1) What is Ocean Freight transport?

Ocean Freight transport is the physical process of transporting commodities and merchandise goods and cargo through shipping line.

Ocean freight under GST

A) CIF (Cost, insurance, freight) basis:

  • If goods imported by importer, without any separate charges of transportation (because supplier or exporter avail services of foreign shipping entity or Indian shipping entity for bringing goods into India) from other country to Indian port is called CIF value.
  • As per section 5(3) inward supply received from specified services is liable under Reverse Charge Mechanism  (RCM) under heading S.N-10:-
  • Services supplied by a person located in non taxable territory by way of transportation of goods from outside India to India.
  • In this situation if exporter(i.e. supplier) avail services of foreign shipping entity for bringing goods into India then RCM case will be apply, because supplier of Ocean freight transport is outside India and recipient is in India..

B) FOB Value

  • Importer avail services of foreign shipping entity or Indian shipping entity for bringing goods into India from foreign port, there is not any responsibility of exporter or supplier for transportation to goods to Indian port.
  • As per section 5(3) inward supply received from specified services is liable under RCM under heading S.N-10:-
  • Services supplied by a person located in non taxable territory by way of transportation of goods from outside India to India.
  • In this situation if importer avail services of foreign shipping entity for bringing goods into India then RCM case will be apply, because supplier of Ocean freight transport is outside India and recipient is in India.

Tax on Import of goods

  • Tax on of goods imported:-As per section 5(1) of IGST Act, IGST shall be levied and collected in accordance with provisions of section 3 of Custom Tariff Act-1975 on the value determined under said Act.
  • As per Custom tariff Act-1975, valuation for section 3, includes cost of goods imported and all cost incurred by importer in relation bringing goods from outside India to custom port in India.

Conclusion:

     IGST in case of import of goods shall be payable on the value of goods including freight.

Example:

Y ltd import goods from X ltd which is outside India, cost of goods is Rs. 10,000

Calculate Custom duty (tax rate 10%) & IGST(Rate of goods @12%) paid by importer in following conditions for bringing goods from outside India through ship in India:

1) X ltd hire a transport company T1, which is also outside India of Rs. 2000 and recover from Y ltd.

2) X ltd hire a transport company T2, which is in India of Rs. 2000 and recover from Y ltd.

3) Y ltd hire a transport company T3, which is outside India of Rs. 2000.

4) Y ltd hire a transport company T4, which is in India of Rs. 2000.

Ans:

1)

  • In this case, it is called goods importer by importer under CIF value, and exporter hire services of foreign shipping entity, so RCM applies as per section 5(3) of IGST Act.
  • RCM paid by importer (i.e. Y ltd)=2000*18/100=360 ( tax rate on ocean freight @18%)
  • Tax on Goods:
Particulars Rs.
Cost of goods 10000
Ocean  freight 2000
Total 12000
Custom Duty (12000*10%) 1200
Cess @3% of 1200 36
IGST (12000+1200+36) *12/100 1588.32

2)

  • In this case, it is called goods importer by importer under CIF value, and exporter hire services of Indian shipping entity, so RCM do not applies.
  • Tax on Goods: Same as above in 1.

3)

  • In this case, it is called goods imported by importer under FOB value, and importer hire services of foreign shipping entity, so RCM applies as per section 5(3) of IGST Act.
  • RCM paid by importer (i.e. Y ltd) = 2000*18/100=360 (tax rate on ocean freight @18%).
  • Tax on Goods: Same as above in 1.

4)

  • In this case, it is called goods imported by importer under FOB value, and importer hire services of Indian shipping entity, so RCM do not applies.
  • Tax on Goods: Same as above in 1.

Get More Information about Taxability of Ocean Freight here

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9 Comments

  1. CHIRAGKUMAR NARESHBHAI GANDHI says:

    Dear Mr. Roy,

    In case I Import goods on FOB basis and have an agreement with a forwarder say XYZ in India to arrange the booking with the shipping line say Maersk / ZIM / MSC at ABC rates from foreign country to Indian port. When the Shipment arrives, the XYZ company notify us with their Invoice charged to Us at agreed freight amount at applicable Exchange rate.
    In this situation what will be the system of liability of GST to 1. Forwarder & 2. Importer (me)???

  2. Amit Walia says:

    Dear Keshav,
    if I am importing on CIF, basis Shipping company will not raise invoice on me, whether Foreign or Indian, then how will i pay the Tax on RCM basis?

  3. CA C V SURYAM says:

    Dear Mr. Keshav,

    Please check the rate of IGST. As per sl. no.9(ii) of Notification No.8/2017-IGST(Rate) dt.28/06/2017, the rate of tax is 5% on ocean freight amount (if available separately) or 5% on 10% of CIF value.

    Please revert with your comments for use of all the readers since it may create confusion in their minds.

  4. mahendra says:

    Sir,

    The Ocean Freight rate mentioned in the article is 18 %. It appears that the rate is 5 % under heading 9965 as promulgated in Notification No. /2017-IGST (Rate) dated 28.6.2017 .

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