GST demand for transportation of minerals, such as coal, to mining companies has led to a number of litigations. Carriers and experts say such a mechanism is not justified, while tax officials rely on a circular issued last August.
The bone of contention is transportation service versus renting service. In case of transportation service, mining companies used to pay GST under reverse charge, treating the transporters as goods transport agency (GTA). However, GST officials claim that services provided by the transporters are rental of tippers/vehicles, not transportation. Treating this as a rental service, transporters have been asked to pay GST at 18 per cent under the forward charge which has been lowered to 12 per cent with effect from July 18, 2022.
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The issue got further complicated after Central Board of Indirect Taxes & Custom (CBIC) issued a circular last August, post GST Council recommendation related to taxability and applicable rate of GST on transport of minerals from mining pit head to railway siding, beneficiation plant etc, by vehicles deployed with driver for a specific duration of time.
Mining lease
According to the circular, usually in such cases, vehicles including tippers, dumpers, loader, trucks are given on hire to the mining lease operator. Expenses for fuel are generally borne by the recipient of service. The vehicles with driver are at the disposal of the mining lease operator for transport of minerals within the mine area (mining pit to railway siding, beneficiation plant etc) as per his requirement during the period of contract.
The person who takes the vehicle on rent defines how and when the vehicles will be operated, determines schedules, routes and other operational considerations.
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The person who gives the vehicles on rent with operator cannot be said to be supplying the service by way of transport of goods. Accordingly, as recommended by the GST Council, “it is clarified that such renting of trucks and other freight vehicles with driver for a period of time is a service of renting of transport vehicles with operator and not service of transportation of goods by road.” Accordingly, this will not get exemption and attract GST.
‘Long-standing concern’
Jigar Doshi, Founding Partner with TMSL says the classification of service of transportation of coal from mining area to railway sidings etc, have been a long-standing concern for coal carrier service providers, persisting even during the previous service tax regime.
Prior to June 2007, the service tax authorities contended that these services fell under the category of cargo handling services. Subsequently, until the introduction of the negative list regime, they were alleged to be classified as a mining Services. However, throughout the service tax regime, the judiciary consistently classified these services as ‘transportation of goods by road’.
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Classifying services
Under the GST regime, there is a renewed attempt by the GST authorities to classify these services as rental arrangements. “In our view, the scope of services, terms, and conditions outlined in the contracts play a crucial role in determining the intended activities to be performed by the service provider for the service recipient.
Thus, while specific agreements need to be reviewed to provide definitive views, a preliminary examination of few available contracts, in general, suggests that the emphasis is primarily on transportation arrangements rather than rental agreements. Thus, demand of 18 per cent GST under forward charge for such kind of arrangements may not be completely correct unless otherwise proven,” he said.