International Trade is one of the main pillars of economic growth. In this globalization era, both imports & exports play a vital role in the development of growing economies like India. Although, one can argue that an economy should export more & import less since the more a country exports, the more domestic economic activity is occurring. More exports mean more production, jobs and revenue. However, considering today’s scenario, a balanced approach should be followed since Imports have their benefits like tough competition to domestic suppliers, thereby improving quality & more choices to consumers, etc. But nowadays, India as an economy is adopting “Vocal for Local”, i.e. reducing the dependence on Imports to fulfil the domestic demand & thereby discouraging the imports through various means.

GST on Ocean Freight in Relation to Import of GoodsThe two most popular means of transportation of the goods from one country to another are through sea routes and air routes. Now in case of import of goods, services provided for transportation through the above routes have different GST liability scenarios. GST on transportation through air route is exempt & GST on transportation through sea route is charged under reverse charge if the transportation service supplier is based out of India. In this article, we attempt to understand the applicability of GST on Ocean Freight expense incurred during import of goods. So, let’s understand some basic concepts before proceeding to the main one.

Ocean Freight

In a simple sense, it means transportation of imported goods through the sea route. Large quantities of goods are loaded in a vessel & transported to the destination country.

Import of Services

As per Section 2(11) of IGST Act 2017, It is the supply of any service where-

(i) The supplier of service is located outside the taxable area

(ii) The recipient of service is located in India, and

(iii) The place of supply of service is in India

Note that Ocean Freight expense is an “Import of Service”.

Reverse Charge Mechanism

  • Usually, the supplier of goods or services pays tax on supply. However, in the case of Reverse Charge, the receiver becomes liable to pay the tax, i.e., the chargeability gets reversed.
  • Hence putting the above definition in our context, as per Notification Nos. 13/2017-CT and 10/2017-IT dated 28-6-2017, If the supplier of service is located in a non-taxable territory & the recipient of services located in the taxable region, then the latter is liable to pay GST under RCM.


Following Serial Number 10 of Notification no. 10/2017 – IGST Act, 2017, “For services supplied by a person located in non-taxable territory by transportation of goods by a vessel from a place outside India up to the customs station of clearance in India”. As per the Notification, the importer would be liable to discharge GST liability on behalf of the exporter of service under the reverse charge mechanism.

In simple context, if an exporter transports the goods through a vessel from outside India to India, then Importer is liable to pay GST on transportation services, irrespective of the fact whether consideration for that service will be paid by Exporter or Importer. It is to be noted that here we are discussing GST on vessel/transportation services & not on Import of goods.

Based on Transaction value, the Ocean Freight Expense in respect of import of goods is mainly divided into two types, namely:

1. Imports of goods on FOB Value.

2. Import of goods on CIF Value.

3. Import of goods on FOB Value:

  • FOB, Free on Board, is a transportation term that indicates that the price for goods includes delivery at the seller’s expense to a specified point and no further. FOB origin means that the buyer/importer pays the shipping cost and gains ownership of the goods as soon as it leaves its point of origin.
  • Suppose the importer paid for goods on FOB basis and hired an ocean freight service provider, and makes the payment for such service. In such a case, the importer is the recipient of service as per the definition of ‘Recipient’.
  • Hence, if the ocean shipping line is located in non-taxable territory, GST is to be paid under RCM by the recipient of service, i.e. the importer.

2. Imports of goods on CIF Value:

  • Import of goods on Cost, Insurance, and Freight (CIF) basis means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination. He also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage.
  • The government has included ‘importer’ in the category recipient of services by entry no. 10 of Notification 10/2017. However, it must be noted that in the case of CIF transactions, the importer is not the person liable to pay freight to the shipping line and thus cannot be treated as the recipient of the service of a foreign shipping line.

Now the question arises whether the Notification can expand the scope of ‘service recipient’ when the section has empowered to levy a tax on the recipient? Several petitions were filed before the Gujarat High Court on the said issue. Entry No. 10 of Notification no. 10/2017) was challenged on the ground that it is ultra-virus of section 5 of the IGST Act.

The landmark ruling in the case of Mohit Minerals Vs. UOI & Others reported in 2020-TIOL-164-AHMDGST was pronounced. Gujarat High court in the said judgment, has held as follows: –

  • Entry No 10 of Notification no. 10/2017, is ultra-virus of section 5(3). The importer is not the recipient of services of transportation of goods. The exporter who is located outside has contracted with the shipping line, the recipient of service. Hence tax can’t be demanded from the importer. The importer cannot be considered as an indirect recipient of service, too, as ‘recipient of service’ is defined explicitly in the statute.
  • The importer cannot determine the value of services under section 15 of the GST Act. The value would be determined by the exporter of goods.
  • Entry No. 10 of Notification no. 10/2017 is unconstitutional as the tax on ocean freight services and making the importer pay GST is not constitutional as there is no statutory sanction.

As per the above, it may be concluded that no IGST is payable by the importer under Reverse Charge in the case of CIF transactions. The government has not yet clarified the situation by way of issuing notification. Hence, the above ruling applies wherein no GST is payable by the importer.

The above discussion can be summarized as follows:

  • Payment on FOB basis:
  • If shipping line is based in India, GST payable by shipping company under forward charge.
  • If shipping line is based outside India, GST payable by Importer under RCM.
  • Payment on CIF basis:
  • If shipping line is based in India, GST payable by shipping company under forward charge.
  • If shipping line is based outside India, NO GST payable as per Gujarat High Court decision.


The problem with charging GST on Ocean Freight in case of Imports on CIF Basis is that the government wants to charge GST from Importer on RCM basis. But the importer in such a case is not the “Recipient”. GST is charged under RCM from the recipient only. This makes the attempt technically wrong. It is suggested that the lawmakers amend the definition of RCM as “GST payable to government directly by ANY person other than the supplier.”


Authored by CA Manish Gupta and assisted by Ms. Vrinda Sharma & Ashish Sharma

For any queries, kindly contact at

Author Bio

Qualification: CA in Practice
Company: Manish Anil Gupta & Co
Location: New Delhi, Delhi, India
Member Since: 18 May 2021 | Total Posts: 14
Manish Gupta is the Founder of Manish Anil Gupta & Co. He is a qualified Chartered Accountant and Fellow member of Institute of Chartered Accountants of India with more than 11 years of experience in the industry. During his professional journey, he has gained in-depth experience in the areas of View Full Profile

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February 2024