How long you can propel & advance a myth because the ultimate truth is that it will simply fall flat sooner or later. The GST council takes pride that the full house met 21 times & there were marathon meetings & decisions were reached by consensus. The GST is the mother of all reforms & game changer but if you have ears to the ground then you simply hear that it is the second disaster in a row both in terms of the law & implementation thereof. Did the aspect of double taxation get the attention of the GST council & whether double taxation was approved by the council? This simply shows that insatiable greed to collect taxes by hook or crook by disregarding the very basis of value added taxation is not a cause of concern & even after that is visible to one & all, the GoI wants the industry to waste their time, energy & efforts in court to get justice? The moot question is does this help the government in any way except bringing bad name for it. My friends in the government object to calling spade a spade conveniently forgetting their deeds & the fact is that this is collective wisdom of the government & that the government needs to set a good example for the citizens to follow. How does it matter if I sugar coat the complaint, if the abject failure to observe the basic principles of justice? Why should the bureaucracy look for such mercy rather than do the things right in the first instance. I am talking about the government of a Democratic Republic & not about a novice, who is entitled to an error because to err is human. Therefore, please address the issue at hand rather than criticize the harsh language.
The miraculous Indian bureaucracy has attained expertise in establishing time & again that law is an ass & I am responsible for it & this happens several times in a year & the position is so pathetic that nobody seems to bother even. The Mumbai High Court in no uncertain terms (2010 (255) E.L.T. 526 (Bom.) in case of COMMR. OF CENTRAL EXCISE versus TECHNO ECONOMIC SERVICES PVT. LTD.) pronounced that Let the Courts decide attitude should be given up but then too this has no effect on the thick skinned bureaucracy.
This is a case study about the levy of tax on ocean freight & the readers will themselves realize the truth that how greed drives the collection of taxes & no heed being paid to double taxation & the basic fact that what is the concept of Value Added Tax & why even the basics are belied & nobody cares even when the wrongs are denounced in the public domain.
The importer in India Contracts an FCL on CIF comprising of 20 MT of Coated Cardboard from a Chinese supplier & pays US$ 21000. The freight component is not disclosed by the Chinese supplier & therefore there is no way to know the exact freight amount. Under these circumstances, the tax liability is to be discharged on formula determined value, which is normally far higher than the actual freight amount. Thus once again there is a double whammy for the importer.
The pertinent point is that you are contracting with the Chinese supplier for delivery at your nominated warehouse in India located in the upcountry for an FCL of Coated Cardboard & the taxable transaction is the supply of Coated Cardboard & the tax liability is discharged by the importer by paying applicable duties at the time of import clearance by filing the B/E. Thus, the importer discharges the tax liability at the time of import no more no less & there is no scope for any dispute about it.
The readers will note that the Chinese exporter arranges the transportation through an International freight forwarder who has booked space on the vessel & sells the same on piecemeal basis. Thus both the Service provider International freight forwarder) & the service recipient (Chinese supplier) are located in non taxable territory & the service recipient is the Chinese supplier & not the Indian importer in any case.
The ocean transportation of goods in this case is naturally bundled service in the course of the supply of the coated cardboard (this applies to imports of all goods from overseas suppliers) & cannot be cunningly dissected just to collect the tax for the second time.
The ocean freight is paid once only & included in the value of the goods under the Customs Valuation Rules governed under the aegis of the World Customs Organization (WCO) practised all over the world therefore once the exporter discharges this liability on import there is no scope for any further recovery.
Further, the important fact Is that whether the Indian bureaucracy is not aware that in International convention right up there in the UN, the issue has been discussed & it is opined that the present and long established principle of taxing international shipping in the home country only is maintained. All this is in the public domain. If these recommendations are available then why the Indian bureaucracy should not accept that & prove be an exception! Thus the readers will note that this ocean freight has already suffered local tax in the home country therefore how many times & how many governments should collect the taxes & the moot question is that whether the businesses are only existing for paying the taxes?
Not only this, why there should be dichotomy & idiocy allowed to prevail. The Indian bureaucracy wants to collect tax twice in the case of Ocean freight but then exempts this in case of air shipments. The only difference between the two is the mode of transportation. Once again, the readers will understand that the Indian bureaucracy is out to prove that the law is an ass & they alone are responsible for it. To my mind, they refrained from collecting the tax on airfreight because that will expose the inefficiency of the system & clog the airports because of the delay in clearances.
Finally, the readers will agree that the basic & underlying principle of GST is Value Addition. The moot question under those circumstances is how ocean freight payment done by the overseas supplier added value twice. Once to collect the duty on the CIF value of the imports of goods & for the second time on the amount of freight paid for ocean transportation service. Is this cunningness in collection of taxes acceptable? What kind of example the miraculous Indian bureaucracy is putting up? Why should they crack such poor jokes & be just not bothered when the facts are brought to the notice of all concerned including the law makers & the implementers?
I am also amazed by the fact that how can the Ministry of Finance allow the input tax credit twice in respect of the payment of GST. The reason being simple that this second collection is not under the valid authority of law as such & as explained. It is akin to the fact that I pay tax @ 28% when the applicable rate is 18% only then the excess payment is not tax in terms of article 265 of the Constitution of India & therefore input tax credit of the excess payment is not valid & there is a refund required to be made to the tax payer of the excess deposit lying with the tax payer.
This insanity of taxing of ocean freight was introduced in the law by way of budget notification in 2016 which took effect from 1.4.2016 but then this writer had high hopes that this anomaly will go once the GST will be introduced but then as you know that is not to be despite the fact that it is self evident that whichever way you look at it this is simply an idiocy & manifestation of insatiable greed to collect taxes even twice by hook or crook. It is difficult to understand that why the elite IAS/IRS cadre located in the North/South block not able to comprehend this & they need this to be settled by the intervention of the courts. Is this sheer stupidity not turning the country into a poor joke internationally?
When the GST was unveiled for the first time, I was simply intrigued by the levy & collection clause wherein they specified that GST would be collected on supplies of goods or services or both. I confess that my mind could not decipher the true meaning of ‘both’ & the mischief manifested in it i.e. the Indian bureaucracy was warning you about collecting taxes twice even in taxation system which is based on value addition. I also failed to comprehend that they were referring value addition in the coffers of the government. As mentioned, to my mind, this happened because the Indian bureaucracy simply did a very shoddy cut & paste job without any application of mind. This is not the only instance but there are several of them. Therefore the moot question is that can this cut & paste job be dubbed as mother of reforms/single biggest reform or transformational? Is it really not a simply wasted opportunity to introduce something meaningful studying the GST taxation system prevailing in several countries & adopting the best practices! The miraculous Indian bureaucracy botched up everything & landed us into a mess & now it is difficult to find out a way out of it. Therefore approaching the courts is the only way out. However, I am not sure that if the court decides the issue in the favour of assessee taking into consideration the International practice, double taxation aspect & the basic of the GST then too whether the decision will be accepted with humility or the law will be over turned through the intervention of the Parliament because in the first instance, such issues need not go to the courts for determination.
The systems approach is the backbone of the GST implementation. Under these circumstances, there should be a real-time system running 24X7 without interruptions rather than requiring the assessee to waste their time, energy & effort staring at the screens to upload the returns & pray to God that the data may be uploaded & accepted.
Initially I did another exhaustive version of the article tracing the history of service tax in respect of ocean freight but then reference to various notifications made this issue look very complicated though this issue is simply of common sense & little application of mind. However, the miraculous Indian bureaucracy finds no time to apply their mind because there is absolutely no responsibility & accountability in the system & therefore nobody seems to be even concerned about what is happening or what the ground reality is. Therefore, I simply preferred this layman approach to deliver the message. The most significant point is that when the GST was introduced, the issue of double taxation should have caught the attention of the lawmakers as well as the implementers immediately but once again that is not to be. Can this be termed as oversight? I think not because the ocean freight is paid once only & therefore the tax cannot be collected twice is clear to one & all because this is against the foundation of the GST, which is based on value addition.
(Author Rajiv Gupta can be reached at rajiv.pec@gmail.com)
Author Bio
The article was written with the objective that the bureaucracy in the MoF will pay attention & rectify the anomaly by opening up the minds. However, you cannot expect any such dignified conduct from the arrogant officials. I fail to understand that why the High Courts be forced to do the dirty job of slapping the government time & again. Is this not shameful & disgusting. We talk about reforms & ease of doing business but where is the semblance of it visible.
Although the author dwells extensively on double taxation on Ocean Freight in GST regime, what is more pertinent is the fundamental question iabout the high handed approach of Indian Bureaucracy. Although the whites have gone, our Brown Babus are a greater pain not only in taxation but all fields where there is government intervention. More unfortunately, the GoI is trying to control more and more, which is totally opposite of the promise made by Hon’ble PM.
the author has lamented long about taxing the ocean freight amount ending in double taxation. i am sure the author would have filed a case before the proper appellate authorities, high court and supreme court. If he got the judgement, better he could have added that also. If judgement has not yet come, then when the matter is before the court, it is not proper to thrash it in this forum. One thing is obvious the author is very angry with the ministry of finance and very fond of using the the character ” & ” everywhere.
Double Taxation in GST :
The Author has raised a moot question that whether the businesses are only existing for paying the taxes.
It is a good practical situation dealing in respect of Ocean Freight wherein it is paid only once but tax collected twice and this article is interesting and it can be read by all.