GST Implications on Freight in case of Import & Export of Goods

MEANING OF FREIGHT: –

Freight charges is the cost of transportation services. According to the Business Dictionary, freight costs include packaging, palletizing, loading or unloading charges, carrier fees, and insurance costs.

TYPES OF FREIGHT: –

• Ocean Freight in respect of Import & Export of Goods. (Transport of Goods or Cargo by ships)
• Air Freight in respect of Import & Export of Goods. (Transport of Goods or Cargo by Air)

OCEAN FREIGHT IN RESPECT OF IMPORT OF GOODS: –

SAC Code & Rate of GST: –

As per the Entry No. 9 of Notification No. 8/2017-Integrated Tax (Rate) 28.06.2017 GST Rate & SAC code are as under.

Service: –

Transport of goods in a vessel including services provided or agreed to be provided by a person located in non- taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India.

SAC Code: –

9965

GST Rate: –

5%

Condition: –

Provided that credit of input tax charged on goods (other than on ships, vessels including bulk carriers and tankers) used in supplying the service has not been taken. However, this condition will not apply where the supplier of service is located in non-taxable territory.

Who is liable to pay IGST: –

As per the Entry no. 10 of Notification No. 10/2017- Integrated Tax (Rate) 28.06.2017 GST liability will be in the hands of Recipient of the service under RCM which is as under.

Type of Service: –

Services supplied by a person located in non- taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India.

Supplier of Service: –

A person located in non-taxable territory.

Recipient of Service: –

Importer, as defined in clause (26) of section 2 of the Customs Act, 1962(52 of 1962), located in the taxable territory.

Valuation: –

It is important to refer to CORRIGENDUM to Notification No. 8/2017-Integrated tax (Rate) dated 28.06.2017 vide F. No. 334/1/2017-TRU dated 30.06.2017 whereby the following has been inserted.

Where the value of taxable service provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India is not available with the person liable for paying integrated tax, the same shall be deemed to be 10 % of the CIF value (sum of cost, insurance and freight) of imported goods.

Analysis: –

First, we will discuss the definition of Recipient.

Recipient: –

As per the section 2(93) of the CGST Act, 2017 recipient means,

• Where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration.
• Where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available.
• Where no consideration is payable for the supply of a service, the person to whom the service is rendered.

Second, we will discuss the transaction based on CIF value (Cost, Insurance, Freight) and FOB (Free on board) value.

Import of goods on CIF Value: –

Under a CIF basis the freight is borne by the seller and not the importer. Here, the supplier will be the service receiver and not the importer.

Hence, it can be concluded that the importer is not liable to pay GST under reverse charge on such ocean freight expense, since the importer is not the service receiver.

Above mentioned clarification also supported by the decision of Gujarat High Court in case of Mohit Minerals Pvt. Ltd. Vs. Union of India & Others which is as under.

In the case of CIF contracts, the transportation contract is entered by the seller and not the buyer. Accordingly, the buyer (i.e., importer) is not the recipient of the service.

Hence it was held that IGST on such ocean freight is not leviable.

Import of goods on FOB Value: –

Freight is borne by the importer. Accordingly, the importer will be the service receiver and the shipping company will be the service provider.

Now, we will have to analyse the location of the shipping company. If the shipping company is located in the taxable territory, then, GST will be payable by the shipping company under forward charge.

However, if the shipping company is located in a non-taxable territory. Then, in terms of serial no. 10 to notification no. 10/2017-Integrated Tax (Rate) dated 28th June 2017, GST will be payable by the importer under reverse charge mechanism (RCM).

AIR FREIGHT IN RESPECT OF IMPORT OF GOODS: –

As per the Entry No. 19 of Notification No. 12/2017-Central Tax (Rate) 28.06.2017 GST Rate & SAC code are as under.

Service: –

Services by way of transportation of goods by an aircraft from a place outside India up to the customs station of clearance in India.

SAC Code: –

9965

GST Rate: –

NIL

OCEAN FREIGHT IN RESPECT OF EXPORT OF GOODS: –

As per the Entry No. 19B (Added by Notification No. 2/2018-Central Tax (Rate) 25.01.2018) of Notification No. 12/2017-Central Tax (Rate) 28.06.2017 GST Rate & SAC code are as under.

Service: –

Services by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India.

SAC Code: –

9965

GST Rate: –

NIL (Up to 30^th Sep, 2022) (As per Notification No. 7/2021-Central Tax (Rate) 30.09.2021)

AIR FREIGHT IN RESPECT OF EXPORT OF GOODS: –

As per the Entry No. 19A (Added by Notification No. 2/2018-Central Tax (Rate) 25.01.2018) of Notification No. 12/2017-Central Tax (Rate) 28.06.2017 GST Rate & SAC code are as under.

Service: –

Services by way of transportation of goods by an aircraft from customs station of clearance in India to a place outside India.

SAC Code: –

9965

GST Rate: –

NIL (Up to 30^th Sep, 2022) (As per Notification No. 7/2021-Central Tax (Rate) 30.09.2021)