Understanding the Payments to the Transportation Agency
During transportation, the consignee pays the service tax if freight to pay is mentioned in the consignment note and the supplier pays the service tax if freight paid is mentioned in the consignment note.
When you receive the invoice from the transportation agency, verify that a service tax was not calculated. You calculate the service tax and education cess on service tax and pay the voucher amount minus the withholding amount to the transportation agency. You pay the service tax amount to the tax authority and recover it when you settle the service tax.
Service tax does not apply in these cases:
During the transport of goods for a single customer when the freight payment is lesser than Rs. 1500.
During the transport of goods for more than one customer when the freight payment is less than Rs. 750 for each customer.
In either case, when the freight payment is more than the limits mentioned, you pay the service tax on the full amount without any deduction.
When a company creates a purchase order, it specifies whether the service is liable for service tax. If so, the system adds a tax line for the service tax so that the tax can be identified and reclassified to a final tax credit account during the bill payment. The system calculates the service tax by using standard functionality of landed cost.
S and ST are the landed cost rule lines set up for service line and tax line respectively. Service line includes items defined as a service. Typically, you pay the service tax and the education cess on the service tax to the supplier. In this case, the service tax and the education cess are identified as ST in the landed cost rule. In case of transportation agency, you issue the tax payments to the government. Therefore, you need to deduct the tax amount from the supplier's invoice. In this case, the service tax and the education cess are negated and identified as S so that they can be deducted from the supplier's invoice
During the voucher match process, if a purchase order includes a service line, the system creates information needed for service tax reports in India, in a file.