Export Freight exemption withdrawn – Should an exporter hire a foreign shipping line?
The exemption from payment of GST for the services of transportation of goods by vessel or aircraft from any Indian Port/Airport to a foreign Port/Airport, which was extended time to time has not been extended after 30.09.2022.
That means w.e.f. 01.10.2022, transportation of export consignments by Vessel / Aircraft becomes liable to GST and Indian Shipping companies or Indian aircraft companies must charge GST under forward charge mechanism.
The provisions of place of supply for transportation of goods is governed under section 12(8) of the IGST Act,2017. The same reads as under:
“(8) The place of supply of services by way of transportation of goods, including by mail or courier to,––
(a) a registered person, shall be the location of such person.
(b) a person other than a registered person, shall be the location at which such goods are handed over for their transportation.
Provided that where the transportation of goods is to a place outside India, the place of supply shall be the place of destination of such goods.”
As per the above reproduced proviso to section 12(8) of the IGST Act, 2017, the place of supply for transportation of goods to a place outside India would be the place of destination of goods.
For claiming input tax credit by a registered person under the GST law, it is an unwritten rule that the place of supply of goods and services should be the place wherein the registered person is situated. Thus, the GST paid to Indian Shipping Company or Airline Company on freight amount for export of goods would not be eligible for input tax credit and thus would be a cost to the exporter.
Interestingly, now a disparity has been created between an Indian Shipping Company or Airlines and Foreign shipping company/Airline due to withdrawal of this exemption. As the place of supply in case of a foreign shipping company is also a place of destination of goods as per section 13(9) of the CGST Act,2017, there would be no GST applicable under Reverse Charge Mechanism.
Thus, the exporter should prefer a foreign shipping line/airline for transport of exports goods.
Author Bio
The challenge in this regard has been correctly pointed out by the author. As the place of supply will be outside India ITC will be restricted.
baseless analysis and post in taxguru is not accepted from CA, pls post comment carefully as ITC claim or not it will analysis on the base of sec 16 and sec 17
Section 16 calls for a registered person to be eligible for ITC.The recipient needs be thus registered in the state where POS falls in for Ideally claiming the credit.
This is why even in case you are registered person who stays in a hotel and gets a B2b inv from another state with chst+sgst for pos of other state isn’t eligible to claim the cgst component. As “registered person” isn’t reckoned statewise
So the ” other territory” “97” isn’t a pos where you are registered. This will technically this breach sec 16.
You will understand when GSTR-2B clash will start.
Section 16 calls for a registered person to be eligible for ITC. The recipient needs be thus registered in the state where POS falls in for Ideally claiming the credit.
This is why even in case you are registered person who stays in a hotel and gets a B2b inv from another state with CGST + SGST for POS of other state isn’t eligible to claim the CGST component As “registered person” isn’t reckoned statewise
So the ” other territory” “97” isn’t a pos where you are registered. This will technically this breach sec 16.
You will understand all these sir when GSTR-2B will show the ITC as ineligible in future.
This is an litigative issue. Better understand the matter in deeper sense and then comment.
I do not understand the basis of your statement – “For claiming input tax credit by a registered person under the GST law, it is an unwritten rule that the place of supply of goods and services should be the place wherein the registered person is situated.”
To my knowledge, there is no such restriction. The effect of the proviso is that IGST will always be applicable in the case of export freight and there should not be any difficulty for the exporter to claim ITC.
I think you are not able to understand. How can we claim input tax credit where the place of supply is not a place where the service recipient is registered.
If you are registered in the State of Gujarat and stay in a hotel in State of Maharashtra, where the place of supply is Maharashtra, you are not eligible for input tax credit in Maharashtra. The GSTN Portal in GSTR-2B reflect the amount as ineligible ITC.
Similarly, in case of export freight as the place of supply is destination of goods, which is outside India, the ITC would not be eligible to an exporter registered in India.
Hi Anish, with regard to your example of ITC on hotel stay, it will be charged as CGST+SGST which is not eligible for ITC, but in this freight case, it is charged as IGST so, ITC should be possible, isn’t ??
Please study the act properly before posting any analysis. Please learn the business side properly before posting. Regards, Venkatesh
Pl refer to my reply on other person comments. Hope you will understand the issue.
Hope my reply to above two comments would satisfy your comment. I have read the act more properly, I think so.
Hi Anish, you were the 1st person to highlight this challenge which sounds valid as we started getting invoices from the shipping lines with the place of supply as “99” for freight service (which was not the case till 30th September). I would be happy if your argument turns wrong for the benefit of the industry, but really appreicate that you brought up this point before everyone finds issues post GSTR filing for October.
Thanks for appreciating. Hope other readers also appreciate.
we started getting invoices from the shipping lines with the place of supply as “97”
Have represented to Govt. I am sure this was not the intention. Hope for some changes or Govt. may continue exemption.