The Gujarat Authority of Advance Ruling (AAR) in the matter of M/s. Vadilal Enterprises Ltd. vide Order No. GUJ/GAAR/R/2022/35 dated 07.06.2022, has ruled that the Input Tax Credit (ITC) is admissible on GST paid on goods transport agency (GTA) service supplied to it, despite refrigerated vehicles travelling empty during the return journey.

The applicant, Vadilal, is in the business of supplying ice-cream in various states in addition to the supplies in Gujarat State. For transporting the goods to places located in different states, Vadilal has been using refrigerated vehicles because the goods have to be stored and preserved at a particular temperature to avoid deterioration in quality. Various independent agencies, which are owners of refrigerated vehicles, have been providing refrigerated vehicles to Vadilal for transportation of its goods. 

After delivering the goods at the destination, the refrigerated vehicle comes back. During the return journey, ordinarily, the vehicle travels empty. The plastic trays in which Vadilal transported and delivered the goods at the destination, on the other hand, may be lying empty at the location. Therefore, empty plastic trays may be brought back in the refrigerated vehicle during its return journey.

The applicant has sought an advance ruling on the issue of whether the applicant can avail input tax credit for the entire amount of GST paid on the transaction of the applicant's goods in refrigerated vehicles, although the vehicles travel empty during the return journey.

The AAR observed that the GST liability for supply of service by a GTA in respect of transportation of goods by road to a registered person shall be paid by the recipient of services. The applicant is liable to GST under Reverse Charge Mechanism (RCM) for the GTA service supplied to it.

The Reverse Charge Mechanism is the process of payment of GST by the receiver instead of the supplier. The liability of tax payment is transferred to the recipient/ receiver instead of the supplier. 

“ITC is admissible to Vadilal on GST paid on GTA service supplied to it, despite the fact that refrigerated vehicles travelled empty during the return journey, as Vadilal had paid an agreed freight to the GTA for its service and this agreed freight was inclusive of both the onward and return journey,” the AAR said.