Place of Supply for Transportation and Logistic Services: Point of Origin and Destination

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Published Date:  11-02-2024   Author:   shradha-kabr
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Introduction

Goods and Services Tax is a combined tax imposed by both the central and the state governments. The tax amount is shared by both parties based on the volume of goods and services consumed in their respective jurisdictions. Sometimes, a transaction may involve more than one state, leading to a challenge in finding the applicable taxes.

The transportation and logistics industry is key in this regard. GST on transportation and logistics is of utmost importance, and its aptness depends much on the place of supply. Detailed guidelines for the place of supply are outlined for various transportation services to avoid confusion. This article thoroughly examines the provisions related to the place of supply concerning transportation services. Keep reading to learn more about GST on goods transportation, compliance requirements for service providers, and more.

GST On Transportation Services

The GST brought a shift towards a consolidated tax structure for goods and services nationwide. It eradicated discrepancies among states. This was in contrast to the Value Added Tax (VAT) system, which imposed levies on goods at each state border. It created divergent tax rates and a cascade of effects.

The implementation of GST brought many changes in the tax landscape. It includes alterations in compliance requirements, exemptions, etc. This has resulted in a more streamlined and effective taxation system.

GST on the transportation of goods by a Goods Transport Agency (GTA) is 5% GST, which applies when the Input Tax Credit (ITC) is not utilized. A 12% GST rate is imposed when ITC is availed.

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Also Read: Comprehensive Transport Documents: The Backbone Of Smooth And Compliant Goods Movement

Place Of Supply For Logistics Services

The smooth functioning of transportation is crucial to the economy. Any disruptions in this sector can impact the entire business network. Fluctuations in petrol prices, for instance, can affect business operations.

The predominant mode of goods transportation in India is through road. According to the National Highways Authority of India, the country’s roads facilitate approximately 65% of cargo and 80% of passenger traffic.

Let’s discuss the place of supply for the transportation and logistics sector. There are 3 sections under this category –

  • Goods Transportation

Services Receiver Place Of Supply(PoS)
Goods transportation by courier or mail Registered Reciever’s location
Unregistered The place where the goods are handed over for further transportation

PoS When The Service Provider And Recipient Are In India

Service Recipient Goods Destination Place Of Supply(PoS)
Registered In India Recipient’s location
Unregistered In India The place where the goods are handed over for further transportation
Registered Outside India Good’s destination
Unregistered Outside India Good’s destination
  • Passengers Transportation

Services Receiver Place Of Supply(PoS)
Passengers Transportation Registered Reciever’s location
Unregistered The place where the passengers on the carriage for the journey

If the entitlement for future utilization of the right of passage is granted, and the initial location, namely the point of embarkation, remains undisclosed when issuing the right of passage, the determination of the place of supply for such service will be governed by the below provisions.

Supply Of Service Place Of Supply(PoS)
Registered Individual Registered recipient’s location
Unregistered Individual Recipient’s address if it is present in the supplier’s records
  • Services Supply On Board A Conveyance

Service Place Of Supply(PoS)
Services supply on board a conveyance The initial designated starting point for the journey of the conveyance.

During the 49th meeting of the GST Council, a resolution was reached to streamline the regulations concerning the place of supply for transportation services of goods by eliminating Section 13(9) from the CGST Act. This decision establishes that when the service provider and the recipient of services are situated outside India, the place of supply for transporting goods will be determined based on the recipient’s location. 

Point Of Origin And Place Of Supply

The place where the shipment or transportation begins is called the point of origin. It also refers to the place a good/product is manufactured or produced or the place from where the shipment is picked up for further transportation. It is a significant factor in discovering the route, transportation method, and cost.

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Besides, the Place of Supply refers to the location where the goods or services shall be supplied through transportation.

The point of origin and the place of supply play significant roles in logistics, trade, and taxation. They influence decisions related to shipping routes, transportation methods, and applicable taxes. Understanding and appropriately addressing these factors are essential for businesses to navigate the challenges of supply chains and regulatory requirements.

Taxation Of Intra-State And Inter-State Transport

GST is a consumption-oriented tax requiring payment in the state where goods and services are utilized. The categories of taxes within the GST framework include CGST, SGST, UTGST, and IGST. To identify the applicable GST type, one must assess the nature of the supply, which can be categorized as inter-state or intra-state. The transaction is considered an inter-state supply involving the importation or exportation of goods to or from India.

Under GST, interstate transactions fall under the integrated tax (IGST). Intrastate transactions are subject to State Goods and Services Tax (SGST) and Central Goods and Services Tax (CGST).

The effective rate ranges from 5% to 12%, depending on the service.

Also Read: Understanding Place Of Supply In GST: Key Principles & Implications

GST On Goods Transportation

Goods transportation carried out by rail, road, air, and inland waterways has a GST rate, beginning from NIL. Here are a few goods from which GST is exempted –

  • Milk, pulses, salt, rice, flour, and other food grains
  • Agricultural products/produce and organic manure
  • Relief materials assigned for victims of accidents, mishaps, or natural calamities
  • Defense or military equipment being transported
  • In case the charged gross amount for goods transport is below Rs. 1500

Besides the above instances, here are some other GST rates for transportation of goods – 

  • 5% GST is applied for transportation when ITC is not availed
  • 12% GST is applied when ITC is availed
  • 18% GST applies to rental offerings of freight aircraft
  • 18% GST is applied to rental offerings of road vehicles counting trucks
  • 18% GST applies on rental offerings of water vessels including freight vessels 

Also Read: Brief Of GST On Transportation Of Goods

Compliance Requirements For Transport And Logistic Providers

Optimizing compliance management within logistics and supply chain operations involves implementing standard protocols. It will help simplify compliance across all internal and external processes. It involves adherence to governmental regulatory guidelines and the internal compliance policies established by the organization.

Let us first look at some internal compliance regulations to be followed –

  • Following quality control standards and certifications, such as ISO, BIS, or other relevant industry-specific quality benchmarks. It is essential to guarantee the uniform quality of products and services throughout the supply chain.
  • Effective inventory management. It involves overseeing stock levels, predicting demand, and optimizing warehouse operations. This ensures the reduction of stockouts, minimizes overstock situations, and eliminates unnecessary costs.
  • The transportation of goods requires adherence to local, national, and global regulations. It ensures customs regulations and trade sanctions are being followed. Proper handling of hazardous materials and adherence to transportation safety standards are other benefits.

While external compliance is also a key part of internal compliance, it adheres to transport regulations in India. Here are some mandatory rules specified by the Indian Government.

  • A national permit, which is an official document issued by the transportation authority. It certifies that a commercial vehicle has been granted authorization for the transportation of goods throughout the entire country.
  • Vehicles transporting goods via road must have an e-Way Bill that sanctions the transfer of goods between different locations. Issuing this bill is the responsibility of either the goods supplier or the transporter. It becomes mandatory when the monetary worth of the transported goods is over ₹50000.
  • The Carriage by Road Act of 2007 states that any individual or entity engaging in the transportation of goods using their vehicles must submit an application for commercial vehicle registration. It is done within a period of ninety days from the commencement date.
  • The Shipping Bill is a requirement outlined in the Shipping Bill and Bill of Export (Forms) Regulations, 2019. Exporters must provide this document to the customs officer before the shipment of goods, whether by land or sea.

Conclusion

There has been a significant transformation in the logistics sector after GST implementation. While it has improved the service quality and brought a reformation, one must be aware of GST invoicing fraud and fake ITC.

The determination of the place of supply for transportation and logistic services is based on the critical factors of the point of origin and destination. It is pivotal in establishing the appropriate taxation jurisdiction and regulatory framework.

Following the regulatory provisions and compliance rules by the government and other authoritative bodies will help navigate the tax challenges for transportation services. It is recommended to stay updated with the latest rules and regulations for safe operations. 

FAQs

  • What Is The Place Of Supply In Logistics? 

When dealing with a registered recipient, the place of supply for domestic transactions is the location of that person. If the recipient is not registered, the place of supply is considered the point at which the goods are transferred for transportation.

  • Is GST Applicable On Transport Services?

NIL to 18% GST is applicable on transport services via road, rail, or air.

  • What Is The Place Of Supply In Transporting Goods Outside India?

The place of supply when transporting goods outside India will be the destination of those goods.

  • Is GST Compulsory For Transporters?

One must pay GST if they operate as Good Transport Agencies. Transportation by anyone besides GTA is exempt from GST.

  • What Is The Limit Of GST Registration For Transporters?

Businesses crossing the threshold of 20 lakhs in a year are required to register. However, for special category states, this registration threshold is lowered to Rs. 10 lakhs.

  • Who Is A GTA Under GST?

A Goods Transport Agency, or GTA, refers to an individual or entity that offers services related to transporting goods by road and issues a consignment note.

  • Can A Transporter Claim ITC?

ITC is allowed on motor vehicles for transporting goods from one place to another.

  • What Is The Penalty For Transporting Goods Without An Invoice?

The penalty is Rs. 10,000 or the tax that is being evaded in the absence of an invoice.

  • What Is RCM In Logistics?

RCM, or reverse charge mechanism, is a process in which GST is paid by the receiver instead of the supplier. It mostly occurs during an import from an unregistered person.

  • How Do You Get A GST Number For Transport Services?

One can easily register via the online GST portal. All you need to do is fill up a form and submit the required documents. 

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Shradha Kabr

Shradha Kabra is an experienced finance writer based in India with 15 years of experience simplifying complex financial topics for readers. Her articles on taxation, Indian stock markets, and other national finance issues are well-researched and presented in an easy-to-understand style. Shradha holds a Double Master's degree and aims to make financial literacy accessible to all through her writing.

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