCM(PM)/PO/Dy.CAO-
T/SCM(CL)/ ACM(OS)/ACM (Claims) /ACM (Court)-Maligaon.
Sub: Levy of Service Tax on Transportation of Goods by Rail.
Please refer to this office circular of even number dated - 27.09.2012
(RG/No.47/12) regarding Levy of Service Tax on Transportation of Goods by
Rail. In Supersession of the above mentioned circular, a new guideline is
issued under authority of Railway Board's letter No.TCR/1078/2011/2 Dated-
28.09.2012 circulated under RC No.29 of 2012 which is enclosed herewith.
You are, therefore, requested initiate necessary step to implement the
directives issued by the Railway Board in the Rates Circular No.29 of 2012
dated-28.09.2012 effective from 01.10.2012.(Repeat lst October,2012)
This may please be treated as most urgent.
DA- as above.
for Chief Commercial Manager/ FM

174
Notification and Circular Pertaining to Transportation Sector

(Authority: No. TCR/1078/2011/2 Dated-28.09.2012, RC No.29 of 2012)


Rate Circular No. 29 of 2012

GOVERNMENT OF INDIA (BHARAT SARKAR)


MINISTRY OF RAILWAYS (RAIL MANTRALAYA)
(RAILWAY BOARD)

No- TCR/1078/2011/2
New Delhi, 28.09.2012
The General Managers,
All Indian Railways,
Sub : Levy of Service Tax on Transportation of Goods by Rail
Ref : Ministry of Finance Gazette Notification No I of 2006 dated I* March
2006 followed by Gazette Notification No.
(i) 20 of 2006 dated 25th April 2006;
(ii) 28 & 29 of 2009 dated 31st August 2009
(iii) 33 & 34 of 2009 dated 1st September 2009:
(iv) 8 & 9 of 2010 dated 27th February 2010
(v) 20,21 & 22 of 2010 dated 30th March 2010;
(vi) 33,34 & 35 of 2010 dated 22nd June 2010;
(vii) 56 of 2010 dated 21st December 2010
(viii) 20 of 2011 dated 30th March 2011; and
(ix) 38,39 & 40 of 2011 dated 14th June 2011;
(x) 7,8 & 9 of 2012 dated 17th March 2012;
(xi) 25 of 2012 dated 20th June 2012; and
(xii) 43 of 2012 dated 2nd July 2012.

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General: As per the Finance Bill 2010 and subsequent Gazette notification
No. 43 of 2012 on the subject, "Service Tax on service provided in relation to
transport of goods by rail ' will come into effect from 01 10.2012. "
In supersession of Rates Circular No.27 of 2012, the following guidelines are
issued for levy of Service Tax on Transportation of goods by Rail.
In compliance of the provisions contained in Finance Bill, 2010 and
subsequent notifications issued by Finance Ministry as referred to above,
following instructions are issued.
1.Certain commodities have been exempted from payment of service tax as
per Ministry of Finance notification No. 25 of 2012 dated 20* June 2012. List
of commodities, which have been exempted from levy of Service Tax, is
enclosed as Annexure-l.
2.As on date Service Tax is levied at the following rates.
Service Tax 12%.
Education Cess of 2% on Service Tax,
Higher Education Cess of 1% on Service Tax.
3. Since an abatement of 70% has been permitted on freight for the taxable
commodities, vide Notification No. 26 of 2012 Service Tax dated 20.06.2012;
Service Tax will be charged on 30% of tot=J freight inclusive of all charges
on goods which should be calculated as follows
(i) Service Tax of 12% will be charged on 30% of freight (equivalent to
3.6% on the total freight);
(ii) Education Cess of 2% on Service Tax will be added (equivalent to
0.072% on total freight); and
(iii) Higher Education Cess of 1% on Service Tax will also be added
(equivalent to 0,036% on total freight);
(iv) Total Service Tax implication will be (») + (ii) + (iii) = 3.708% on the
total freight

176
Notification and Circular Pertaining to Transportation Sector

Illustration -A
(In ` )
Distance Kms 650
Wagon BCNA
CC of Wagon Tonne 66
Rake Length 42
Commodity Cement
Class T/L 150

1 Freight per tonne ` 738.60


2 Busy season surcharge @ 10% = Rs 73.86
(1*10%)
3 Normal Tariff Rate (NTR) = (1+2) 812.46
4 Less Freight rebate for traditional empty 162.49
flow direction @ 20% on NTR= (3*20%)
5 Freight per tonne for traditional empty 649.97
flow direction@ 20% on NTR
6 Development Charge @ 5% = (3.5%) 40.62
7 $Terminal Charge @40.00 per tonne per 80.00
terminal (applicable only in Railway
owned Goods Sheds/Sidings)
8 Total Freight = (3+6+7) 933.08
9 Total Freight per rake =(8*42*66) 2586497.76
10 Freight per tonne after concessions = 770.59
(5+6+7)
11 Freight per rake after concessions= 2136076.00
(10*42*66)
12 30% taxable freight of the total value 640823.00
13 Add Service Tax @12% on 30% Freight 76899.00
(12*12%)
14 Add Education Cess 2% of Service Tax 1538.00
(13*2%)
15 Add Higher Education Cess @ 1 % of 769.00
Service Tax (13 * 1%)

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Technical Guide on Transportation

16 Rounded off Service Tax 79206.00


17 Total Rounded off Freight to be collected 2215282.00
from one rake = (11+16)
Note:- $ Wherever applicable.
Note:- Service tax shall be rounded off to the nearest rupee as per circular
No.ST-53/2/2003 dated 27.3.2003.
lllustration-B:
(In ` )
Distance Kms 650
Wagon BCNA
CC of Wagon Tonne 66
Rake Length 42
Commodity Cement
Class T/L 150

1 Freight per tonne ` 738.60


2 Freight rebate under WIS- @10% on Basic ` 73.86
Freight=(1*10%)
3 Busy season surcharge @ 10% on Base ` 73.86
freight = (1*10%)
4 Normal Tariff Rate (NTR) = (1+3) ` 812.46
5 Normal Tariff Rate (NTR) per ` 2252139.12
Rake=(4*42*66)
6 Development Charge @5% = (4*5%) ` 40.62
7 $Terminal Charge @ 40.00 per tonne per ` 80.00
terminal
(applicable only in Railway owned Goods
Sheds/Sidings)
8 Total Freight = (4+6+7) ` 933.08
9 Total Freight per rake = (8*42*66) ` 2586497.76
10 Freight rebate under WIS scheme = ` 204739.92
(2*42*66)
11 Total Payable Freight per rake = (9-10) ` 2381758.00

178
Notification and Circular Pertaining to Transportation Sector

12 30% taxable freight of the total value 714527.


13 Add Service Tax @12% on 30% Freight ` 85743.00
(12 * 12%)
14 Add Education Cess @2% of Service Tax ` 1715.00
(13 * 2%)
15 Add Higher Education Cess @1% of ` 858.00
Service Tax (13 * 1%)
16 Rounded Off Service Tax ` 88315.00
17 Total Rounded off Freight to be collected ` 2470073.00
from one rake=(11+13+14+15)
Note:- $ Wherever applicable.
Note:- Service tax shall be rounded off to the nearest rupee as per circular
No.ST- 53/2/2003 dated 27.3.2003.
4. To facilitate correct assessment, collection and payment of Service Tax,
following instructions are issued:
(i) FA&CAO of Zonal Railways will get themselves registered online at
the earliest and in any ease within 30 days' time to get a Registration
No. from the concerned Superintendent of Central Excise for proper
accountal and remittance of Service Tax amount.
(ii) Service Tax should be collected at the time of preparation of RR itself.
Similarly, as regards 'To pay' RRs Service Tax should be collected at
the time of delivery of goods from 01.10.2012.
(iii) In case of RRs which are being manually prepared (non-TMS
locations), only the Registration No., Code of service and details of the
Service Tax. Education Cess, Higher Education Cess and Total
Service Tax will be indicated on the R` by Goods Clerks.
(iv) Till such time as changes are made in the TMS software, details
mentioned in sub-para (iii) above will be manually written by the Goods
Cierks m the computerized RRs also which will be generated at IMS
locations.
(v) Meanwhile, CAO/FOIS will make provision for separate accountal of
Service Tax in the TMS software for inclusion of relevant details in
computerized RRs issued from TMS locations. The Computerised RRs
will have separate indication for (a) Service Tax, (b) Education Cess,

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Technical Guide on Transportation

(c) Higher Education Cess, and (d) Total Service Tax. Necessary
changes should be made in the formal of RR for inclusion of following
entries:
Name &
Address of customer.
Registration No. of Service Tax provider i.e. FA&CAO of zonal railway.
Amount of Service Tax.
Type of Service.
Code No. of Service.
Exemption Notification No. 1 of 2006 ST dt. 1.3.2006 is being availed.
(Now it is Notification No 26/2012-ST)
(vi) Till allotment of Registration No., Zonal railways will be required to
mention ^Applied For* against the space provided for Registration No.,
TMS software will also print 'Applied For' in the Computerised RRs till
such time as CAO/FOIS is intimated about their Registration Nos„ by
FA&CAOs of Zonal Railways.
(vii) In case any undercharges or other chargcs arc collected at the
destination station, then service tax at the stipulated percentage
should be collected by the destination railway on such other
components also.
(viii) Service tax as applicable shall be collected along with the Wagon
Registration Fee (WRF) and, separately at the stage of booking the
consignment through RR on the respective amounts. In case of any
refund of either the WRF or freight chargcs, the corresponding Service
Tax shall also be refunded.
(ix) As per Rule 6 of the Service Tax (Determination of Value) Rules 2006,
"the amount realized as demurrage or by any other name whatever
called for the provision of service beyond the period originally
contracted or in any other manner relatable to the provision of service"
is included as part of the taxable service.
Accordingly, the levy of any demurrage and wharfage charges in case
of transportation of goods by Rail shall attract Service Tax at the rate
of 3.708%. Zonal' Railways, FOIS/CRIS are instructed to levy the

180
Notification and Circular Pertaining to Transportation Sector

Service Tax @ 3.708% on the gross amount of the demurrage and


wharfage charges and collect the same from the customers for the
purpose of remitting to Government of india.
(x) It may be ensured that not only railway goods customers but also all
Rail Operators such as Container Train Operators, SFTOs etc- should
pay Service Tax along with haulage charge. Further, where advance
payment facility on or after 01.10.2012 has been permitted they would
be required to pay Service Fax along with haulage charge. Similarly,
element of service tax is leviable where Weight Only' system is in
vogue.
It may be ensured that proper arrangement be made for up-keep of
record from the initial stage itself for subsequent auditing by Service
Tax Authorities, As each location would be audited periodically,
system of correct maintenance of records is pre-requisite for its proper
implementation.
(xi) Instructions may be communicated to the staff at all levels regarding
the relevant provisions of this tax and they may be made conversant
with the various provisions for effective and efficient implementation of
the same.
(xii) On any written request from customers, CCM Office will issue a
monthly consolidated certificate to be signed by an Officer authorized
by CCM and duly countersigned by Dy. CAO/T or officer nominated
thereto, tor each customer giving details of Service Tax collected from
them during the previous month, date-wise and rake-wise with breakup
of (a) Service Tax. (b) Education Cess, (c) Higher Education Cess,
and (d) Total Serv ice Tax. This can be used by the customers for
getting credit of Service Tax from the concerned Superintendent of
Central Excise as due to them.
(xiii) Each station/siding collecting the service tax shall submit a statement
showing customer wise details of service tax collected from them
during the previous month date-wise and rake-wise with breakup of
service lax. education cess, and higher education cess along with the
station balance sheet.
5. Service Tax will be levied on the total freight as reflected in RR.
6. Please ensure that various documents such as Service Tax notification

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Technical Guide on Transportation

etc. are obtained and all concerned made well conversant with the same.
Provisions pertaining to Service Tax are available in Finance Act, 1994 and
Service Tax Rules, 1994 as amended subsequently from time to time. Some
of the relevant notifications are Notification No. 1 of 2006 - Service Tax dated
01.03.2006, Notification No. 25 of 2012 - Service lax and Notification No. 26
of 2012 - Service Tax dated 20.06.2012 issued in this regard, can be
downloaded from the official website www.servicetax.gov,in,
7. Instructions regarding Registration No., head of allocation, accounting
procedure, system of making payment etc..have already been issued by the
Accounts Directorate vide Rly. Board letter No.2010/AC 11/1/3 dated
29.06.2012.
8. Any modification in the policy made by Ministry of Finance from time to
time will become applicable ancUvill be notified accordingly.
9. These instructions will come into force w.e.f. 01.10.2012.
This issues in consultation with Finance Directorate of Ministry of Railways.
D.A / As above.
(Sattjay Kumar Jha)
Dy. Director, Traffic Commercial (Rates)
Railway Board
No: TCR/1078/2011/2

182
Notification and Circular Pertaining to Transportation Sector

New Delhi, 28.09.2012


Copy for information: -
1. FA & CAOs, All Indian Railways.
2. Deputy Comptroller and Auditor Genera! of India (Railways), New Delhi.

For Financial Commissioner (Railways)


No: TCR/1078/2011/2
New Delhi, 28.09.2012
***********
[C]
Trade Notice on Transport of Goods by Road: Mumbai Commissionerate

Trade Notice - Service Tax


Service Tax levy on goods transport by road services - Reg.
OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE
MADURAI-625 002.
Trade Notice No. 45/2008
Date : 11.09.2008.
Service Tax No. 18 /2008
Sub:- Service Tax levy on goods transport by road services - Reg.
The All India Motor Transport Congress (AIMTC) has represented to
government regarding the difficulties being faced by the goods transport
agency in respect of service tax levy on goods transport by road service. In
this regard, a number of meetings were held between the representatives of
AIMTC with the government and a joint statement by the government and
AIMTC, dated 4.7.08, was issued laying down the principles to be followed in
respect of the issues raised by AIMTC.
2. The issues raised by AIMTC and the clarifications with respect to
those issues are given below:

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Technical Guide on Transportation

3. Issue: GTA provides service to a person in relation to transportation of


goods by road in a goods carriage. The service provided is a single
composite service which may include various intermediary and ancillary
services such as loading/unloading, packing/unpacking, transshipment,
temporary warehousing. For the service provided, GTA issues a consignment
note and the invoice issued by the GTA for providing the said service
includes the value of intermediary and ancillary services. In such a case,
whether the intermediary or ancillary activities is to be treated as part of GTA
service and the abatement should be extended to the charges for such
intermediary or ancillary service?
Clarification: GTA provides a service in relation to transportation of goods
by road which is a single composite service. GTA also issues consignment
note. The composite service may include various intermediate and ancillary
services provided in relation to the principal service of the road transport of
goods. Such intermediate and ancillary services may include services like
loading/unloading, packing/unpacking, transshipment, temporary
warehousing etc., which are provided in the course of transportation by road.
These services are not provided as independent activities but are the means
for successful provision of the principal service, namely, the transportation of
goods by road. The contention that a single composite service should not be
broken into its components and classified as separate services is a well-
accepted principle of classification. As clarified earlier vide F.No. 334/4/2006-
TRU dated 28.2.2006 (para 3.2 and 3.3) and F. No. 334.1/2008-TRU dated
29.2.2008 (para 3.2 and 3.3), a composite service, even if it consists of more
than one service, should be treated as a single service based on the main or
principal service and accordingly classified. While taking a view, both the
form and substance of the transaction are to be taken into account. The
guiding principle is to identify the essential features of the transaction. The
method of invoicing does not alter the single composite nature of the service
and classification in such cases are based on essential character by applying
the principle of classification enumerated in section 65A. Thus, if any
ancillary/intermediate service is provided in relation to transportation of
goods, and the charges, if any, for such services are included in the invoice
issued by the GTA, and not by any other person, such service would form
part of GTA service and, therefore, the abatement of 75% would be available
on it.
4. Issue 2: GTA providing service in relation to transportation of goods

184
Notification and Circular Pertaining to Transportation Sector

by road in a goods carriage also undertakes packing as an integral part of


the service provided. It may be clarified whether in such cases service
provided is to be classified under GTA service.
Clarification: Cargo handling service [Section 65 (105) (zr)] means loading,
unloading, packing or unpacking of cargo and includes the service of packing
together with transportation of cargo with or without loading, unloading and
unpacking. Transportation is not the essential character of cargo handling
service but only incidental to the cargo handling service. Where service is
provided by a person who is registered as GTA service provider and issues
consignment note for transportation of goods by road in a goods carriage and
the amount charged for the service provided is inclusive of packing, then the
service shall be treated as GTA service and not cargo handling service.
5. Issue 3: Whether time sensitive transportation of goods by road in a
goods carriage by a GTA shall be classified under courier service and not
GTA service.
Clarification: On this issue, it is clarified that so long as, (a) the entire
transportation of goods is by road; and (b) the person transporting the goods
issues a consignment note, it would be classified as 'GTA Service'.
6. This may be brought to the notice of all constituent members of your
trade associations.
(Authority: Board's Circular No.104/07/2008-ST dated 06.08.2008 issued
from file F.No.137/175/2007-CX.4)
(Issued from File C.No:IV/16/06/2008-STU PF-II)

Sd/-
(A.S.MEENALOCHANI)
DEPUTY COMMISSIONER

185
Chapter 8
Head Notes – Judgements
Credit of GTA till the place of provision of service
1. Sundaram Industries Ltd. Versus Commissioner of Central
Excise, Tiruchirapalli 2013 (11) TMI 1506 – (Tri- Chennai)
Facts:The appellant herein is engaged in the business of re-treading of
tyres. With some clients, they had agreements to go to the site of the service
receiver, take the defective tyres, bring it to their premises, re-tread it and
take it back to the place of service receiver and to fix the tyres on the
vehicles. In such cases, the value of services charged was inclusive of the
value of transportation of the tyres from the premises of the service receiver
to the applicant’s premises and back. Service tax was paid on such value.
The appellant also paid service tax on the transportation of goods as receiver
of the service under reverse charge mechanism and took CENVAT credit of
such tax paid and utilized such CENVAT credit while discharging tax liability
on re-treading of tyres.
Question: Whether the credit of service tax paid under GTA which is its input
service be eligible?

Findings and Conclusion


Transportation service is a necessary input service for providing re-treading
service because without bringing the goods to his place of repair, the
appellant could not have done repair and after repair the appellant had to
take the tyres back and install the tyres on the vehicles to complete the
service as per the terms of contract between the appellant and the
concerned parties. He further submits that he has paid service tax on the
value of services inclusive of cost of transportation and therefore there is no
reason to deny CENVAT credit on such service. He points out that Revenue
is relying on the argument that w.e.f. 1-04-08, rule 2(l) of CENVAT Credit
Rules, 2004 was amended to make it clear that input services will include
only transportation of goods ‘upto the place of removal’. His submission is
that such argument can apply only in respect of excisable goods
manufactured and sold from ‘place of removal’. Appellant is not a
Head Notes – Judgements

manufacturer of excisable goods but a provider of output service. For


providing output service, there is no concept of ‘place of removal’ and
therefore the criteria with reference to place of removal cannot be accepted.
[para 3]
Any test with reference to ‘place of removal’ cannot be applied in the case of
output service because said expression is defined in Central Excise Act and
has relevance for the purpose of paying excise duty. In the case of services
which are intangible, place of removal cannot be determined easily and the
expression ‘place of removal’ defined in Central Excise Act for determining
excise duty payable cannot apply. [para 6]

Abatement: Reversal of Credit amounts to not taking


credit
2. Sachdeva Roadlines v. CST (New Delhi) [2014] 48 taxmann.com
211
Facts:
Assessee, a goods transport agency, took abatement of 75 Per cent from
gross amount charge for payment of service tax. While assessee did not take
credit of duty paid on inputs/capital goods, assessee claimed input service
credit. The assessee has reversed the CENVAT credit of input services along
with interest. However, it was contended by the department that that since
input service credit had been availed, assessee was ineligible for abatement.
Question:
Whether credit availed and reversed subsequently amounts to non availment
of credit and abatement can be allowed?
Held:
 The abatement can be allowed relying on undermentioned
judgements.
 When an exemption notification is subject to non-availment of modvat
credit of inputs and initially modvat credit in respect of inputs had been
taken, the benefit of exemption is to be granted when reversal of credit
on inputs was done at the stage of filing of the appeal before the
Tribunal and even when the CENVAT credit initially taken was
reversed subsequent to the clearance of the final products, the benefit

187
Technical Guide on Transportation

of exemption notification which was subject to non-availment of Cevnat


credit cannot be denied. [Hello Minerals Water (P.) Ltd.v. Union of
India2004 (174) ELT 422 (All.)]
 When CENVAT credit was initially taken, but subsequently reversed, it
would amount to not availing the CENVAT credit and in such a
situation, the benefit of the exemption cannot be denied. [Chandrapur
Magnet Wires (P.) Ltd. v. CCE1996 (8) ELT 3 (SC)]

In case of export of goods, the ‘port’ will be considered


as place of removal
3. Central Excise Versus Inductotherm India P Ltd 2014 (3) TMI 921=
(2014) 44 GST 201 (Guj HC)
Facts:
Assessee availed the services of cargo handling services for export of goods
manufactured by it. The said credit has been denied by the department on
the ground that credit could be availed only upto place of removal, port of
shipment cannot be regarded as place of removal
Question:
Can the CENVAT credit be availed post removal from factory utilized for
export goods by a manufacturer?
Held:
When manufacturer transports his finished goods from factory to any other
place such as, go-down, warehouse, etc. from where it would be ultimately
removed, such service is covered in expression "outward transportation upto
place of removal" since such place other than factory gate would be place of
removal. Taking this analogy further, in case services are availed essentially
for purpose of exporting goods, then, place of removal shall have to be
essentially ' port' from where goods are actually taken out of country and,
accordingly, said services (including transportation of finished goods upto
such place of removal being port) would be input service - Therefore, in case
of export of final product, place of removal would be port of shipment and not
factory gate and therefore, manufacturer would be entitled to credit of input
services availed upto such ' port of shipment'.
Also followed in Padmashri Dr DyPatil SSK Ltd v. CCE (2014) 12 TMI 549

188
Head Notes – Judgements

Declaration from GTO regarding non availment of


CENVAT credit for taking abatement.
4. Santosh Steel Industries v. CCE, [2013] 35 taxmann.com 268
(Ahmedabad - Tri)
Facts:
Assessee, a recipient of goods transport services, availed benefit of 75 per
cent abatement under Notification No. 32/2004-ST (Now Notification No
26/2012-ST). Revenue denied said benefit on ground that, in consignment
notes, there was no declaration by transporter as to non-availment of
CENVAT credit and non-availment of benefit under Notification No. 12/2003
ST.
Question:
Can the benefit of abatement be available to the service recipient?
Held:
In view of judgment in CST v. Cadila Pharmaceuticals Ltd. [2012] 28
taxmann.com 38 (Guj.), there was no requirement of any declaration on
consignment notes from transporters. But, where not even a general
declaration was received from transporters, assessee was liable to pay
service tax along with interest without availing any benefit of abatement.
Also held in CCE v. Alkem Laboratories Ltd[2013] 30 taxmann.com 185
(Kolkata - Tri), CCE v. Neral Paper Mills (P.) Ltd[2009] 22 STT 330 (AHD.
- Tri), Emami Ltd. v. CCE [2012] 24 taxmann.com 246 (Ahd. - Tri),

About the conditions regarding non availment of


CENVAT credit by GTO.
5. Ahluwalia Contracts (I) Ltd v. CST [2013] 30 taxmann.com 241
(New Delhi - Tri)
Facts:
Assessee, a recipient of goods transport services, availed benefit of 75 per
cent abatement under Notification No. 32/2004-ST (Now Notification No
26/2012-ST). Assessee placed all the documents before the authority.
Revenue denied said benefit.

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Technical Guide on Transportation

Question:
Can the benefit of abatement be available to the service recipient?
Held:
By placing documents indicating transport of goods under appropriate
consignment note, assessee had discharged its burden of proof. It was duty
of transporters to satisfy conditions of law while issuing consignment note.
Revenue should find out from transporters whether there was any deviation
to fulfilment of condition prescribed in notification. Since such verification
was not done, abatement cannot be denied to assessee-recipient.

About the conditions regarding non availment of


CENVAT credit by GTO.
6. Sandoz (P.) Ltd v. CCE [2012] 24 taxmann.com 258 (Mum. - Tri)
Facts:
Assessee, a recipient of goods transport services, availed benefit of 75 per
cent abatement under Notification No. 32/2004-ST (Now Notification No
26/2012-ST). There was no endorsement on transport document that
transporter had not availed CENVAT Credit of inputs/input services, which
was a condition of availment of abatement.
Question:
Can the benefit of abatement be available to the service recipient?
Held:
Although there was no endorsement that transport had not availed CENVAT
Credit, however, it was implied that when transporter had not paid any
service tax question of availment of CENVAT Credit by him didn’t arise -
Abatement was available to assessee.
7. NandganjSihori Sugar Co. v. CCE, Lucknow[2014] 47
taxmann.com 92 (Tri - New Delhi)
Facts:
Assessee was engaged in manufacture and sale of Sugar and Molasses,
chargeable to Central Excise Duty.During the period of dispute, assessee
was required to pay a price fixed by the Government of Uttar Pradesh to the
farmers for purchase of sugarcane and the price was for delivery of

190
Head Notes – Judgements

sugarcane by the farmers at the sugar mills. Assessee's sugar mills had set
up cane collection centers where the farmers could deliver the sugarcane by
making their own arrangement. The transportation of sugarcane from various
cane centers to the sugar mills, was arranged by the assessee by arranging
the transport and the charges for the same at an average rate were deducted
from the price for sugarcane paid to the farmers.The transporters engaged
by the assessee's were individual truck owners who charged for
transportation of the sugarcane from the sugarcane collection centers to the
respective sugar mills by presenting fortnightly bill and as such no
consignment notes were issued.
Question:
Whether service tax is required to be paid under Goods Transport Agency?
Held:
Mere transportation of the goods in a Motor Vehicle is not the service
provided by a Goods Transport Agency. A Goods Transport Agency in term
of its definition under section 65(50b) provides service in relation to
transportation of goods under a consignment note which should have the
particulars as prescribed in explanation to rule 4B.
In the present case, admittedly, no consignment notes have been issued.
The fortnightly bills cannot be treated as consignment notes, as a
consignment note issued by Goods Transport Agency represent its liability to
transport the consignment handed over to it to the destination and deliver the
same to the consignee and merely a bill issued for transportation of goods
cannot be treated as Consignment Note.
The transportation of goods by individual truck owners without issue of
consignment note, GR's &billties etc. as prescribed in rule 4B of the Service
Tax Rules, would be simple transportation and not the service of Goods
Transport Agency which involves not only undertaking the transportation of
the goods handed over to it but also undertaking delivery of the goods to the
consignee and also temporary storage of the goods till delivery. When the
transports did not issue consignment notes or G` or Challans or any
documents containing the particular as prescribed in Explanation to rule 4B
of the Service Tax Rules, 1994, the Transporters cannot be called 'Goods
Transport Agency' and, hence, in these cases, the service of transportation
of sugarcane provided by the transporters would not be covered by section
65(105)(zzp).

191
Technical Guide on Transportation

Hence, there will be no service tax liability on the assessee sugarcane mills,
as they have not received the service from a Goods Transport Agency.
This principle has also been followed in KisanSahkariChinni Mills Ltd. vs.
CCE, Lucknow [2014] 47 taxmann.com 98 (New Delhi – Tri); Bazpur Co-
operative Sugar Factory Ltd v. CCE [2012] 23 taxmann.com 428 (New Delhi -
Tri);
Where the service tax has been paid by service provider, it cannot again
be claimed from service provider
8. Umasons Auto Compo (P.) Ltd.v. CCE, Aurangabad[2014] 42
taxmann.com 347 (Mumbai - Tri)
Head Notes
Section 68, read with section 65(50b), of the Finance Act, 1994 read with
rule 2(1)(d)(v) of the Service Tax Rules, 1994 - Payment - Reverse
charge/Partial reverse charge under Service Tax - Department demand
service tax from assessee, a recipient of Goods Transport Agency's (GTA)
service, under reverse charge - Assessee-recipient argued that it had paid
service tax to service provider and such service provider has paid such
service tax to revenue and, therefore, demand from assessee was duplicate -
Department argued that as per provisions of Finance Act, recipient is liable to
pay service tax in respect of GTA service and if same has been paid by
service provider, he can seek refund of amount - HELD : There was no
dispute regarding payment of service tax by provider of GTA service - Once
amount of service tax is accepted by revenue from provider of GTA service, it
cannot be again demanded from recipient of GTA service - Hence, demand
was set aside [Para 5] [In favour of assessee].
Authors Comment
With due respect to the principle contained in the above pronouncement, the
law states that tax is required to be the recipient of service. The liability to
pay tax cannot be shifted from one person to another.
If consignor of goods is a company/factory under Factories Act, then, as per
Rule 2(1)(d)(v) of Service Tax Rules, 1994, irrespective of status of
consignee, person liable to pay service tax is person liable to pay freight and,
therefore, no service tax can be demanded from Goods Transport Agency.

192
Head Notes – Judgements

9. Essar Logistics Ltd.v. CCE, Surat[2014] 48 taxmann.com 73


(Ahmedabad -Tri)
Facts:
Assessee was providing Goods Transport Agency's Services. Assessee
undertook transportation of final products of Essar Oil Ltd. (a factory and a
company) from their refinery to their franchisees and other depots - Freight in
said cases was charged from consignee on basis of lorry receipts - Service
tax thereon was neither paid by Essar Oil Ltd., nor by assessee. Department
argued that assessee was liable to pay service tax thereon because if
consignee is covered under entity as provided under rule 2(1)(d)(v) and
consignor does not pay freight, assessee being provider of GTA services is
liable to discharge service tax.
Question:
Can the service tax be demanded from Goods Transport Operator?
Held:
As per Rule 2(1)(d)(v), if consignor or consignee is one of specified entities,
person liable to pay service tax would be person liable to pay freight - Since
consignor Essar Oil was a factory as per Factories Act and a company under
Companies Act, GTA service provider i.e., assessee was not liable to service
tax.
Service tax liability when transportation has been done through bullock
cart,
10. KisanSahkariChini Mills Ltd. v. CCE [2012] 25 taxmann.com194
(New Delhi - Tri)
Facts:
The assessee, a sugar mill, was buying sugar cane from farmers.The
farmers were liable to deliver sugar cane at assessee's factory. Under the
arrangement ,the farmers were delivering sugarcane at collection centres.
The assessee was collecting sugar cane from collection centres and bringing
the same to its factory via Trucks, Bullock Carts, and Tractors and was
paying cost of such transport ;andsince it was obligation of the farmers to
deliver sugar cane at factory, respective transport cost from collection centre
to factory was deducted from their bill and balance only was paid by
assessee to the farmers.

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Technical Guide on Transportation

Question:
Whether assessee had availed goods transport agency's services so as to be
liable to pay service tax as recipient of service ?
Held:
For levy of service tax under goods transport agency's services, there must
be consignor-consignee relationship, transport must be by road and, further,
consignment note should contain registration number of goods carriage -
Bullock carts, having no registration number, cannot be subjected to levy at
all - Further, in view of Exemption Notification and Budget Speech 2004-05,
there is no intention to levy service tax on small transporters.

Exemption upto freight of ` 750/- or 1500/- is available to


service recipient also.
11. Upper Doab Sugar Mills. v. CCE [2012] 21 taxmann.com 292 (New
Delhi - Tri)
Question:
Whether the benefit of exemption of freight upto ` 750/- or ` 1500/- as the
case may be is available to service recipient?
Held:
The exemption makes no mention of the person paying tax. So the
exemption should be available to service provided by goods transport agency
even in situation where the recipient is paying the tax. (para 1)
The Notification No. 34/2004-S.T., dated 3-12-2004 (Now Sr No 21(b) and
21(c) of Notification No 25/2012-ST) has not intended to give exemption with
reference to the person paying tax. We do appreciate that the
expression ‘mutatis mutandis’ is not appearing in the notification. But spirit of
the notification is to be understood keeping in view the social philosophy
attached to the notification. Prescription of the small value limit to the
transport cost indicates that Government did not intend to tax the activity
carried out by small transport agencies. This philosophy which is judicially
recognised in various Apex Court’s judgments is appreciated also by the
Larger Bench of Tribunal in the case of BSBK - 2010-TIOL-646-CESTAT
(Del.-LB) = 2010 (18) S.T.R. 555 (Tribunal-LB) = 2010 (253) E.L.T. 522
(Tribunal-LB). We are not inclined to deny such a benefit to activities carried
out by small transporters. (para 5)

194
Head Notes – Judgements

Service tax on excess passenger baggage received by


airlines.
12. Jetlite (India) Ltd v. CST [2011] 15 taxmann.com 260 (New Delhi -
Tri)
Facts:
The assessee, an aircraft operator, received excess baggage charges from
passengers for carrying baggages beyond certain permissible limit. Revenue
demanded service tax from the assessee for above charges received under
category of transport of goods by aircraft service. In the instant stay
application, the assessee submitted that essential character of aircraft
service being carrying passengers, the taxation done by the adjudication
order was not proper.
Question:
Whether the activity is taxable?
Held:
As per statutory provision under section 65(105)(zzn) of the Finance Act,
1994 taxable service means any service provided or to be provided - (zzn) to
any person, by aircraft operator, in relation to transport of goods by aircraft.
The definition of the term "aircraft" appears in Section 65(3A) of the said Act.
Passenger aircraft is not excluded. The meaning of the "goods" is assigned
from the term "sale" used in Sale of Goods Act, 1930. Such adoption is made
in terms of Section 65(50) of the Finance Act, 1994. We do appreciate at this
stage that the goods are tangible as defined by the above Act and carried by
aircraft for consideration. Once goods are carried in air by an aircraft by
whatever means that may be, that does not make any difference to law.
When we read Section 65(105)(zzn) that clearly throws light that taxable
service provided to any person, by air craft operator, in relation to transport
of goods by aircraft is covered by the scope of the law.
In this case, the appellants are directed to make pre deposit during the
course of pendency of appeal.

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Technical Guide on Transportation

Service tax on transportation of goods from mother


vessel to jetty
13. United Shippers Ltd. V. CCE2014 (12) TMI 502 (Mumbai - Tri)
Head Notes:
Classification of services - cargo handling service for import of goods -
transportation by barges from the mother vessel to the jetty onshore - Held
that:- when the goods are being transported by the barges from the mother
vessel to the jetty onshore, that activity is part of the import transaction of
bringing the goods into India from a place outside India. The question of
rendering any service in respect of such goods by way of cargo handling or
otherwise can take place only after the customs transaction is completed.
Therefore, the question of levying to service tax the transportation by barges
from the mother vessel to the jetty onshore, would not arise at all since the
said activity is part of the import transaction leviable to import duty and we
hold accordingly.
This is also evident from the fact that section 14 of the Customs Act, 1962
relating to determination of value of import goods for the purposes of levy of
customs duty and the Customs Valuation Rules, 2007 (CVR in short) were
amended to specifically include barge charges and handling charges in the
transaction value of the imported goods vide Finance Act, 2007 to overcome
the adverse decision in the case of Ispat Industries (2006 (9) TMI 181 -
SUPREME COURT OF INDIA). Section 14 was substituted "to specifically
provide that transaction value of imported goods shall include, in addition to
the price, any amount paid or payable for costs and services, including
commissions, cost of transportation to the place of importation, insurance,
unloading and handling charges to the extent and in the manner specified in
the rules made in this regard".
If the bills raised for the services rendered indicates the amount charged for
cargo handling and transportation separately on actual basis, then the tax
would be leviable only on the cargo handling charges. The contracts entered
into with the customers show separately the charges towards shipping
charges of cargo from Mother Vessel to Dharamtar jetty. Therefore, there is
no merit in the contention that transportation charges should be included in
the value of taxable services in respect of cargo handling service.

196
Chapter 9
Practical Illustration for
Transportation Sector
1. X Ltd hires a goods transport agency for carrying biscuits and pays `
10000/- to Goods transport agency.
Ans: Sr No 21(e) of Notification No 25/2012-ST grants exemption for
services provided by a goods transport agency, by way of transport in a
goods carriage of foodstuff including flours, tea, coffee, jaggery, sugar, milk
products, salt and edible oil, excluding alcoholic beverages. Thus, biscuit is a
food stuff, hence, service tax will be exempt. However, in the service tax
return, it is required to be shown as exempt service.
2. X Ltd hires a goods transport agency for carrying sprite and pays `
10000/- to Goods transport agency.
Ans: Sr No 21(e) of Notification No 25/2012-ST grants exemption for
services provided by a goods transport agency, by way of transport in a
goods carriage of foodstuff including flours, tea, coffee, jaggery, sugar, milk
products, salt and edible oil, excluding alcoholic beverages. Thus, sprite is a
food stuff and not an alchohol, hence, service tax will be exempt. However,
in the service tax return, it is required to be shown as exempt service.
3. X Ltd hires a goods transport agency for carrying wine and pays `
10000/- to Goods transport agency.
Ans: Sr No 21(e) of Notification No 25/2012-ST grants exemption for
services provided by a goods transport agency, by way of transport in a
goods carriage of foodstuff including flours, tea, coffee, jaggery, sugar, milk
products, salt and edible oil, excluding alcoholic beverages. Thus, wine is an
alchoholic beverage, hence, service tax will have to be payable.
4. X Ltd is an exporter, hires the services of Goods Transport Agency for
carrying goods from his factory to port. Is service tax payable on the said
service.
Ans: The service tax is required to be paid on the said service. However,
later on its refund can be claimed by following the procedure contained in
Notification No 41/2012-ST.
Technical Guide on Transportation

5. Container Corporation of India limited has received towards


transportation of food stuff ` 2 crore, for defence and military equipment ` 1
crore and for other goods ` 30 crore (hypothetical illustration). It has
received total CENVAT credit of ` 30 lakhs on eligible inputs and input
services. How much CENVAT reversal it will have to make?
Ans: Since the entity is engaged in transporation of goods by Railway,
therefore, it is eligible for abatement of 70%. However, the abatement is
available without any condition. At the same time, the company is engaged in
providing exempted service as well as taxable service. Transportation of food
stuff and defence material in rail is exempted from levy of service tax. Thus,
total value of exempted service becomes ` 3 crore (2 Crore for transportation
of food stuff and 1 crore for transportation of defence material) and value of
taxable service is ` 30 crore. As per Rule 6(3) of CENVAT Credit Rules,
2004, if the separate accounts for taxable and exempted services are not
maintained, in such case,
o Either pay 2% on the value of exempted service (i.e., 0.06 crore which
equals ` 600000); or
o Proportionate reversal is required to be made as per Rule 6(3A) of
CENVAT Credit Rules, 2004 (30 lakhs x 3 crore / 33 crore) = 272727/-.
Since only one option can be selected and that cannot be changed in
remaining part of the year, the option is required to be selected carefully.
6. Air India received goods to be delivered from Kerala to Kashmir. Is it
taxable?
Ans: As per Rule 10 of place of provision Rules, the place of provision for
transportation of goods other than mail and courier is the destination of
goods. The place of provision of service in this case is destination of goods
which is Kashmir to which provision of Finance Act, 1994 do not apply,
hence, not taxable.
7. Air India received goods to be delivered from Kerala to Kashmir. It also
avails the CENVAT credit for providing services. It does not maintain
separate account for provision of taxable goods and exempted services. Is it
required to follow the procedure prescribed under Rule 6(3) of CENVAT
Credit Rules, 2004?
Ans: The provisions relating to service tax are contained in Chapter V of
Finance Act, 1994.

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Practical Illustration for Transportation Sector

The provisions of the Chapter V of Finance Act, 1994 extends to the whole of
India except Jammu and Kashmir. [Section 64(1)]
As per section 66B, ‘There shall be levied a tax (hereinafter referred to as the
service tax) at the rate of twelve per cent. on the value of all services, other
than those services specified in the negative list, provided or agreed to be
provided in the taxable territory by one person to another and collected in
such manner as may be prescribed.’ [Section 66B]
The definition of exempted service, inter alia states that it is a service, on
which no service tax is leviable under section 66B of the Finance Act. Thus,
when services are provided in Kashmir, no service tax is payable thereon as
per section 66B of the Finance Act, 1994. Thus, it an exempted service.
Hence, Rule 6(3) of CENVAT Credit Rules, 2004 is required to be followed.
8. X Airlines Limited received goods to be delivered as under:
(a) ` 10 lakhs for delivering goods from Kashmir to Kerala;
(b) ` 15 lakhs for goods to be delivered from Pune to Japan;
(c) ` 20 lakhs for goods to be delivered from Japan to Canada,
consideration received in convertible foreign exchange.
(d) ` 25 lakhs for goods from Kashmir to Kanyakumari
(e) ` 20 lakhs from Mumbai to Nepal, consideration in Indian Rupees.
(f) ` 5 lakhs from Mumbai to Nepal, consideration in convertible foreign
exchange.
Total CENVAT credit on eligible input and input services is ` 30 lakhs. How
much CENVAT credit is required to be reversed as at the end of the year
presuming X Airlines opts for proportionate reversal as per Rule 6(3A) of
CENVAT Credit Rules, 2004.
Ans: The taxable service would include
 ` 10 lakhs for delivering goods from Kashmir to Kerala;
 ` 25 lakhs for goods from Kashmir to Kanyakumari
Exempt Service
 ` 15 lakhs for goods to be delivered from Pune to Japan;
 ` 20 lakhs from Mumbai to Nepal, consideration in Indian Rupees.

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Technical Guide on Transportation

Export Service
 ` 20 lakhs for goods to be delivered from Japan to Canada,
consideration received in convertible foreign exchange.
 ` 5 lakhs from Mumbai to Nepal, consideration in convertible foreign
exchange.
 Total amount received for taxable service is ` 35 lakhs, for exempted
service is ` 35 lakhs and for Export service ` 25 lakhs.
 The amount that is required to be reversed as per Rule 6(3A) of
CENVAT Credit Rules, 2004 is ` 11.05 lakhs. [30 lakhs x (35 lakhs) /
(35 lakhs + 25 lakhs + 35 lakhs)]
9. X Ltd is located in India. It is availing services of UPS courier, to
deliver goods from Russia to Canada, the payment is made by them in
foreign currency. Is this transaction taxable in India?
Ans: In this case, the place of provision of service is the recipient of service
as per Rule 3 of place of provision of service Rules, 2012.
As per Explanation 3 to section 65B(44), ‘an establishment of a person in the
taxable territory and any of his other establishment in a non-taxable territory
shall be treated as establishments of distinct persons’
Thus, the following situations emerge:
 If X Ltd has also establishment, say branch outside India and the
services are received by its establishment outside India, then as per Sr
No 34(c) of Notification No 25/2012-ST, Services received from
a provider of service located in a non- taxable territory by a person
located in a non-taxable territory is exempt.
 If X Ltd does not have an establishment outside India, then the
services are received by X Ltd forthe purpose of business in India, in
such case, as a recipient of service, service tax is required to be paid.
10. X Ltd is located in India. It is availing services of UPS courier, to
deliver goods from Russia to India, the payment is made by them in foreign
currency by X Ltd. Is this transaction taxable in India?
Ans: In this case, the place of provision of service is the recipient of service
as per Rule 3 of place of provision of service Rules, 2012.
As per Rule 2(1)(d)(G) of Service Tax Rules, 1994, ‘“person liable for

200
Practical Illustration for Transportation Sector

paying service tax” in relation to any taxable service provided or agreed to


be provided by any person which is located in a non-taxable territory and
received by any person located in the taxable territory, the recipient of such
service.
In this case, the service provider is located in a non-taxable territory and
service recipient is located in taxable territory, hence, X Ltd is required to pay
service tax as a service recipient.
11. Y Ltd is located in Japan. It is availing services of UPS courier, to
deliver goods from Russia to India, the payment is made by them in foreign
currency by Y Ltd. Is this transaction taxable in India?
Ans: As per Sr No 34(c) of Notification No 25/2012-ST, Services received
from a provider of service located in a non- taxable territory by a person
located in a non-taxable territory is exempt. Thus, this transaction is not
taxable in India.
12. Y Ltd is into the business of transportation of goods by Road. X Ltd
received services of Y Ltd for which the goods are to be delivered from A
place to B Place. The consignment note is of ` 700/- for Material P, ` 500 for
Material Q and ` 600 for material R on a particular trip. Is service tax
required to be paid.
Ans: As per Sr No 21(c) of Notification No 25/2012-ST, ‘services provided by
a goods transport agency, by way of transport in a goods carriage of goods,
where gross amount charged for transportation of all such goods for a single
consignee does not exceed rupees seven hundred fifty.
Thus, what is to be seen is transportation of all goods for a single
consignee… in this case, the total amount charged is ` 1800/- which is more
than ` 750/-, hence, the same is taxable.
13. Y Ltd is carrying goods in its vessel from Haldia to Allahabad and
recovers ` 500000/- in a year for providing the services. What is the tax
payable on the same?
Ans: As per section 66D(p)(iii), transportation of goods by inland waterway is
covered in the Negative List. Thus, on the same, service tax is not required
to be paid.
14. Y Ltd is carrying goods in its vessel from Mundra Port to
Vishakhapatnam Port after their importation in India at Mundra Port and

201
Technical Guide on Transportation

recovers ` 500000/- in a year for providing the services. What is the tax
payable on the same?
Ans: As per section 66D(p)(iii), transportation of goods by inland waterway is
covered in the Negative List. However, transportation of goods fromMundra
Port to Vishakhapatnam Port is not through inland water, but it is through
coastal water. Hence, service tax is payable on the same. However,
abatement of 60% is available, provided CENVAT credit of inputs, capital
goods and input services has not been taken.
15. X Ltd has received services of Y Ltd for transportation of goods from
mother vessel to Jetty. Is this transaction taxable?
Ans: As per United Shippers Ltd. V. CCE2014 (12) TMI 502 (Mumbai - Tri),
when the goods are being transported by the barges from the mother vessel
to the jetty onshore, that activity is part of the import transaction of bringing
the goods into India from a place outside India. The question of rendering
any service in respect of such goods can take place only after the customs
transaction is completed. Therefore, the question of levying to service tax the
transportation by barges from the mother vessel to the jetty onshore, would
not arise.

202
Chapter 10
Frequently Asked Questions on
Transportation Sector
After 01.07.2012, service tax is there on all services except the one that are
specified in Negative List and the ones that are exempt by way of exemption
Notification. In the under mentioned write up, Service Tax applicability on
Transportation sector is being discussed.

Transportation of Goods
1. What categories of services relating to transportation of goods
arecovered in the Negative List?
Ans: From 01.07.2012, Government has specified Negative list in service
tax. ‘Negative List’ comprises that list wherein there will not be any tax on the
services specified in that list. Government has specified that list in Section
66D of the Finance Act, 1994. As far as transportation of goods by road is
concerned, the following services provided in relation to transportation of
goods are specified in the negative list of services which are:
 Transportation of goods by road except the services of (i) a goods
transportation agency; or (ii) a courier agency;
 Transportation by aircraft or vessel from a place outside India up to the
customs station of clearance in India; or
 by inland waterways.

Section I: Transportation of goods by Road


2. Whether all the services provided by way of transportation of
goods is taxable?
Ans: No. Only services provided by way of transportation of goods by way of
(a) Goods Transportation Agency and (b) Courier Agency is taxable. Other
services provided by way of transportation of goods is covered in the
Negative List [Section 66D(p) of Finance Act, 1994].
3. What is the meaning of ‘Goods Transportation Agency’?
Technical Guide on Transportation

Ans: "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. [Section 65B(26) of the Finance Act, 1994]
4. There are many organizations who have their own trucks. When
the organization supplies its own goods in the trucks owned by them,
whether such service would be covered under service tax?
Ans: Transportation of goods by road except by way of Goods Transport
Agency and Courier is covered in the negative list. Service tax is on ‘Goods
Transport Agency’ and not on the ‘Goods Transport Operator’. In a simplest
way ‘agent’ means acting on behalf of another. Whenever goods are
purchased by any person which are required to be delivered to the premises
of the customer, then the same can be arranged in under mentioned ways:
(a) Seller or Consignor delivers goods in the truck owned by them: In such
case, there is no ‘agency’ involved; hence, there will not be any
service tax, even if later on Consignor recovers charges for services
provided by it. The word 'agency' in GTA should be construed given
the definition of agent in Section 182 of the Indian Contract Act, 1872,
as per which an 'agent' is a "person employed to do any act for
another or to represent another in dealings with the third persons".
When the aspect of ‘agency’ is absent in case where a truck owner or
operator gives a truck without an agent being go-between, there can
be no tax. [From para 6.6 of CCE& C, Guntur Versus Kanaka Durga
Agro Oil Products Pvt. Ltd. &Anr[2009] 22 STT 435 (BANG. -
CESTAT)]
(b) Buyer agrees to take goods in its truck, in such a case, the buyer
provides services to itself. Thus, no question of service tax arises.
(c) Seller arranges for transport of goods by arranging truck. In such a
case, the truck owner carries the goods from one destination to
another, but it would be on behalf of seller. Thus, truck operator acts
as an agent of seller. In such a situation, there will be service tax as
the services are provided by ‘Goods Transport Agency’
In Para 149 of Budget 2004 of the Union Finance Minister's speech, Hon’
Finance Minister has clarified that there is no intention to levy service tax on
truck owners or truck operators.
Thus, only when element of ‘agency’ is present, there will be service tax on
transport of goods by road services provided by Goods Transport Agency.

204
Frequently Asked Question on Transportation Sector

5. What is the meaning of ‘Consignment Note’ ? What are the


requirements to be complied with while issuing consignment note?
Ans: The provisions regarding issuance of consignment note is contained in
Rule 4B of Service Tax Rules, 1994.
As per Explanation to Rule 4B, ‘consignment note" means a document,
issued by a goods transport agency against the receipt of goods for the
purpose of transport of goods by road in a goods carriage, which is serially
numbered, and contains the name of the consignor and consignee,
registration number of the goods carriage in which the goods are transported,
details of the goods transported, details of the place of origin and destination,
person liable for paying service tax whether consignor, consignee or the
goods transport agency’
The consignment Note shall also contain the details of the consignment note
number and date, gross weight of the consignment. [2nd Proviso to Rule 4A
of Service Tax Rules, 1994]
As per Rule 4B, ‘any goods transport agency which provides service in
relation to transport of goods by road in a goods carriage shall issue a
consignment note to the recipient of service.
It has also been clarified in Rule 4B that where any taxable service in relation
to transport of goods by road in a goods carriage is wholly exempted under
section 93 of the Act, the goods transport agency shall not be required to
issue the consignment note.
6. What are the value based exemptions provided by Central
Government when the services are provided by Goods Transport
Agency?
Ans: Where the services are provided by a goods transport agency, by way
of transport in a goods carriage of,-
(i) goods, where gross amount charged for the transportation of goods on
a consignment transported in a single carriage does not exceed one
thousand five hundred rupees; [Sr No 21(b) of Notification No 25/2012-
ST]
(ii) goods, where gross amount charged for transportation of all such
goods for a single consignee does not exceed rupees seven hundred
fifty; [Sr No 21(c) of Notification No 25/2012-ST]

205
Technical Guide on Transportation

7. What are the areas where services provided by Goods Transport


Agency are exempt?
Ans: In the following transportation of goods, services provided by goods
transport agency by way of transport in a goods carriage is exempt:
(i) Agricultural produce; [Sr No 21(a) of Notification No 25/2012-ST]
(ii) Foodstuff including flours, tea, coffee, jaggery, sugar, milk products,
salt and edible oil, excluding alcoholic beverages; [Sr No 21(d) of
Notification No 25/2012-ST]
(iii) Chemical fertilizer, organic manure and oil cakes; [Sr No 21(e) of
Notification No 25/2012-ST]
(iv) newspaper or magazines registered with the Registrar of Newspapers;
[Sr No 21(f) of Notification No 25/2012-ST]
(v) Relief materials meant for victims of natural or man-made disasters,
calamities, accidents or mishap; [Sr No 21(g) of Notification No
25/2012-ST]
(vi) Defence or military equipments; [Sr No 21(h) of Notification No
25/2012-ST]
(vii) Cotton, ginned or baled. [Sr No 21(i) of Notification No 25/2012-ST]
8. Who is required to make payment of service tax in case of
services provided by way of transportation of goods, by way of goods
transport agency?
Ans: Generally service provider makes payment of service tax. However,
with respect to certain services specified by Government, service recipient is
liable to pay service tax.
Rule 2(1)(d) of Service Tax Rules, 1994 read with Notification No 30/2012-
ST dated 20.06.2012 states that in relation to service provided or agreed to
be provided by a goods transport agency in respect of transportation of
goods by road, where the person liable to pay freight is,—
(i) any factory registered under or governed by the Factories Act, 1948
(63 of 1948);
(ii) any society registered under the Societies Registration Act, 1860 (21
of 1860) or under any other law for the time being in force in any part
of India;

206
Frequently Asked Question on Transportation Sector

(iii) any co-operative society established by or under any law;


(iv) any dealer of excisable goods, who is registered under the Central
Excise Act, 1944 (1 of 1944) or the rules made thereunder;
(v) any body corporate established, by or under any law; or
(vi) any partnership firm whether registered or not under any law including
association of persons;
any person who pays or is liable to pay freight either himself or through his
agent for the transportation of such goods by road in a goods carriage,
in such case, it is the person receiving service is required to make payment
of service tax.
It has also been clarified that when person liable to pay freight is located in a
non-taxable territory, the provider of such service shall be liable to pay
service tax.
9. GTA provides service to a person in relation to transportation of
goods by road in a goods carriage. The service provided is a single
composite service which may include various intermediary and
ancillary services such as loading/unloading, packing/unpacking,
transshipment, temporary warehousing. For the service provided, GTA
issues a consignment note and the invoice issued by the GTA for
providing the said service includes the value of intermediary and
ancillary services. In such a case, whether the intermediary or ancillary
activities is to be treated as part of GTA service and the abatement
should be extended to the charges for such intermediary or ancillary
service?
Ans: GTA provides a service in relation to transportation of goods by road
which is a single composite service. GTA also issues consignment note. The
composite service may include various intermediate and ancillary services
provided in relation to the principal service of the road transport of goods.
Such intermediate and ancillary services may include services like
loading/unloading, packing/unpacking, transshipment, temporary
warehousing etc., which are provided in the course of transportation by road.
These services are not provided as independent activities but are the means
for successful provision of the principal service, namely, the transportation of
goods by road. The contention that a single composite service should not be
broken into its components and classified as separate services is a well-

207
Technical Guide on Transportation

accepted principle of classification. As clarified earlier vide F.No. 334/4/2006-


TRU dated 28.2.2006 (para 3.2 and 3.3) and F. No. 334.1/2008-TRU dated
29.2.2008 (para 3.2 and 3.3), a composite service, even if it consists of more
than one service, should be treated as a single service based on the main or
principal service and accordingly classified. While taking a view, both the
form and substance of the transaction are to be taken into account. The
guiding principle is to identify the essential features of the transaction. The
method of invoicing does not alter the single composite nature of the service
and classification in such cases are based on essential character by applying
the principle of classification enumerated in section 65A. Thus, if any
ancillary/intermediate service is provided in relation to transportation of
goods, and the charges, if any, for such services are included in the invoice
issued by the GTA, and not by any other person, such service would form
part of GTA service and, therefore, the abatement of 75% would be available
on it. [Para 3 of Circular No. 104/ 07 /2008-ST dated 06.08.2008]
The above principle even holds good even after 01.07.2012 and the same is
contained in Section 66F(3)(a) of the Finance Act, 1994.
10. Whether time sensitive transportation of goods by road in a
goods carriage by a GTA shall be classified under courier service and
not GTA service?
Ans: On this issue, it is clarified that so long as, (a) the entire transportation
of goods is by road; and (b) the person transporting the goods issues a
consignment note, it would be classified as 'GTA Service'. [Para 5 of Circular
No. 104/ 07 /2008-ST dated 06.08.2008]
11. .The value added services, like handling, temporary storage,
consolidation, packing support, documentations, logistic support or
any other service for which payment is made A part of the gross freight
by the consignor or the consignee are being subjected to service tax
under different services, such as 'cargo handling service', 'storage and
warehousing service', even though the same were considered as part of
GTA service by the Committee constituted by the Government at the
time of bringing into effect the levy of service tax on GTA service. In
this regard, where the same should be classified?
Ans: The scope of 'GTA service', cargo handling service' and storage and
wherehouse service' has been defined explicitly in the Finance Act, 1944.
When seen in totality and adopting the principal of harmonious clearly reflect

208
Frequently Asked Question on Transportation Sector

that 'undertaking the responsibility (by way of issuance of consignment note)


of road transportation of goods' and activities that occurs during the currency
of and in connection with such transportation activity (say booking and
delivery of cargo; documentation; logistic support; shifting goods from one
vehicle to another transshipment; fragmentation or consolidation of cargo
etc., done in transit, the cost of which forms part of the freight charges)
would fall under GTA services. On the contrary, an activity undertaken before
or after such transportation or an activity that can be undertaken independent
of the activity of transportation (even if, in certain cases, done along with
transportation, as in case of packing and transportation be movers and
packers) such as storing, packing unpacking, loading, unloading of goods
before or after they are transported, would not be covered under GTA
services, as these are specifically covered under other taxable services.
Recovery of the aggregate charges for these different activities under a
single invoice/ bill/challan does not necessarily mean that all such charges
constitute the gross freight charges'. [Sr No 5 of F.No.137/175/2007-CX.4
dated 27.05.2008]
Though the classification issue no longer remains after introduction of
negative list, however, for limited purpose of registration and payment, it
needs to be seen.
12. I am a proprietor engaged in manufacturing goods and is also
registered under Central Excise. Am I required to make payment of
service tax on freight payment made by me?
Ans: Generally service provider makes payment of service tax. However,
with respect transport of service by road, where the freight is payable by a
proprietor only in two circumstances.
When a proprietor is registered as a dealer of excisable goods, who is
registered under the Central Excise Act, 1944 (1 of 1944) or the rules made
thereunder; or
Where its factory is registered under or governed by the provisions of
Factories Act, 1948 (63 of 1948);
Since in the present case, the proprietor is registered as a manufacturer and
not a dealer, therefore, he is not the person liable to pay service tax as per
Rule 2(1)(d)(i)(B)(IV) of Service Tax Rules, 1994.
Next it is required to be seen whether a the above proprietor is covered by
the provisions of Factories Act.

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Technical Guide on Transportation

Factories Act, 1948 applies to factories covered under the Factories Act,
1948. The industries in which ten (10) or more than ten workers are
employed on any day of the preceeding twelve months and are engaged in
manufacturing process being carried out with the aid of power or twenty or
more than twenty workers are employed in manufacturing process being
carried out without the aid of power, are covered under the provisions of this
Act.
Thus, if a proprietor manufacturer is registered or governed by the provisions
of Factories Act, 1948, then the said proprietor is a person liable to pay
service tax and consequently service tax is to be paid by him as a service
receiver.
13. Is basic exemption limit of ` 1000000/- as contained in
Notification No 33/2012-ST available while making payment of service
tax under reverse charge.
Ans: The basic exemption limit of ` 1000000/- as contained in Notification
No 33/2012-ST is available to the person providing service and not the
person receiving service.
14. Whether Gross Value of taxable services on which recipient has
paid service tax as specified under Section 67(2) of the Finance Act,
1994 read with Service Tax Rules 1994, charged by goods Transport
Agency shall be counted for determining aggregate value of small scale
exemption ?
Ans: No. The Gross amount charged by Goods Transport Agency under
Section 67 ibid to the recipient of service shall not to be taken into account
for determining the aggregate taxable value under the small scale exemption.
[para 8.2 of FAQ on service tax issued by Department dated 05.02.2009]
15. Can the service tax under reverse charge be paid by utilising
CENVAT credit?.
Ans: As per Rule 3(4)(e) of CENVAT Credit Rules, 2004, CENVAT credit can
be utilised for payment of service tax on any output service. Whenever,
service tax is payable as a recipient of service, it is an input service and not
an output service; hence, the CENVAT credit can not be utilised for payment
of service tax under reverse charge.
This has also been clarified by inserting explanation to Rule 3(4) of CENVAT
Credit Rules, 2004 which states that CENVAT credit cannot be used for

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Frequently Asked Question on Transportation Sector

payment of service tax in respect of services where the person liable to pay
tax is the service recipient.
16. Can the credit of service tax paid on ‘Transport of Goods by
Road’ be available?
 CENVAT credit of input service is available. In this regard, it is
pertinent to note the definition of ‘input service’ which is contained in Rule
2(l) of CENVAT Credit Rules, 2004 which reads as
‘“Input service” means any service, -
(i) used by a provider of output service for providing an output service; or
(ii) used by a manufacturer, whether directly or indirectly, in or in relation to
the manufacture of final products and clearance of final products upto the
place of removal,
and includes services used in relation to modernisation, renovation or
repairs of a factory, premises of provider of output service or an office
relating to such factory or premises, advertisement or sales promotion,
market research, storage upto the place of removal, procurement of inputs,
accounting, auditing, financing, recruitment and quality control, coaching and
training, computer networking, credit rating, share registry, security, business
exhibition, legal services, inward transportation of inputs or capital goods
and outward transportation upto the place of removal; but excludes,-
(A) service portion in the execution of a works contract and construction
services including service listed under clause (b) of section 66E of the
Finance Act (hereinafter referred as specified services) in so far as they are
used for -
(a) construction or execution of works contract of a building or a civil
structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital goods,
except for the provision of one or more of the specified services; or
(B) services provided by way of renting of a motor vehicle, in so far as they
relate to a motor vehicle which is not a capital goods; or
(BA) service of general insurance business, servicing, repair and
maintenance , in so far as they relate to a motor vehicle which is not a capital
goods, except when used by -

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(a) a manufacturer of a motor vehicle in respect of a motor vehicle


manufactured by such person ; or
(b) an insurance company in respect of a motor vehicle insured or reinsured
by such person; or
(C) such as those provided in relation to outdoor catering, beauty treatment,
health services, cosmetic and plastic surgery, membership of a club, health
and fitness centre, life insurance, health insurance and travel benefits
extended to employees on vacation such as Leave or Home Travel
Concession, when such services are used primarily for personal use or
consumption of any employee;”’
Thus, the definition of ‘input services’ includes inward transportation of inputs
or capital goods and outward transportation upto the place of removal.
Considering above, the service of ‘Transportation of goods upto the place of
removal’ be bifurcated into inward transportation and outward transportation.
The answers to the questions raised is given hereunder:
 Service tax credit on inward freight i.e., inward transportation of inputs
or capital goods is available as it is specifically included in the
definition of input services.
 Service tax credit on outward transportation upto the place of removal
is available.
 Service tax credit on outward transportation from the place of removal
is not available.
In this regard, it is also pertinent to note the meaning of ‘place of removal’
which is which is defined in Rule 2(qa) of CENVAT Credit Rules, 2004 as
well as Section 4(3)(c) of Central Excise Act, 1944 which reads as ‘’"place of
removal" means-
(i) a factory or any other place or premises of production or manufacture
of the excisable goods;.
(ii) a warehouse or any other place or premises wherein the excisable
goods have been permitted to be deposited without payment of duty,
(iii) a depot, premises of a consignment agent or any other place or
premises from where excisable goods are to be sold after their
clearance from the factory.
from where such goods are removed;

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Frequently Asked Question on Transportation Sector

Thus, where goods are cleared from depot, in such case, credit of service tax
on transportation from factory to depot is permissible; however, credit of
service tax on transportation from depot to customer’s premises is not
permissible as an input service.
17. Can the credit of ‘Handling of Cargo’ and Service tax on
‘Transport of goods by Road’ upto port in case of exports be available?
Ans: When manufacturer transports his finished goods from factory to any
other place such as, go-down, warehouse, etc. from where it would be
ultimately removed, such service is covered in expression "outward
transportation upto place of removal" since such place other than factory
gate would be place of removal.
Taking this analogy further, in case services are availed essentially for
purpose of exporting goods, then, place of removal shall have to be
essentially ' port' from where goods are actually taken out of country and,
accordingly, said services (including transportation of finished goods upto
such place of removal being port) would be input service.
Therefore, in case of export of final product, place of removal would be port
of shipment and not factory gate and therefore, manufacturer would be
entitled to credit of input services availed upto such ' port of shipment'.
[Central Excise Versus Inductotherm India P Ltd (2014) 3 TMI 921 (Gujarat
HC)]
Alternatively, its refund can also be claimed in terms of Notification No
41/2012-ST dated 20.06.2012
18. Sometimes, a person hires a truck to a Goods Transport Operator
and collects the rent on hiring of truck. Whether, such hiring of truck is
taxable?
Ans: There is no service tax on services by way of giving on hire to a goods
transport agency, a means of transportation of goods [Sr No 22(b) of Mega
Exemption Notification 2012]
19. What is the place of provision of Rules in case of transportation
of goods by Road?
Ans: The place of provision of services of goods transportation agency shall
be the location of the person liable to pay tax. [Rule 10 of Place of Provision
of service Rules, 2012]

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Thus, where goods are to be sent from Goa to Nepal and freight is payable
by consignor, in this case, the service tax is required to be paid by the
consignor.
When freight is payable by a person located in a non-taxable territory, the
provider of such service shall be liable to pay service tax i.e., in such case,
the GTA will have to pay service tax.

Section II: Transportation of goods by Railway


20. Is the transportation of goods by Railway Taxable?
Ans: The transportation of goods by Railway is not covered in the Negative
List. Thus, the same is taxable, however, with respect to certain goods,
exemption has been provided in Mega Exemption Notification No 25/2012-
ST. The service tax on railways was exempt after introduction of Negative
List upto 30.09.2012. Thus, the goods excepting few exceptions that are
transported in a railway is taxablew.e.f 01.10.2012.
21. What is the value on which goods transported by Railway is
taxable?
Ans: Government has given an abatement of 70% on the value of freight
charged by Railway as per Sr No 3 of Notification No 26/2012-ST. Thus,
effectively, the service tax is required to be paid on 30% of the amount of
freight charged by the Railways. Further, the abatement is without any
conditions. Thus, the CENVAT credit of inputs, input services and capital
goods can be availed by Railways.
22. Are all goods transported by Railway is taxed or is there any
exemption available to some goods?
Ans: Freight of all the goods transported by railways are not subject to
service tax. The Central Government has granted exemption by way of
Services by way of transportation by rail or a vessel from one place in India
to another of the following goods as per Sr No 20 of Notification No 25/2012-
ST:
(a) relief materials meant for victims of natural or man-made disasters,
calamities, accidents or mishap;
(b) defence or military equipments;
(c) newspaper or magazines registered with the Registrar of Newspapers;

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Frequently Asked Question on Transportation Sector

(d) railway equipments or materials;


(e) agricultural produce;
(f) foodstuff including flours, tea, coffee, jaggery, sugar, milk products,
salt and edible oil, excluding alcoholic beverages; or
(g) chemical fertilizer, organic manure and oil cakes;
(h) cotton, ginned or baled.
Upto 31.03.2013, the exemption was also available to Services by way of
transportation by rail or a vessel from one place in India to another for
 petroleum and petroleum products falling under Chapter heading 2710
and 2711 of the First Schedule to the Central Excise Tariff Act, 1985
(5 of 1986);
 postal mail or mail bags;
 household effects;
23. Is Rail Department eligible to avail CENVAT credit and utilise the
same while making payment of freight?
Ans: The abatement of 70% on the value of freight charged by Railway as
per Sr No 3 of Notification No 26/2012-ST. Thus, effectively, the service tax
is required to be paid on 30% of the amount of freight charged by the
Railways. Further, the abatement is without any conditions. Thus, the
CENVAT credit of inputs, input services and capital goods can be availed by
Railways.
24. If the journey for transportation of goods commences from the
State of Jammu and Kashmir to any other part of India except for the
State of Jammu and Kashmir, then, is the said transaction taxable?
Ans: As per the provision of Place of Provision of Services Rules, 2012, Rule
10 states that the place of provision of services of transportation of goods,
other than by way of mail or courier, shall be the place of destination of the
goods. Thus, where the journey for transportation of goods commences from
the State of Jammu and Kashmir to any other part of India except for the
State of Jammu and Kashmir, the transaction is taxable.
25. If the journey for transportation of goods commences from the
State other than that of Jammu and Kashmir to the State of Jammu and
Kashmir, then, is the said transaction liable to service tax?

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Ans: As per the provision of Place of Provision of Services Rules, 2012, Rule
10 states that the place of provision of services of transportation of goods,
other than by way of mail or courier, shall be the place of destination of the
goods. Thus, where journey for transportation of goods commences from the
State other than that of Jammu and Kashmir to the State of Jammu and
Kashmir, the transaction is not taxable.
26. Is CENVAT credit of service tax paid on freight is eligible as
CENVAT Credit?
Ans: Service tax on inward transportation of goods is eligible.
Service tax on outward transportation from the place of removal will not be
available in terms of Rule 2(l) of CENVAT Credit Rules, 2004.
The eligible document for availing credit is a Service Tax Certificate for
Transportation of goods by Rail (herein after referred to as STTG Certificate)
issued by the Indian Railways, along with the photocopies of the railway
receipts mentioned in the STTG certificate [Rule 9(1)(fa) of CENVAT Credit
Rules, 2004]
27. Can Railway avail full CENVAT credit on inputs, input services
and capital goods?
Ans: There are certain goods whose transportation is exempt by Railway.
Hence, Railway has two options. One, maintain separate records of inputs
and input services with respect to taxable and exempted services and avail
credit only of inputs and input services which are utilised for providing
taxable services. Alternatively, where it is not possible to maintain separate
records for inputs and inputs utilized in providing taxable and exempted
services, in such case, the Railway can opt for under mentioned options
which are mentioned in Rule 6(3) of CENVAT Credit Rules, 2004 viz:
 Pay 2% of the value of exempted services.
 Avail proportionate credit
Since for capital goods, the credit of the same cannot be availed, if the same
is utilised exclusively for providing exempted services. Where the capital
goods are utilised for providing taxable and exempted services, the CENVAT
credit of the same is admissible. [Rule 6(4) of CENVAT Credit Rules, 2004]

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Frequently Asked Question on Transportation Sector

Section III: Transportation of goods by Air


28. Explain the provisions regarding leviability of transportation of
goods by Air?
Ans: Services of transportation of goods by aircraft have been introduced
since 10.09.2004. The taxable services was defined in section 65(105)(zzn)
of the Finance Act, 1994 upto 30.06.2012. After introduction of Negative
Listw.e.f 01.07.2012, no change also been made.
The tax is a tax on service provided or to be provided to any person, by an
aircraft operator, in relation to transport of goods by aircraft.
29. On what value of freight collected by Air, the service tax is
required to be paid on freight collected by Airlines?
Ans: For transporting of goods, airlines collect freight. The Letter F. No.
B2/8/2004-TRU, dated 10-9-2004 whose para 6 states that, in addition to the
actual air-freight charges, all charges collected towards storing, handling,
loading/unloading (done in relation to air transportation of cargo) by an
airlines are also chargeable to this levy.
No abatement is available. Thus, service tax will be on gross amount
charged by airlines at full 12% with E Cess of 2% and SHE Cess of 1%
making aggregate rate of 12.36%.
30. Kindly explain the provisions regarding freight collected on
goods which are to be exported which has been received by Airlines in
India?
Ans: As per the provision of Place of Provision of Services Rules, 2012, Rule
10 states that the place of provision of services of transportation of goods,
other than by way of mail or courier, shall be the place of destination of the
goods.
As per Rule 8 of Place of Provision of Services Rules, 2012, ‘Place of
provision of a service, where the location of the provider of service as well as
that of the recipient of service is in the taxable territory, shall be the location
of the recipient of service.’
Thus, where an exporter is sending goods from India to any other country
outside India, say ‘China’, in such case, as per Rule 10, the place of
provision is destination of goods which is ‘The China’ and as per Rule 8, the
place of provision is the location of service receiver, which is ‘The India’; in

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such a case, Rule 14 comes to rescue which states that ‘Notwithstanding


anything stated in any rule, where the provision of a service is, prima facie,
determinable in terms of more than one rule, it shall be determined in
accordance with the rule that occurs later among the rules that merit equal
consideration’. Thus, as per Rule 14 read with Rule 10, the place of Provision
of Service is ‘The China’.
The service tax is on services provided in a taxable territory. Section 66B
reads as ‘There shall be levied a tax (hereinafter referred to as the service
tax) at the rate of twelve per cent. on the value of all services, other than
those services specified in the negative list, provided or agreed to be
provided in the taxable territory by one person to another and collected in
such manner as may be prescribed’
As the services are provided in ‘China’ as per Place of Provision of Services
Rules, 2012, the transaction is not subject to service tax in India.
When one can say that services have been exported by India?
For determining whether there is export of service or not, the conditions
stated in Rule 6A of Service tax Rules, 1994 is required to be seen which are
reproduced as under:.
Rule 6A of Service Tax Rules, 1994
(1) The provision of any service provided or agreed to be provided shall
be treated as export of service when,-
(a) the provider of service is located in the taxable territory ,
(b) the recipient of service is located outside India,
(c) the service is not a service specified in the section 66D of the Act,
(d) the place of provision of the service is outside India,
(e) the payment for such service has been received by the provider of
service in convertible foreign exchange, and
(f) the provider of service and recipient of service are not merely
establishments of a distinct person in accordance with item (b) of
Explanation 3 of clause (44) of section 65B of the Act
(2) Where any service is exported, the Central Government may, by
notification, grant rebate of service tax or duty paid on input services or
inputs, as the case may be, used in providing such service and the rebate

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Frequently Asked Question on Transportation Sector

shall be allowed subject to such safeguards, conditions and limitations, as


may be specified, by the Central Government, by notification.
Thus, where an exporter is sending goods from India to any other country
outside India, say ‘The China’, in such case, as per Rule 10 of Place of
Provision of Service Rules, 2012 r.w. Rule 14 of the said Rules, the place of
provision is destination of goods which is ‘The China’.
However, the service provider and service receiver, both are located in
taxable territory as well as the payment of the service will be in Indian
Rupees, hence, the transaction wherein an exporter is sending goods from
India to any other country outside India, say ‘The China’, will not qualify as
export.
It means that the export benefit (Rebate) will not be available as the
transaction is not qualifying as export. However, service tax is not required to
be paid because the place of provision of service is outside the taxable
territory.
What will be scenario when the Chinese Person wants to export goods
in India and avails the service of Indian Airlines? Is this service
taxable?
In such case, the place of provision of service is destination of goods which
is India as per Rule 10 of Place of Provision of Service Rules, 2012 r.w. Rule
14 of the said Rules. In this case, place of provision of service is in India.
However, Section 66D(p) states that services by way of transportation of
goods by an aircraft or a vessel from a place outside India to the first
customs station of landing in India will be in the Negative List.
Thus, when the goods are brought to any other airport after first custom
station only will be taxed in India.
What will be scenario when the Chinese Person wants to export goods
to Nepal and avails the services the service of Indian Airlines? Is this
service taxable?
In such case, the place of provision of service is destination of goods which
is Nepal as per Rule 10 of Place of Provision of Service Rules, 2012 r.w.
Rule 14 of the said Rules.
As the place of provision of service is in the outside taxable territory, hence,
the transaction will not be subject to service tax and consequently, service
tax will not be required to be paid.

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Moreover, Section 66D(p) states that services by way of transportation of


goods by an aircraft or a vessel from a place outside India to the first
customs station of landing in India will be in the Negative List.
In this case, if the payment is also received in Convertible Foreign Currency,
in such a case, the transaction will qualify as export because:
 the provider of service is located in the taxable territory;
 the recipient of service is located outside India,
 the service is not a service specified in the section 66D of the Act,
 the place of provision of the service is outside India,
 the payment for such service has been received by the provider of
service in convertible foreign exchange, and
 the provider of service and recipient of service are not merely
establishments of a distinct person in accordance with item (b)
of Explanation 3 of clause (44) of section 65B of the Act
Thus, export benefits, if any, can be availed by Indian Airlines, if the payment
is received in Convertible Foreign Currency.
31. If the journey for transportation of goods commences from the
State of Jammu and Kashmir to any other part of India except for the
State of Jammu and Kashmir, then, is the said transaction taxable?
Ans: As per the provision of Place of Provision of Services Rules, 2012, Rule
10 states that the place of provision of services of transportation of goods,
other than by way of mail or courier, shall be the place of destination of the
goods. Thus, where the journey for transportation of goods commences from
the State of Jammu and Kashmir to any other part of India except for the
State of Jammu and Kashmir, the transaction is taxable.
32. If the journey for transportation of goods commences from the
State other than that of Jammu and Kashmir to the State of Jammu and
Kashmir, then, is the said transaction liable to service tax?
Ans: As per the provision of Place of Provision of Services Rules, 2012, Rule
10 states that the place of provision of services of transportation of goods,
other than by way of mail or courier, shall be the place of destination of the
goods. Thus, where journey for transportation of goods commences from the
State other than that of Jammu and Kashmir to the State of Jammu and
Kashmir, the transaction is not taxable.

220
Frequently Asked Question on Transportation Sector

33. Is there any abatement available on freight collected by Airlines


for transportation of goods?
Ans: At present, no abatement has been prescribed by the Government for
freight charged by Airlines. Thus, service tax is required to be paid at
12.36%.
34. Is the CENVAT credit of service tax paid on freight collected by
Airlines available?
Ans: Service tax on freight paid to Airlines is available of goods is eligible.
Service tax on outward transportation from the place of removal will not be
available in terms of Rule 2(l) of CENVAT Credit Rules, 2004.
35. Is there any exemption available to transportation of any category
of goods transported by Airlines?
Ans: At present, no exemption has been provided to any category of goods
which are transported by airlines.

Section V: Transportation of goods by Inland Waters/ Sea


/Ocean
36. What are the nature of transaction with respect to transport of
goods by vessel are included in Negative List?
Ans: Following transport of goods by vessel is contained in Negative List:
 Services by way of transportation of goods by an aircraft or a vessel
from a place outside India to the first customs station of landing in
India;
 Services by way of transportation of goods by a vessel from a place
outside India to the first customs station of landing in India;
37. Is there any abatement available on freight collected by vessel?
Ans: Abatement of 60% of the value has been prescribed [Sr No 10 of
Notification No 26/2012-ST] (upto 30.09.2014, the abatement was 50%)
The abatement is granted subject to the condition that CENVAT credit on
inputs, capital goods and input services, used for providing the taxable
service, has not been taken under the provisions of the CENVAT Credit
Rules, 2004]

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38. Is service tax leviable on transportation of all goods by vessel?


Ans: Freight of all the goods transported by vessel are not subject to service
tax. The Central Government has granted exemption by way of Services by
way of transportation by rail or a vessel from one place in India to another of
the following goods as per Sr No 20 of Notification No 25/2012-ST:
(a) relief materials meant for victims of natural or man-made disasters,
calamities, accidents or mishap;
(b) defence or military equipments;
(c) newspaper or magazines registered with the Registrar of Newspapers;
(d) railway equipments or materials;
(e) agricultural produce;
(f) foodstuff including flours, tea, coffee, jaggery, sugar, milk products,
salt and edible oil, excluding alcoholic beverages; or
(g) chemical fertilizer, organic manure and oil cakes;
(h) cotton, ginned or baled.
39. Is the CENVAT credit available on freight paid to boat for
transportation of goods by vessel?
Ans: Service tax on inward transportation of goods is eligible.
Service tax on outward transportation from the place of removal will not be
available in terms of Rule 2(l) of CENVAT Credit Rules, 2004.
40. Considering the provision for transportation of goods by vessel
as contained in Negative List, what are the services that are taxable?
Ans: Transportation of goods by vessel in inland waterways is there in
Negative List. As per section 65B(29) of the Finance Act, 1994, "inland
waterway" means national waterways as defined in clause (h) of section 2 of
the Inland Waterways Authority of India Act, 1985 (82 of 1985.) or other
waterway on any inland water, as defined in clause (b) of section 2 of the
Inland Vessels Act, 1917; (1 of 1917.)
Section 2(h) of the Inland Waterways Authority of India Act, 1985 reads as
under:

222
Frequently Asked Question on Transportation Sector

National Waterway
"National waterway" means the inland waterway declared by section 2 of the
National Waterway (Allahabad- Haldia Stretch of the Ganga- Bhagirathi-
Hooghly River) Act, 1982 (49 of 1982 ), to be a national waterway.
Explanation.-- If Parliament declares by law any other waterway to be a
national waterway, then from the date on which such declaration takes effect,
such other waterway-
Transportation of goods from India to outside India will not be taxable as per
place of provision Rules, 2012 as place of provision of goods is destination of
goods which is outside taxable territory.
Service tax is also not required to be paid on a transportation of goods from
a place outside India upto the custom station clearance in India.
Thus, in effect, service tax will have to be paid on transportation of goods by
a vessel in coastal waters. [para 4.16.5 of Education Guide]
Section 2(7) of the Customs Act, 1962 states that "coastal goods" means
goods, other than imported goods, transported in a vessel from one port in
India to another.
Thus, there will be service tax on transportation of goods in coastal waters
i.e., from one port to another.
41. Are services provided as agents for inland waterways covered by
this entry?
Ans: No. these are in the nature of services used for providing the negative
list entry service of transport of goods on inland waterways and would not be
covered by application of the rule for interpretation where services are
specified by way of description contained in clause (1) of section 66F of the
Act. [Para 4.16.6 of Education guide]
Thus, the services of an agent is different from services provided in an inland
waterway and therefore, services provided by an agent will not fall under the
Negative list.

Section VI: Transportation of goods by Courier


42. What is the definition of Courier Agency? Is service tax leviable
on courier agency?
Ans: Section 66D of the Finance Act, states Negative List. In section 66D(p),

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Technical Guide on Transportation

following services are covered under Negative List. They are services by way
of transportation of goods –
(a) by road except the services of –
 a goods transportation agency; or
 a courier agency;
(b) by an aircraft or a vessel from a place outside India to the first
customs station of landing in India; or
(c) by inland waterways;
Section 65B(20) of the Finance Act, 1994 defines courier agency as
‘"courier agency" means any person engaged in the door-to-door
transportation of time-sensitive documents, goods or articles utilising the
services of a person, either directly or indirectly, to carry or accompany such
documents, goods or articles;’
The service provided by courier agency is not covered under Negative List,
nor the same is covered in exemption Notification. Hence, the same is
taxable.
43. Whether services provided by 'angadia' are liable to service tax as
a courier service?
Ans: 'Angadia' undertakes delivery of documents, goods or articles received
from a customer to another person for a consideration. Therefore, 'angadias'
are covered within the definition of a 'courier' and services provided by
angadia are liable to service tax. [Para 4.16.4 of Education Guide]
44. Whether the service provided by couriers/angadias for delivery of
cash received at one place and handed over at another place is a
taxable service covered under the definition of ‘Courier Agency’ under
provisions of Section 65B(20) [Prior to 01.07.2012, it was Section 65(33)]
of the Finance Act, 1994?”
Ans: Angadias are engaged in courier/angadia services and are transporting
valuable articles and documents from one place to another. Along with that,
they also provide services in respect of the cash transactions from one place
to another. Many a times it happen that cash is not physically transported
from one place to another and the same currency notes are not delivered to
the consignee. In fact, all the angadias engaged in the service of cash
transactions keep sufficient cash at branch level on a particular day to meet

224
Frequently Asked Question on Transportation Sector

the services of cash transaction and only instructions are passed on to the
branches for payment/receipt. In this case, the service receiver has no
objection to the above method adopted by the angadias, since the service
receiver is usually concerned with the receipt of amount at the destination
and he is not interested that the same currency notes, which are delivered by
him to the angadias, should be delivered at destination. Thus, when the
service receiver hands over cash in Indian currency at a recipient branch,
which transfers instructions to the delivery branch, where payment is made
from the corpus available at the delivery branch. Thus, there is no movement
of the cash from the recipient branch to the delivery branch. There is no
transportation of such cash and thus does not fall within the ambit of “courier
agency”. [CCE Surat v. Patel VishnubhaiKantilal and Co. (2012) 28 STR 113
(Guj HC) =(2013) 2 TMI 156 (Guj HC) ]
In case the service receiver, for any reasons, is interested that currency note
or notes given by him to the angadia are to be delivered at the destination,
the angadia will have no choice but to transport the same to the destination
and deliver accordingly. In such case, the service provided will be covered
under ‘Courier Agency’ Service.
45. The definition of ‘Courier Agency’ states that courier agency"
means any person engaged in the door-to-door transportation of time-
sensitive documents, **’ In this regard, can you clarify as to what is
meant by door to door transportation and how the same is different
from transport of goods by Road?
Ans: It is a prevalent practice in the courier industry that at the time of
booking cargo, the consignor or sender visits the courier company and books
the cargo or parcel or document (referred to as ‘article’) and provides the
details. The courier company then books the ‘article’ and delivers to the
desired destination. It has been held in the case of VijayanandRoadlines Ltd
v. CCE Belgaum (2005) 8 TMI 409 (Tri- Bang) = (2006) 1 STR 113 that
Courier Agencies undertake the service of transportation of goods and
documents from one place to another where time sensitivity and ensuring
delivery at the door is the prime criteria. Only in respect of very big
customers, the courier agencies collect the documents from the premises of
the customers and deliver to the consignees. They do not collect the
documents at the door of every consigner. Even if the consigner goes to the
office of the courier for depositing the documents, the same should be
considered door-to-door delivery.

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Technical Guide on Transportation

46. Some transporters under-take door-to-door transportation of


goods or articles and they have made special arrangements for speedy
transportation and timely delivery of such goods or articles. Such
services are known as 'Express Cargo Service' with assurance of timely
delivery. Whether such 'Express cargo service' is excluded as courier
agency service under this negative list entry?
Ans: "Courier" has been defined in section 65B as any person engaged in
door-to-door delivery of time sensitive documents, goods or articles utilizing
the services of a person, either directly or indirectly, to carry or accompany
such documents, goods or articles. The nature of service provided by
'Express Cargo Service' falls within the scope and definition of the courier
agency. Hence, the said service is excluded from the negative list entry
relating to transportation of goods by road. [Para 4.16.3 of Education Guide]
47. Whether Postal services which are similar to ‘Courier services’
provided by Department of Posts are liable to service tax?
Ans: Excepting few services, ‘Most services provided by the Central or State
Government or local authorities are in the negative list. services provided by
the Department of Posts by way of speed post, express parcel post, life
insurance, and agency services carried out on payment of commission on
non government business is taxable. [Para 4.1.1 of Education Guide and
Section 66D(a) of Finance Act, 1994]
It is to be noted that only services provided by Department of Posts by way
of speed post, express parcel post, life insurance, and agency services
carried out on payment of commission on non government business are
taxable as they are excluded from negative list. Thus, the following services
provided by Department of Posts are not liable to service tax.
 Basic mail services known as postal services such as post card, inland
letter, book post, registered post provided exclusively by the
Department of Posts to meet the universal postal obligations.
 Transfer of money through money orders, operation of savings
accounts, issue of postal orders, pension payments and other such
services.
48. ‘A’ wants to send his courier to England. Courier company
charges ` 1500/- for the same. Is this transaction liable to tax?
Ans: The taxability or otherwise will depend upon the place of provision as

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Frequently Asked Question on Transportation Sector

per Place of Provision Rules, 2012. The said activity will be covered by Rule
3 of the said Rules which states that ‘the place of provision of a service shall
be the location of the recipient of service’.
 Thus, where ‘A’ is located in India, the place of provision of service will
be in India and consequently, the service will be taxable in India.
 If ‘A’ is located outside India, the services will be said to have been
provided outside India and will also qualify for export, provided the
amount is received in freely convertible foreign currency and other
conditions as per Rule 6A of Service Tax Rules, 1994 are met.
 If ‘A’ is located in ‘Jammu and Kashmir’, in such a case, the place of
provision of service shall be ‘Jammu and Kashmir’ and accordingly,
the service will not be taxable.
Where location of service receiver is not known, the place of provision of
service will be location of service provider.

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