CA Pradeep Jain ,
CA Preeti Parihar,
CA Vaibhav Bothra
Budget 2016 has been introduced and with it has come many amendments and changes in the law. One such change is with respect to the services by way of transportation of goods by an aircraft or a vessel. The amendments made in it are effective from 1.6.2016 and will impose additional fiscal burden on the importers importing goods via sea. This article demonstrates the existing scenario, amendments made and the implications thereof.
The services of transportation of goods by an aircraft or a vessel are exempted in negative list in section 66D as follows:-
(p) services by way of transportation of goods—
(i) by road except the services of—
(A) a goods transportation agency; or
(B) a courier agency;
(ii) by an aircraft or a vessel from a place outside India up to the customs station of clearance in India; or
(iii) by inland waterways;
Thus, there is exemption to the services of transportation of goods when carried by an aircraft or vessel from a place outside India up to the customs station of clearance in India. As a result the shipping lines particularly are exempt from service tax while importing goods on behalf of the importers.
Amendment effective from 1.6.2016:-
In the latest budget, it has been declared that this entry [sec. 66D (p)(ii)] shall be omitted w.e.f. 01/06/2016. The effect being that the above stated exemption to vessels and aircrafts under the above entry shall not be available. Amendment has also been made in notification no. 25/2012 dated 20/06/2012 vide notification no. 09/2016 dated 01/03/2016 by inserting a new entry no. 53 which states as follows:
“53. Services by way of transportation of goods by an aircraft from a place outside India upto the customs station of clearance in India.”
Thus, the new entry grants exemption only to the goods transported by an aircraft and not to vessels carrying goods. It is to be noted that this entry shall also be effective from 01/06/2016.
Effect of amendment:-
The new entry will exempt only the inward transportation of goods by an aircraft. The existing exemption to vessels is going to be withdrawn w.e.f. 1.6.2016. This directly impacts the shipping lines registered in India. The shipping lines are engaged in the transportation of goods from and to India. Now when the exemption from the shipping lines importing the goods from abroad to India is lifted, the Place of Provision of service rules, 2012 comes into direct play. Rule 10 of POPS states as follows:
“ The place of provision of services of transportation of goods, other than by way of mail or courier, shall be the place of destination of the goods:
Provided that the place of provision of services of goods transportation agency shall be the location of the person liable to pay tax.”
In case of imports, the destination of goods is India which is a taxable territory. Thus, two situations will arise:-
In the first case, as the shipping line is registered in India, and the service is taking place in a taxable territory, it will have to pay service tax as a service provider. On the other hand, in the second case, as the service provider is located outside India, and the service has taken place in India, rule 10 effects the place of provision in India and thus the service receiver becomes liable to pay service tax under reverse charge. The service tax so paid will be available as credit with the Indian manufacturer or service provider availing such services. The new notification also clarifies that service tax levied on such services shall not be part of value for custom duty purposes.
It is to be noted that this very entry only hits the imports and not the exports because as per the rule 10 of the POPS discussed above, the destination of goods will be outside taxable territory and thus no service tax shall be applicable.
Import of goods by vessels is now liable to service tax. Thus, the cost of imports will go high. The domestic shipping lines will be enjoying the threshold while the reverse charge cases will be taxable right from the beginning. In any case, the importers will have to suffer and the cost of imports will increase ultimately raising the cost of imported goods. Denial of this exemption further indicates the clear vision of government “Make in India”, do not import it dear!!