AGARWAL SHRAFF & CO.

CHARTERED ACCOUNTANTS
52 Weston Street 5th Floor
KOLKATA – 700 012
PHONE: 22259194 (O), 98300 61359 (M)
e-mail: vshraff@hotmail.com

Sri R.K. Shah March 22, 2006

V.P. ( Commercial)
Birla Tyres
Shivam Chambers
53 Syed Amir Ali Avenue
Calcutta – 700 019

Dear Sir,

Sub: Opinion on service tax on transportation of goods by road

As discussed with you my opinion on provisions relating to liability of service tax on freight
paid for goods transportation by road and availing cenvat credit on service tax paid on freight
is as follows:-

Query 1 Whether service tax is required to be paid on freight paid by Birla Tyres in the case
of export of goods?

Opinion Service tax is not required to be paid only if service is exported in accordance with
Export of Service Rules, 2005. Service in case of transportation of goods by road can not be
assumed to be exported merely because of export of goods. Service in case of transportation
of goods by road should satisfy the following conditions of Rule 3(2) of Export of Service
Rules, 2005 to be treated as export of service:-
Such services should be performed outside India provided that if such a taxable service is
partly performed outside India, it shall be considered to have been performed outside India.
However it shall be treated as export of services only if-
(a) such service is delivered outside India and used in business or for any other purpose
outside India; and
(b) payment for such service provided is received by the service provider in convertible
foreign exchange.
Query 2 Who is liable to pay service tax in case of transportation of goods by road?

Opinion Notification No. 35/2004-ST, Dated 3rd December, 2004 prescribes that the
person making payment towards freight would be liable to pay the service tax, in case the
consignor or consignee of the goods transported is one of the following:-

a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948);
b) any company established by or under the Companies Act, 1956 (1 of 1956);
c) any corporation established by or under any law;
 AGARWAL SHRAFF & CO.
CHARTERED ACCOUNTANTS
52 Weston Street 5th Floor
KOLKATA – 700 012
PHONE: 22259194 (O), 98300 61359 (M)
e-mail: vshraff@hotmail.com

d) any society registered under the Societies Registration Act, 1860 (21 of 1860) or
under any law corresponding to that Act in force in any part of India;
e) any co-operative society established by or under any law;
f) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1
of 1944) or the rules made thereunder; or
g) any body corporate established, or a partnership firm registered, by or under any law.
However where consignor or consignee who pays freight charges, is an individual or a
propriety firm or an HUF or an unregistered partnership firm or an Association of Persons
and not governed by Factories Act or is not a registered dealer of excisable goods under the
Central Excise Act, the obligation to pay service tax would be on Goods Transport Agency.
Query 3 What is the value of taxable service?
Opinion As per Notiifcation No. 32/2004 – ST dated Dated 3rd December, 2004 Service Tax
is payable on 25% of freight charged by Goods transportation Agency.
As per Board’s Letter F.No. B1/6/2005 – TRU dated 27-7-2005 it has been prescribed that
consignor or consignee who avails the benefit of notification no. 32/2004 should obtain a
declaration from the Goods Transporter that cenvat credit in respect of input or capital goods
or input services has not been taken and that benefit under notification no. 12/2003 S.T.,
dated 20-6-2003 has not been availed.
Query 4 Whether cenvat credit on service tax paid by Birla Tyres in respect of freight is
available?

Opinion As per Cenvat Credit Rules, 2004 Cenvat Credit on input service is available.
Inward transportation of inputs or capital goods and outward transportation upto the place of
removal is included in the definition of “input service” as per Rule 2(l) of Cenvat Credit
Rules, 2004.

Hence cenvat credit on service tax paid in respect of freight inward is available. However
cenvat credit on outward freight will be available only upto the “place of removal”

“Place of Removal” has been defined in Section 4(3)(c) of Central Excise Act, 1944 as
follows:-

“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;]
 AGARWAL SHRAFF & CO.
CHARTERED ACCOUNTANTS
52 Weston Street 5th Floor
KOLKATA – 700 012
PHONE: 22259194 (O), 98300 61359 (M)
e-mail: vshraff@hotmail.com

(iii) a depot, premises of a consignment agent or any other place or premises from where the
excisable goods are to be sold after their clearance from the factory;
from where such goods are removed;

For determining the place of removal, it is required to be ascertained from the terms and
conditions of sale whether ownership and risk of the goods is retained by the seller until it is
delivered to the buyer. If the ownership and risk of the goods is retained by the seller during
the transit than place of removal will be the premises of the buyer. Factory gate of
manufacturer will be ‘place of removal’ if the ownership and risk of goods is transferred to
the buyer at the factory gate.

The above views were confirmed by the Supreme Court in the case of Escorts JCB Ltd. vs.
Commissioner of Central Excise – 2002 (146) E.L.T. 31 (S.C.).

Hence if the ownership and risk of goods is transferred to the buyer at the factory gate than
Cenvat credit on freight outward is not available. However if the ownership and risk is
retained by the seller during transit of goods than cenvat credit will be available on freight
outward.

Query 5 What is the document for availing cenvat credit on service tax paid on goods
transportation?
Opinion : As per Rule 9(e) of Cenvat Credit Rules, 2004, cenvat credit can be taken on the
basis of a challan evidencing payment of service tax by the person liable to pay service tax in
respect of freight.

Query 6 Whether service tax is liable to be paid in respect of loading-unloading charges and
detention charges paid to the transporter?

Opinion : Service Tax on Cargo Handling Service is applicable from 16-8-2002. "cargo
handling service" as defined in Section 65(23) of Finance Act, 1994, means “loading,
unloading, packing or unpacking of cargo and includes cargo handling services provided for
freight in special containers or for non-containerized freight, services provided by a container
freight terminal or nay other freight terminal, for all modes of transport and cargo handling
services incidental to freight, but does not include handling of export cargo or passenger
baggage or mere transportation of goods”

Hence in respect of loading and unloading charges service tax is leviable under the category
"cargo handling service" and not under the category of Transportation of goods by road.
Further it was clarified vide circular no. M.F. (D.R.) F. No. B11/1/2002 – TRU, dated 1-8-
2002 that value of service tax in a case where transport and cargo handling service is
 AGARWAL SHRAFF & CO.
CHARTERED ACCOUNTANTS
52 Weston Street 5th Floor
KOLKATA – 700 012
PHONE: 22259194 (O), 98300 61359 (M)
e-mail: vshraff@hotmail.com

provided in a composite manner would be the gross amount charged by the cargo handling
agency from the customer. Therefore, if lumpsum amount is charged for both transportation
and cargo handling, the tax will be payable on the entire amount. On the other hand, if the bill
indicates the amount charged for cargo handling and transportation separately on actuals
basis (verifiable by documentary evidence), then the tax would be leviable only on the cargo
handling charges.
The responsibility of payment of service tax in such a case would be upon the person
providing such service and not upon Birla Tyres.

It has not been clarified whether service tax would be payable in respect of detention charges
paid in respect of transportation of goods. However since value of taxable services has been
defined to be Gross Amount charged by the Goods transportation agency, hence in my view
detention charges should be included in the freight for payment of service tax.

You may contact the undersigned for any further clarification in this regard.

Thanking You,

Yours faithfully,
For Agarwal Shraff & Co.
Chartered Accountants

(Vinay Kumar Shraff)

Partner