New Delhi: The finance ministry will impose a 10.2 per cent service tax on goods transport agencies. This comes after the 7.7 per cent increase in freight rates on select bulk commodities announced by the Railways last week.

The rate of service tax on goods transport agencies would be the same as that being charged on other services at 10.2 per cent.

Finance minister P Chidamabram, has confirmed that the levy would be imposed "very soon" after the ministry received the necessary clearance from the Law Ministry for notification.

The move to bring goods transport agencies under the service tax net was proposed in the 2004-05 Union Budget, but was put in abeyance because of stiff resistance from transporters who went on a nation-wide strike in August.

The transporter''s main complaint was that the bulk of truckers in the country (who are also engaged in cargo booking) are small-time operators, who are not in a position to comply with the formalities of payment of service tax. Following this the government setup a six-member committee under S K Bharadwaj, member, Central Board of Excise and Customs, to frame an appropriate mechanism for collection and payment of service tax by goods transport agencies.

The committee, which recently submitted its report, has suggested shifting the burden of service tax payment on the consignor/consignee rather than making the goods transport agency a collecting agency.

Putting the liability for payment of service tax on the persons paying the freight charges was specifically suggested in the case of consignors / consignees belonging to the organised sector which included any factory registered under the Factories Act, 1948, any company established under the Companies Act, 1956 and all other organised sector entities.

According to the committee, "Shifting the burden of service tax payment on to the consignor / consignee would lessen the responsibility of tax collection and payment and observance of procedural formalities of operators in the transport sector to a large extent, while it would not cast any additional burden on the consignor or the consignee. Being an indirect tax, the service tax burden is ultimately borne by the person who bears the freight cost," the report said.

But for transport of goods by road where the consignor/consignee is in the unorganised sector, the committee suggested that the liability to collect and deposit the service tax be put on the goods transport agency.

The panel has also recommended an abatement of 75 per cent on the gross freight amount — the 10.2 per cent tax would be applicable only on the balance 25 per cent — while proposing a complete exemption from service tax on cases where the gross freight chargeable on consignments carried in a vehicle does not exceed Rs 1,500 or where the gross freight in respect of individual consignments does not exceed Rs 750.