Supply of transportation services – additional supplies – composite or mixed

Supply of transportation services - additional supplies - composite or mixed

Transporters are generally engaged for transportation of goods but with the advent of time, the industry has started facilitating its customers with certain other services for eg., loading, packing, temporary warehousing etc. Thus, the entire industry is tempted to provide additional services and also consider such package of services as a composition supply (as GTA has got a favourable rate of tax in GST when compared to such other services). Further, as we know that transportation of goods by road other than by GTA and courier is exempt. “Goods transport agency” (“GTA”) has been defined to mean any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called. Thus, persons other than GTA have faced this temptation of considering their services as exempt, even when accompanies with other services.

However, since there is such a huge gap in the rate of tax in GTA / transportation by road services, the temptation of lower rate should not drive the determination of classification as GTA / exempt services. The principles of classification in case of Composite services should be applied with greatest cautions. The following factors may be seen as indicators of as to whether such ancillary services are an integral, ancillary or incidental part of the main supply or an independent supply in itself::

  • whether ancillary/ intermediate service which are provided in relation to transportation of goods is only a part of main service of transportation or is a supply of service in itself, this would flow from the agreement between the two parties which shall show the emphasis laid down by both parties on provision of such ancillary services
  • whether charges for such ancillary services are included in the invoice issued by the GTA
  • what proportion of cost of providing other services bear to the cost of providing main service of transportation
  • whether any substantial penalty for non provision of such services lies on the supplier
  • whether trade perceives the provision as part of transportation services or not

It has been clarified in similar manner in past by government in its circulars on the matter.  In its FAQs on Transport & Logistics, it has been clarified:

“Question 6: Are intermediary and ancillary services, such as, loading/unloading, packing/unpacking, transhipment and temporary warehousing, provided in relation to transportation of goods by road to be treated as part of the GTA service, being a composite supply, or these services are to be treated as separate supplies.

Answer: The GTA provides service to a person in relation to transportation of goods by road in a goods carriage, which is a composite service. The composite service may include various intermediary and ancillary services, such as, loading/unloading, packing/unpacking, transhipment and temporary warehousing, which are provided in the course of transport of goods by road.These services are not provided as independent services but as ancillary to the principal service, namely, transportation of goods by road. The invoice issued by the GTA for providing the said service includes the value of intermediary and ancillary services.

In view of this, if any intermediary and ancillary service is provided in relation to transportation of goods by road, and charges, if any, for such services are included in the invoice issued by the GTA, such service would form part of the GTA service and would not be treated as a separate supply. In fact, any service provided along with the GTA service that is part of the composite service of GTA shall be taxed along with GTA service and not as separate supplies.

However, if such incidental services are provided as separate services and charged separately, whether in the same invoice or separate invoices, they shall be treated as separate supplies.”

Thus, GTA / transporter can undertake packing, unpacking, loading or unloading and when taken as part of transportation shall be part of composite supply of GTA / transportation services. It is pertinent to mention that Composite Supply is a combination of different good(s) and / or service(s) which may be taxable at different rate but in essence from the recipient perspective, its only the principal supply which he intended to take and all other are made available to him as part of trade practise. Thus, from the recipient perspective, the supply should remain a supply of GTA / transportation services. Other components should be only exist for better enjoyment of such supply of services. A service may be regarded as subset of a principal service if it does not constitute an end in itself, but a means of better enjoying the supplier’s principal service (Refer C-434/05 West-Friesland Horizon College v. Staatssecretaris van Financien [2007] ECR I-4793). When other services when not forming part of GTA services as spoken above, are offered by the supplier, he may find itself into a zone where such combination of services are not generally offered by trade and thus, such supply may be classified as mixed supply and highest rate may apply. The principle is that when such constituents can be identified as supplies in themselves and are not ancillary supplies to enjoy the main supply, the single consideration for all such supplies can no longer be said to be a supply of GTA service or transportation of goods services. Such additional supplies which are offered by trade in certain cases to pull high value customers may include Customs clearance, works of stevedore, shifting etc in addition to the transportation of goods. In such cases, the supplies cannot be said to be incidental to transportation and thus, if given for a single price cannot be seen as a composite supply of transportation.

Further, there are always confusion between GTA and Cargo Handling. It is pertinent to mention that the intent of contract shall determine the nature of supply. It was well-settled that handling or transportation of goods within a factory or mining area did not amount to cargo handling because at that stage the goods were not cargo within the common meaning of the word.  Also, cargo handling moves beyond “mere transportation”. Thus, if the intent of the contract involves handling as a major part of the contract and transportation as incidental which can be determined by looking at the nature of every logistics. Mainly, cargo handling service is a taxable service which did not include transportation of goods, and only that freight was included which was for services provided in special Containers or for Non-Containerized freight when the services were provided by a Container Terminal or any other freight terminal.

The controversies in this industry are endless and since the entire law of GST shall mature over a period of time, the rate of tax if not determined properly may find the supplier struggling with demands on account of higher rates in coming future.

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