GST Reverse Charge Mechanism on Freight: UP AAAR Ruling 14/2021
The Appellate Authority for Advance Ruling confirmed that businesses must pay GST under the Reverse Charge Mechanism for indigenous freight services.
- Ruling
- Appeal Order No. 14/AAAR/10/03/2021 dated 10.03.2021
- Authority
- Appellate Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- The company asked if they must pay GST on freight under RCM.
- The authority confirmed RCM applies to indigenous freight despite prior tax payments.
- The authority refused to rule on ocean freight due to Supreme Court litigation.
In short
Sangal Papers Limited asked if they had to pay Goods and Services Tax (GST) under the Reverse Charge Mechanism (RCM) for freight when the tax was already paid by the supplier. They also questioned if ocean freight on imports, already included in the cost of goods, required a second tax payment. The authority clarified that RCM applies to indigenous freight, but left the ocean freight question open due to ongoing court cases.
What has changed
How it worked before
Many businesses assumed that if GST was already paid on freight by the supplier, paying it again under RCM would amount to double taxation and should not be required.
What has changed
The authority ruled that the RCM liability for indigenous freight is mandatory under Notification No. 13/2017-Central Tax (Rate). This means businesses cannot avoid this tax simply by arguing that the supplier already paid it or that it results in double taxation.
Who this affects
Manufacturers and traders who procure goods domestically and pay freight charges to transport them.
An example
A furniture manufacturer in Uttar Pradesh hires a local transporter to move raw materials. The transporter charges for the service, and the manufacturer wonders if they must pay GST under RCM. Based on this ruling, the manufacturer is liable to pay the GST under RCM, even if they believe the transporter's invoice already covers the tax burden.
What you should do
If you pay freight for domestic goods, you must account for GST under RCM. Remember that an Advance Ruling only binds the company that asked and its specific tax office; it is not a law that applies to your business automatically.
If you do nothing
If you ignore the RCM liability, your local tax officer may issue a notice for unpaid tax, interest, and penalties. Assuming this ruling does not apply to you because you disagree with the logic can lead to costly legal disputes. Always consult your tax advisor before deciding to skip an RCM payment.
The terms explained
- Reverse Charge Mechanism (RCM)
- A system where the person receiving the service pays the tax directly to the government instead of the person providing the service.
- Indigenous supplies
- Goods or services sourced from within India rather than imported from another country.
- CIF value
- A method of pricing imports that includes the cost of the goods, insurance, and freight charges.
The ruling in detail
Appellate Authority for Advance Ruling
M/s SANGAL PAPERS LTD.
Appeal Order No. 14/AAAR/10/03/2021 dated 10.03.2021 · Uttar Pradesh
Questions before the authority
- When GST has been paid on the freight in the case of indigenous supplies, whether the supplier is required to pay again GST on the freight under RCM.
- When the GST has been paid on the ocean freight in the case of imports on the CIF value and the value of the ocean freight is included in the value of the imported goods, whether any further GST liability is there under RCM.
Facts
The appellant is a manufacturer of paper that imports waste paper and also procures indigenous supplies. They sought a ruling on whether they are liable to pay GST under the Reverse Charge Mechanism (RCM) on freight charges for indigenous supplies where GST has already been paid, and on ocean freight for imports where the freight is already included in the CIF value of the goods.
Ruling
| Question | What the authority ruled |
|---|---|
| GST on freight for indigenous supplies under RCM | The appellant is liable to pay GST under RCM. The ruling of the Advance Ruling Authority was found to be just and proper. |
| GST on ocean freight for imports under RCM | No order passed. The matter is pending consideration before the Hon'ble Supreme Court in SLP (C) Nos. 16012/2020 and 15995/2020. |
The Appellate Authority upheld the original ruling regarding indigenous supplies, confirming the liability to pay GST under RCM. Regarding ocean freight on imports, the Authority declined to pass an order, noting that the matter is currently pending consideration before the Hon'ble Supreme Court.
Reasoning
The Authority relied on Notification No. 13/2017-Central Tax (Rate) to conclude that the appellant is liable to pay GST under RCM for indigenous freight services. Regarding ocean freight, the Authority observed that the issue is subject to ongoing litigation in the Supreme Court, making it inappropriate to pass an order. The Authority also noted that the double taxation argument is a revenue-neutral exercise and outside its purview.
Provisions relied on
- Section 100 of the CGST Act, 2017
- Section 5(3) of the IGST Act, 2017
- Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017
- Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017
For the practitioner
This ruling confirms that **RCM liability on indigenous freight** remains applicable despite the appellant's arguments regarding double taxation. Practitioners should note that the Authority **refused to rule on ocean freight** for imports, citing the pendency of the issue before the Supreme Court. It does not provide a final resolution for importers challenging the RCM levy on ocean freight.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/2024-02/up_aaar_14_2020-21_10.03.2021_sp.pdf
Legibility of the scan, as read: high.
Prepared 13-10-2026.
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