The need to understand the GST tax on ocean freight came due to its peculiar nature of transaction. Here the term ‘Ocean Freight’ read by breaking two words in simple language, ocean is a large area of salt water between continents and freight implies transport charges. Thus, ocean freight is nothing but transport charges for carrying supplies over water. The situation under consideration deals with importer in India taxed for a transaction between exporter outside India and a transporter outside India for providing transportation service of goods imported India. Here the real Service Recipient (‘SR’) is exporter outside India and Service Provider (’SP’) is the person with responsibility to transport goods in India.

GST on Ocean

The intention of this article is to understand the person who is liable to pay tax and whether such transaction would lead to double taxation.

Now, let us understand ‘how ocean freight was’ and ‘how ocean freight is’ being held liable to tax:

Pre-GST

In the earlier regime of indirect taxes, service tax (‘ST’) was made payable by the importer of goods in India in following sequence of events:-

  • The service was covered under negative list entry 66D(p)(ii);
  • Then it was removed from negative list with effect from 1-6-2016 but exemption was granted vide Entry 53 dated June 20 ,2012 in Mega Exemption Notification No. 25/2012-ST retrospectively;
  • The notification of Mega Exemption was amended to remove Entry 53 vide Notification No. 1/2017-ST, dated January 12, 2017;
  • Then introduction of Notification No. 2/2017-ST and 3/2017 both dated January 12, 2017 brought liability to pay ST on agents in India, foreign liner or streamer agent and not the service provider; and
  • Amendment was brought vide Notification No. 15/2017-ST and 16/2017 both dated April 13, 2017 making liability to pay ST on importer in India.

Post GST Tax on Ocean Freight

Under GST law, tax is charged on supply of service by way of transportation of goods to custom clearance in India @ 5% vide Notification No. 8/2017-Integrated Tax (Rate) dated June 28, 2017 is charged.

Therefore, both regime, levied tax to be paid by importer of goods under reverse charge mechanism (‘RCM’). Section 68(2) of Finance Act, 1994 empowered Central Government to notify the person other than SP liable to pay tax. Similarly Section 5(3) of IGST Act, specifically states the tax would be payable under reverse charge by the ‘recipient’ of supply.

The first question under above scenario being, whether a third party not involved in a contract can be held liable to pay tax?

According to Fiancé Act, 1994, ST the provision gave power vide Section 68(2) to CG to notify person liable to pay tax. But the GST law, gives authority to CG to notify tax payable under RCM with the defect of placing liability only on the ‘recipient’. The GST law defines recipient under Section 2(93) to mean person liable to pay consideration.

Therefore, leaving question mark whether it is correct to levy GST on said service. Although, recent Advance Ruling, by Uttarakhand State in the matter of M/s Bahl Paper Mills Limited, ruled that an importer is required to pay IGST on CIF (Cost-Insurance-Freight) value of imported goods. The same may be challenged before higher authorities or an amendment authorizing CG to notify any person other than SP as laid in ST, would remove the defect.

Further, whether the same would amount to double taxation?

GST law which stated among other advantages to eliminate the double taxation i.e. the cascading effect of tax on income, is probing against its promise by levying IGST doubly on the same amount.

Let us take an example, in a consignment of import amounting to INR 100, additionally INR 10 is the amount of freight. Here, the importer pays Integrated Goods & Service Tax ‘IGST’ tax on 110 and additionally pays IGST on INR 10 under RCM. Therefore, amount of INR 10 is taxed twice once at the time of import on CIF value, which includes freight and again on freight amount.

 Although law does not prohibit double taxation if statue clearly prescribes the levy and is not result of interpretation of law.  In an old judgement of, Jain Brothers Vs Union of India-1970(77) ITR107 (SC), it was said Constitution does not contain any prohibition against double taxation.

Therefore, charging double taxation is not against law but the implementation of GST which was brought with the promise to eliminate double taxation does not hold true under this transaction.

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16 Comments

  1. Jitesh says:

    Hi Divya,

    Very Good Article on Ocean Freight.

    Can you please explain how to calculate GST payable under RCM on Ocean Freight, in case of imports on the basis of CIF. If Foreign Supplier has included the Freight value in Price of Imported Goods and there is no bifurcation available in Invoice or any other document. Awaiting your reply ASAP.

  2. subhash raghav says:

    when we import raw material from out side india and ocean freight is included in our raw material cost . at the time of clearence of goods in india we already paid igst on total amount along with custom duty.then why we pay again igst on rcm basis.this is double taxation.

  3. SACHIN AROLKAR says:

    To all concern,

    Why should we pay GST twice on same Ocean freight when we are already paying IGST @18% on CIF value at the time of Custom Duty payment for clearing BE?.

    Finally one would land up in paying 23% IGST (18%+5%) on Ocean freight.!!!!.

    Why Government has issued two separate notification for levy of GST on same action. Is there any justification?.

    In my opinion levy of double tax on Ocean freight (Repeating GST on same product/services) is incorrect.

    GST actually introduced to simplify the taxation procedure and reduce the manufacturing cost to the customer, however as the time passes we would realise more time is spend of GST work than doing the business.

    Thanks and regards,
    SACHIN A.

  4. PARAG GANDHI says:

    I HAVE IMPORTED GOODS IN INDIA HOW TO DETERMINE OCEAN FREIGHT FROM BILL OF ENTRY – INVOICE VALUE 15000
    FREIGHT 40
    INSURANCE – 500
    ALL AMT IN USD.

    NOW ON WHICH AMOUNT I HAVE TO CALCULATE OCEAN FREIGHT ?? PLS GIVE YOUR KIND ADVISE. THANKS IN ADVANCE

  5. chandra says:

    Helloo Divya Ojha,

    Thank you for the clarification. Ideally, the one clearing the goods from warehouse to for home consumption in India shall be liable to pay GST. However, notification No 10/2017-Integrated Tax (Rate) dated 28th June, 2017 prescribes the transactions on which GST is payable under reverse charge mechanism “RCM”. As per S.No. 10 of the notification, importer is deemed as the recipient of the service and is liable to pay GST under RCM. In terms of Section 2 (26) of the Customs Act, “Importer”, in relation to any goods at any time between their importation and the time when they are cleared for home consumption. In terms of the above, importer” would mean that, the importer would be a person who files a Bill of Entry either for warehousing or for home consumption as well. Further, considering the provisions of Section 46, the person who would be allowed to file the Bill of Entry for warehousing would effectively be the importer or importer on record. This would mean that the person who files warehouse B/E would be acting as importer, till the time the goods are cleared by a third person for home consumption. There could be a possible argument from the authorities that filing the Bill of Entry for warehousing, could be treated as the importer from the GST liability perspective with intend to deny the benefit of input tax credit of GST paid on ocean freight since supplies within Bonded Warehouse are not subject to GST and would be treated as ‘exempt supply’ as per the recent Board Circular. Please also examine this aspect and do revert with your comments.

  6. Divya Ojha says:

    Hi Chandra,

    Thank you for the question.

    As per Notification No. 8/2017 of Integrated Tax(Rate) entry no. 9 (iii), clearly specifies that tax is payable at the time of clearance in India. Thus, answering your question that liability to pay GST occurs when goods are cleared for home consumption. Therefore, the ultimate person filing the bill of entry for home consumption shall be liable to pay GST. In the above case, not the person who cleared the goods for warehouse but the one clearing the goods from warehouse for home consumption in India shall be liable.

  7. Kartik says:

    Mam as per your view IGST on Ocean Freight will be payable in all the cases when Bill of Entry also specifies CIF Value and the Terms of payment are also on CIF on the same.
    But in my view IGST on Ocean frieght is only applicable when the Shipping line office is not in India and the Terms of payments as per Bill of Entry are on FOB terms in that case freight value will be 10% of the value mentioned on the Bill of Entry , and on that freight 5% tax will be levied under RCM

  8. chandra says:

    While I do agree with the above views, just to understand from the author of this article that for the sake of arguments GST is payable on ocean freight, then who is liable to discharge the same i.e. whether the registered taxable person who imported the goods and kept the same in bonded ware house by filing warehousing B/E or the registered taxable person of the same entity who received the goods for home consumption by filing ex bond B/E??

    Appreciate author of the article to through some light on this aspect.

  9. chandra says:

    Assuming for the sake of argument that GST is payable on ocean freight, who is liable to discharge GST in the case of bond transfers i.e. One registered taxable person imported the goods and kept in bonded warehouse and then supplied to another registered taxable person of the same entity for home consumption?? To sum up, GST is payable at the time of filing warehouse B/E or Ex -Bond B/E??

    Appreciate author of this article to through some light on this aspect.

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