The GST levies a flat 5% tax on all transport but issues unique provisions to match the operations of road freight transporters.
What is a GTA?
The GST defines Goods Transport Agencies or GTAs as any individual or organisation that provides on-road transport services and is authorised to issue consignment notes for each transaction.
Consignment notes are a central caveat to earning a GTA distinction. Any person or company that provides road transportation services but cannot offer consignment notes is not considered a GTA.
What is a consignment note?
A consignment note is a serially numbered document issued by the transporters when they have received goods that are ready to move. The note contains:
- The names of the consignor and consignee
- Registration number of the vehicle in which the goods are transported
- Details of the goods
- Place of origin and destination,
- Details of the person liable for paying service tax on the goods (whether consignor, consignee or the GTA)
Is the supplier, transporter or recipient liable to pay GST?
Typically the service provider or the GTA would pay tax on the service rendered. However, the GST marks exceptions to this. In a condition termed the ‘reverse charge’, if a GTA provides services to individuals or organisations that meet the below profile, then the consignor or recipient will be liable to pay taxes –
- Factory registered under the Factories Act, 1948
- A society registered under the Societies Registration Act, 1860 or under any other law
- A co-operative society established under any law
- A person registered under GST
- A body corporate established by or under any law; or
- A partnership firm whether registered or not (including AOP)
- Casual taxable person
In cases where transport of goods has occurred between a consignor or recipient that meets the above description, the entity that is responsible for undertaking the transport service will pay tax.
For instance, if the ‘reverse charge’ qualified supplier or consignor hires and pays a GTA to transport goods the consignor becomes liable to pay GST. Similarly, if the recipient or consignee does the same, the consignee becomes liable to pay GST.
Is the transport of certain goods tax exempt?
The transport of the following goods is tax exempt:
- Agricultural produce
- Milk, salt and food grain including flour, pulses and rice
- Organic manure
- Newspaper or magazines registered with the Registrar of Newspapers
- Relief materials meant for victims of natural or man-made disasters
- Defence or military equipment
- Goods, where consideration charged for the transportation of goods on a consignment transported in a single carriage is less than Rs. 1,500
- Goods, where consideration charged for transportation of all such goods for a single consignee does not exceed Rs. 750
Can GTAs avail of input tax credits (ITC)?
Yes, but credit options are admittedly limited compared to other industries.
What are input tax credits (ITC)?
Under the GST, credits are earned when a consumer pays tax on items essential to the functioning or furtherance of their business. For instance, fabric purchased by a tailor or wood by a carpenter is considered elemental necessities to their business model.
Commercial transport vehicles may earn credits on the purchase of items essential to their composite supply chain – including auto parts or new trucks.
Fuel – a key material necessity of the transport business – is not included in the GST matrix. To offset this, the government committed to tax all transport including road freight at the lowest 5% slab.
What are the effects of GST on road freight transport so far?
In just over a month of implementation, the GST has significantly benefited the transport and logistics sector, thereby accruing immense cost savings for the economy at large.
Shorter transit times
A unified tax made highway checkpoints redundant. As states across the country shut down tolling plazas that typically caused staggering delays, truck transit times are reduced by 24-36 hours or an average of about 15-20%.
Shorter transits and fewer delays result in increased productivity. Trucks reach their destinations in record time and are often able to complete two journeys instead of one. Following the GST rollout, utilisation increased by as much as 44% as trucks travelled 300-325 kilometres a day compared to 225 km.
Fuel cost savings
Reduced fuel consumption resulting from lower engine idling times in traffic congestion and shorter transit times overall, is a key component of incremental savings per trip. Organised cross-national movement, saved transporters INR 5000-7000 per trip.
Logistics cost savings
Delays at check posts resulting in increased labour, fuel and damaged cargo costs, accounted for between INR 900 – 2,300 crores in annual operating costs alone. Additionally, peripheral costs incurred in navigating duplicate taxes or bribes cost logistics service providers and the economy between INR 900 to 7,200 crores a year. Consolidated cost savings and augmented incremental benefits are projected to save the Indian economy upwards of INR 95,000 crores each year.