1. Introduction

We all have heard the slogan, “GST: One Nation, One Tax“. Whether this is acheived in true spirit or not, we have definitely achieved “GST: ONE TRANSACTION, DUAL TAX” in relation to Ocean Freight.What was “doubly taxed” in Service Tax regime is still “doubly taxed”. Want to know how? Read on…

By the terms “Ocean Freight”, I am referring to transportation service of goods through vessel. Ocean Freight is generally incurred in the course of an international purchase or sale transaction. It’s taxation has been under numerous changes since Service Tax regime.

2. Ocean Freight Taxation – Pre GST

Refer my article in the given link:  Waves in the Taxability of ocean freight -Part I

3. Ocean Freight Taxation – Post GST

Ocean Freight could be incurred during the course of import of goods in India or during the course of export of goods out of India. Taxation would depend upon the nature of the underlying activity I.e. Import or export of goods and the incoterms of the sale price between the seller and buyer.

4. Import of goods in India on FOB Basis

When goods are imported on FOB Basis, the purchaser in India i.e. the importer is liable to arrange for the transportation services. If the Shipper is resident in India, he would charge GST on forward charge. If the Shipper is non resident, then the recipient shall pay GST under RCM in terms of Section 5(3) of the IGST Act, 2017 read with sl.no. 1 of Notification 10/2017-Integrated Tax (Rate) ,dt. 28-06-2017.

5. Import of goods in India on CIF/CNR Basis

In this case, the importer in India is never a party to the contract. The exporter who is not resident, charters the ship. However as per Section 5(3) of the IGST Act, 2017 read with sl. no. 10 of Notification 10/2017-Integrated Tax (Rate) ,dt. 28-06-2017. if any services are 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 to a person in non taxable territory the GST under Reverse Charge shall be payable by the importer, as defined in clause (26) of section 2 of the Customs Act, 1962(52 of 1962), located in the taxable territory.

As the importer is not a party to the contract of transportation hence, he will not be aware of the value of service. Notification 8/2017-Integrated Tax dated 28-07-2017 read along with corrigendum dated 30-07-2017 specifies that the value shall be 10% of CIF Value.

Further 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.

6. Controversy in case of RCM on Ocean Freight in case of import of goods in India

Two things are worth noting here:

1. An importer is already liable to pay customs duty (BCD+IGST+any other cess as applicable) on CIF value of goods, paying RCM on the freight cost would mean that the freight value is TAXED TWICE. 

Okay! This existed even in Service Tax Regime.

2. THE NEW CONTROVERSY:  In re Ganga Saran Vs. Commissioner of Sales Tax [1985 AIR 104], the Supreme Court has held that one of the canons of taxation is that the law shall specify the person who shall be liable to pay the tax. If it does not specify then there exists no levy.

Under the Service Tax regime Section 68 of Finance Act, 1994 empowered Central Government to notify the person other than Service Provider liable to pay tax. Hence it was open for the government to notify either the service receiver or any other person.

In contrast, as per Section 5(3) of IGST Act, 2017 government can by notification specify the supply of goods or service on which the tax would be payable under reverse charge by the ‘recipient’ of supply. Section 2(93) of the CGST Act defines ‘receipient’ of supply as under

“recipient” of supply of goods or services or both, means—

(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;

(b) 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; and

(c) where no consideration is payable for the supply of a service, the person to whom the service is rendered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied;

Hence a conjoint reading of the above indicates that the power available to government is to notify the receipient of supply to pay tax and not any other person and where consideration is payable, the receipient of supply is the person who makes the payment.

In case of a CIF transaction, the importer is never a party to the contract to supply transportation services, he is neither the receipient of supply nor pays consideration to the supplier of supply, yet he is made liable to pay tax under RCM by notification which apperaa to be lagging a legal backing. This is a subject matter of litigation.

7. Export of Goods from India on FOB Basis

In this case the non resident importer shall be required to charter a ship. If he charters a shipper resident in India, then it shall be an export of service by the shipper subject to other conditions.

If he charters a shipper not resident in India, then shall be outside the purview of taxation as both the supplier and receipient are located outside India.

8. Export of Goods from India on CIF/CNF Basis

In this case the resident exporter shall be required to charter a ship. If he charters a shipper resident in India, then the shipper shall charge GST

If he charters a shipper not resident in India, then he shall be liable to pay GST under RCM

9. Exemption for Transportation of goods in a vessel in case of export of goods:

In order to promote export, the GST on Ocean Freight in relation to export has been exempted from 25-01-2018 to 30-09-2019 by Notification No. 15/2018-Integrated Tax (Rate) dated 26-07-2018 read with Notification No. 2/2018- Integrated Tax (Rate) Dated 25-01-2018 and Notification No. 9/2017-Integrated Tax (Rate) Dated 28-06-2017.

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Qualification: CA in Practice
Company: Pragya Singh & Associates, Chartered Accountants
Location: CHENNAI, Tamil Nadu, IN
Member Since: 02 May 2017 | Total Posts: 11
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