Ocean freight on imported goods has always been a controversial topic in Indirect taxation regime. Even under Service Tax, the issue was shuffled in and out of the negative list. We have been receiving queries with respect to IGST levy on ocean freight from users. In this article, we have explained the provisions of the GST laws relating to this.

The ruling law under GST:

As per Notification No. 8/2017-Integrated tax (Rate) dated 28.06.2017; IGST is leviable @ 5% under the heading 9965 (ii) 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 a 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.”

Further, as per 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.”

Explanation:

Thus, by definition, 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. Further, the accountability of the discharging the GST liability is on the Importer.

Erstwhile legislation:

Services by way of transportation of goods by an aircraft or a vessel from a place outside India up to the customs station of clearance in India were kept in the negative list. This exemption was later withdrawn with effect from 01.06.2016. Hence, with effect from the said date, it no longer remained exempt. The exception being the case where a  foreign supplier had engaged a foreign shipping line to transport the goods to an Indian Port, no service tax was payable, in terms of exemption available under S.No, 34(c) of Notification No. 25/2012-service tax.

In 2017, the Govt removed the exemption for services provided for transportation of goods by a vessel from a place outside India up to the customs station of clearance in India by amending Notification No. 25/2012-S.T. (Notification No. 1/2017-S.T. dated 12.01.2017).

Accordingly, services by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India became taxable under service tax effective from 22.01.2017. Further, in terms of Notification No. 3/2017-S.T. dated 12.01.2017 necessary amendment has been made in the laws to mandate that service tax on such ocean freight is liable to be paid by the person in India, who complies with section 29, 30 or 38, read with section 148 of the Customs Act, 1962, i.e., importer under reverse charge.

That means Service tax on ocean freight was payable by the importer under reverse charge mechanism in terms of valuation or method of calculation prescribed under Rule 6 (7CA) of the Service Tax Rules, 1994 as amended. As per the said rule importer had an option to pay an amount calculated at the rate of 1.4% (i.e., 10% of CIF) of the sum of cost, insurance and freight (CIF) value of such imported goods. Further, government vide Circular No. 206/4/2017-Service Tax dated 13.04.2017 has clarified elaborately on the issues related to the levy of service tax on such ocean freight.

Valuation under GST

In Service Tax regime, the valuation rules were clearly defined under Rule 6 (7CA) of Service Tax Rules, 1994. However, under GST, the valuation rules are silent with respect to this. In this relation, the Corrigendum to Notification No. 8/2017-Integrated tax (Rate) dated 28.06.2017 vide F. No. 334/1/2017-TRU dated 30.06.2017 has to be noted. The following insertion has been made:

“4. 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.”

This is in line with the erstwhile Service Tax rules. Hence, importers are required to follow the calculations mentioned in the Service tax rules for discharging GST liability. These rules, however, have not been specifically included under GST rules. Hence, as of now, these are not part of the Act itself and hence likely to create confusion.

In order to avoid any confusion, the GST Council should include the said valuation method in the CGST Rules, 2017 itself.

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