Taxability of Delivery Charges

This post contains posters on the taxability of delivery charges

1) Whether transport charges per se are liable to GST at 5% as GTA service, as per reverse charge mechanism, irrespective of whether transport is provided by the supplier of goods or otherwise?

Ans: If invoice value is inclusive of transport charges together with other incidental charges, insurance premium etc., incurred before or at the time of delivery, such supply will be taken as composite supply within the meaning of sec 2(30) of CGST Act, and GST will be levied at the rate of the goods. Section 2(30) ibid reads as follows:

2(30): “Composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;
Illustration.— Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply;

Thus if the goods rate is 18%, GST will be payable on composite invoice value at 18%. In the process, the recipient, whether under RCM or otherwise, will bear the incidence of higher tax rate for the component of transport charges which as GTA service is otherwise liable to GST @5% only. However, if invoice value doesn’t include transport charges & the same are on account of the recipient, the place of supply for delivery of goods shall be taken as the supplier’s premises, & GST for GTA @5% shall be payable by recipient. Sec. 15(2)(c) of CGST Act would not apply in latter case. Above referred section reads as follows:

15(2): The value of supply shall include–––
(c): incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;

2) In case the supplier bills transport charges separately, can it be assessed under RCM @5% as GTA service?

Ans: No. In view of section 2(30) definition of composite supply read with section 15 (2) (b), GTA charges billed separately shall be liable to GST at composite rate only. The extract of section 15 (2) (b) is cited below:

15(2): The value of supply shall include–––
(b): any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;

3) In what circumstances transport charges can escape composite rate and are liable to tax at GTA rate of 5%?

Ans: Only in following two circumstances, transport charges can escape composite rate:

a) As explained at 1) supra, if transport charges are not included in invoice value, being on account of the recipient and not payable by the supplier;

b) In case the supplier is registered separately for goods and GTA service and makes an invoice exclusively for goods inclusive of GST (paid by the supplier) & a separate invoice for transport charges, excluding GST which is to be paid by the recipient on RCM basis.

4) Whether the judgment of the apex court in the matter of Ispat Industries Ltd vide 2015(324) ELT 670 is applicable to GST?

Ans: In its said judgment the Hon’ble SC held that delivery charges including transport and insurance charges where the place of delivery is buyer’s premises, is not includible in assessable value. The above judgment was passed with reference to the ‘Place of Removal’ in the context of central excise assessment, which is no longer relevant to GST assessment with reference to the ‘Place of Supply’. The Place of Supply has been defined in section 10 & 12 of IGST Act read with section 2(86) of CGST Act, which are reproduced below.

Sec. 2(86) of CGST Act
“place of supply” means the place of supply as referred to in Chapter V of the Integrated Goods and Services Tax Act;

Sec. 10 of IGST Act (under Chapter V):
(1) The place of supply of goods, other than supply of goods imported into, or exported from India, shall be as under,––
(a) where the supply involves movement of goods, whether by the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of the goods at the time at which the movement of goods terminates for delivery to the recipient;

Sec. 12 of IGST Act (under Chapter V):
(1) The provisions of this section shall apply to determine the place of supply of services where the location of supplier of services and the location of the recipient of services is in India.
(2) The place of supply of services, except the services specified in sub-sections (3) to (14),––
(a) made to a registered person shall be the location of such person; (b) made to any person other than a registered person shall be,––
(i) the location of the recipient where the address on record exists; and
(ii) the location of the supplier of services in other cases.

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