GST on Ocean Freight
Now that the new financial year has begun -it is a good time to revisit GST and the impact on EXIM trade.
Ocean Freight - Exporter
The Indian Government have issued by their latest notification No. 2/2018- Central Tax (Rate) an amendment stating that the export Ocean Freight will be exempted from Goods and Services Tax (GST) applicability, effective January 25, 2018 with a “sunset clause” up to September 30, 2018, i.e. the exemption will automatically be terminated after this fixed period.
The said notification exempting GST on the export side of the freight is a welcome and much-needed move of the hour to encourage the exports and give relief to the exporters whose refunds are still not regularized.
Ocean Freight – Importer
STATUTORY PROVISIONS
Notification No. 8/2017-Integrated tax (Rate) dated 28.06.2017 IGST is leviable @ 5% under the clause (ii) of heading 9965 for the services described as under:
"Transport of goods in a vessel including services provided or agreed to be provided by a person located in a 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."
Therefore, ocean freight in relation to transportation of goods by a vessel from a place outside India up to the customs station of clearance in India is liable to IGST.
WHO IS RESPONSIBLE TO PAY THE GST LIABILITY
Notification No. 10/2017- Integrated Tax (Rate) dated 28.06.2017 Prescribes that Importer, as defined in clause (26) of section 2 of the Customs Act, 1962, is liable to pay integrated tax for the services specified therein as under:
"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."
VALUATION UNDER GST
The relevant Rules 27 to 35 of the CGST Rules, 2017 for determination of the value of supply under GST, are conspicuously silent on the method of valuation to be adopted for levying IGST on such ocean freight services.
However, 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."
The importer can claim IGST paid on import of services as credit subject to credit rules.
The GST on Import Freight should be exempt where the goods are imported on CIF basis. Anyways the importer is paying GST on Import value of goods as the import value is computed on CIF basis. Paying GST again on Freight amounts to double taxation and hence, should be avoided.
If the Customs Value of goods is calculated on CIF basis then technically there is no need to charge GST on Ocean Freight thereby reducing the working capital of the importer and also reducing the paperwork. Once the goods are valued on CIF, the Government is protected of its revenue and hence, should pay a thought for levy of GST on Ocean Freight.
If you have any questions on GST – please write to chintan.shah@cshah.in. The views expressed by the author are his own views and understanding about the Budget and in case of any query you can contact him at chintan.shah@cshah.in
