IGST on Ocean Freight
SEPTEMBER 20, 2017
By Jaimini Khurjekar & Kaza Subrahmanyam, Consultants
IN this Article the Authors have tried to evaluate the incidence of IGST on Ocean Freight in case of Import and Export of Goods, under different scenarios. For the purpose of the analysis, the Authors have taken into account the Definitions of "Export of Service" and "Import of Service" as well as the provisions related to "Place of Supply of Services" under IGST Act, 2017.
There are different scenarios under Section 12 and Section 13 of IGST Act, 2017, under which the Ocean Freight can be the subject matter of levy of IGST. For arriving at the conclusions with regard to levy of IGST or other-wise, the Authors have also taken into considerations the relevant Notifications issued under both CGST Act, 2017 and IGST Act, 2017, and relevant portions of corresponding notifications are also reproduced in this Article for ready reference of the readers.
(A):-Definitions under IGST Act 2017
Section 2.
(6) "Export of Services" means the supply of any service, where
(i) the supplier of service is located in India,
(ii) the recipient of service is located outside India,
(iii) the place of supply of service is outside India,
(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange, and
(v) the supplier of service and the recipient of service are not merely establishments of a distinct person
(11) "Import of Services" means the supply of any services, where-
(i) the supplier of service is located outside India,
(ii) the recipient of service is located in India, and
(iii) the place of supply of service is in India.
(B):-Place of supply of services provisions under IGST Act 2017
Section 12:- Place of supply of services where location of supplier and recipient is in India
Section 12 (8) :- The place of supply of services by way of transportation of goods, including by mail or courier to,––
(a) a registered person, shall be the location of such person;
(b) a person other than a registered person, shall be the location at which such goods are handed over for their transportation.
Section 13 :- Place of supply of Services where location of supplier or location of recipient of services is outside India.
Section 13 (8) : The place of supply of the following services shall be the location of supplier of services, namely
(a) …..
(b) intermediary services;
(c) services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels, up to a period of one month.
Section 13 (9) : The place of supply of services by way of transportation of goods, other than by way of mail or courier,shall be the place of destination of such goods.
(C):- The analysis of the treatment for payment of IGST under different scenarios of transportation of Import and Export goods, in the above background.
(a) TRANSPORTATION - IMPORT OF GOODS- Section 13 of IGST Act (where location of supplier or location of recipient of services is outside India)
S.No.
|
Situation
|
Place of Supply of services and IGST /CGST payable by
|
Relevant Provisions
|
1
|
Indian importer of goods hiring vessel on Time charter basis from foreign supplier for transportation of goods to India
|
IGST is payable on hiring charges by Importer under reverse charge as a recipient of service
|
Place of supply of services of Hiring of Vessels / aircrafts irrespective of time period, is covered under default section 13(2) i.e. the location of recipient of service.
When vessel itself is hired, there would not be separate freight component hence IGST will be payable on total value of supply i.e. hiring charges. However one may argue that there is also IGST liability on Importer who files bill of entry showing notional freight component in BOE and pays customs duty on such goods. Therefore Deptt may demand IGST from importer on reverse charge basis under Sec 13 (9) read with Notfn No 10/2017-IGST as the supplier of service is situated outside India.
|
2
|
Indian importer of goods hiring vessel on Time charter basis from Indian supplier for transportation of goods to India
|
IGST is payable on hiring charges by Indian supplier / shipping company on forward charge basis
|
Place of supply of services for Hiring of Vessels is the location of supplier as per sec 13 (8) of IGST Act which is India in this case
Since both the supplier of service and recipient of service are situated in India, the reverse charge mechanism under Notfn No 10/2017 is not applicable for payment of IGST by Importer on so called freight charges shown in BOE.
Moreover the service provider is not providing "transportation of goods" service but he is providing "hiring / supply of tangible goods " service hence section 13(9) is not applicable.
|
3
|
Indian importer hiring vessel on Voyage charter basis from foreign supplier for a transportation of goods to India
|
Shipping company providing transportation of goods services to Indian importer, hence IGST is payable on freight component by Indian importer under reverse charge basis, POS being destination of goods
|
Section 13 (9) of IGST Act, 2017 read with Notfn. No.10/2017-IGST (Rate)
|
4
|
An Indian importer engaging a foreign airlines for transport of goods from outside India to India (Import freight)
|
IGST is exempted
|
Section 13 (9) of IGST Act, 2017 read with Notfn No 12/2017-Central Tax (rate) and Notfn No 9/2017-IGST (Rate)
|
5
|
A foreign supplier engaging foreign airlines for transport of goods from outside India to India (Import freight)
|
IGST is exempted
|
Recipient of service and provider of service are situated outside India hence GST is not applicable.
Moreover Transportation of goods through Aircraft is exempted under Notfn No 12/2017-CT(Rate) and Notfn No 9/2017-IGST(Rate
|
6
|
A foreign supplier engaging an Indian shipping company for transport of goods from outside India to India (Import freight)
|
Place of supply of service is destination of goods and hence IGST is payable by Importer under reverse charge method
.
|
Section 13 (9) of IGST Act, 2017 read with Notfn No 10/2017-IGST (Rate)
|
7
|
An Indian importer engaging a foreign shipping company for transport of goods from outside India to India (Import freight)
|
Place of supply of service would be the destination of goods, and appropriate IGST is payable under reverse charge basis by importer
|
Section 13 (9) of IGST Act, 2017 read with Notfn No 10/2017-IGST.
|
8
|
Overseas Company engages an Indian freight forwarder to move import goods from say Dubai to Indian port
|
Indian Importer has to discharge IGST under reverse charge mechanism for ocean freight
|
Section 13 (9) of IGST Act, 2017 read with Notfn No 10/2017-IGST (Rate)
|
9
|
Overseas Company engages a Foreign freight forwarder to move import goods from say Dubai to Indian port on CIF basis.
|
IGST is payable by Importer under reverse charge mechanism
|
Although both recipient of service and provider of service are situated outside India, IGST is payable by Importer under reverse charge as per Notfn No 10/2017-IGST(Rate) read with Corrigendum dated 30.06.2017 to the Notfn No 8/2017-IGST (Rate)
|
10
|
Goods landed into Indian Customs port for transshipment to other outside country destination
|
GST not payable as the destination of goods is outside India
|
Section 13 (9) of IGST Act, 2017.
Also refer clarification issued by CBEC under Service Tax regime
|
(b) TRANSPORTATION - EXPORT OF GOODS – Sec 13 of IGST Act. (where location of supplier or location of recipient of services is outside India)
S.No.
|
Situation
|
Place of Supply under IGST and IGST payable by
|
Relevant provisions.
|
1
|
An Indian exporter engaging a foreign shipping company / airlines for transport of goods from India to outside India
|
The place of supply of services of transportation of goods, shall be the place of destination of such goods. So, when a Foreign based Shipping line is engaged by an Indian Exporter, IGST is not payable as the place of supply is outside India.
|
Section 13 (9) of IGST Act, 2017
|
2
|
A foreign customer engaging a shipping company / airlines (whether Indian registered or foreign) for transport of goods from India to outside India
|
Not taxable as Place of provision of service is destination of goods, which is outside India.
|
Section 13 (9) of IGST Act, 2017.
|
3
|
Indian company engages foreign vessel/ freight forwarder to transport goods from Dubai port to Singapore port
|
GST is not payable on freight as the destination of goods is outside India
|
Section 13 (9) of IGST Act, 2017.
|
(c) Import / Export of goods by Vessel - Sec 12 of IGST Act. (where location of supplier and location of recipient of services is in India)
S.No.
|
Situation
|
Place of Supply under IGST and IGST payable by
|
Relevant provisions
|
1
|
When an Indian Shipping line is engaged by an Indian Exporter for export of goods
|
IGST is payable by Indian Shipping line on such freight as the place of supply is the location of the registered person
|
Section 12 (8) (a) of IGST Act, 2017.
|
2
|
Indian Company engages an Indian freight forwarder to move goods from say Dubai to Singapore.
|
Indian freight forwarder has to charge GST to the Indian Company on freight (Inspite of the fact that these goods do not enter or exit India's territorial boundary) as the POS is location of registered person
|
Section 12 (8) (a) of IGST Act, 2017.
|
3
|
Indian importer engages Indian shipping line for transportation of goods from abroad to India
|
IGST is payable by Indian importer on such freight under reverse charge basis
|
Section 12 (8) (a) of IGST Act, 2017 read with Notfn No 10/2017-IGST (Rate)
|
4
|
Indian importer hiring Vessel on Time charter basis from Indian Ship Owner / shipping line for import of goods into India
|
GST is payable by Indian service provider registered in India on hiring charges
|
Section 12 (8) (a) of IGST Act, 2017
|
5
|
Indian exporter hiring Vessel on Time charter basis from Indian Ship Owner / shipping line for export of goods outside India
|
GST is payable by Indian service provider registered in India on hiring charges
|
Section 12 (8) (a) of IGST Act, 2017
|
(d) Import / Export of goods by Aircraft - Sec 12 of IGST Act. (where location of supplier and location of recipient of services is in India)
S.No.
|
Situation
|
Place of Supply under IGST and IGST payable by
|
Relevant provisions
|
1
|
When an Indian Airline is engaged by an Indian Exporter for export of goods
|
IGST is payable by Indian Airline on such freight as the place of supply is the location of the registered person
|
Section 12 (8) (a) of IGST Act, 2017.
Exemption for transportation of goods through Aircraft under Notfn No 12/2017-CT(rate) and 9/2017-IGST (rate) is limited to Import of goods into India
|
2
|
Indian Company engages an Indian freight forwarder to move goods from say Dubai to Singapore.
|
Indian freight forwarder has to charge IGST to the Indian Company (Inspite of the fact that these goods do not enter or exit India's territorial boundary) as the location of service provider is in India
|
Section 12 (8) (a) of IGST Act, 2017.
|
3
|
Indian importer engages Air line from India for transportation of goods from abroad to India
|
IGST is exempted
|
Section 12 (8) (a) of IGST Act, 2017.
Read with exemption Notfn 12/2017-CT (Rate) and Notfn No 9/2017-IGST (Rate)
|
D:- Relevant Notification prescribing Reverse charge mechanism for the subject services
Notification No. 10/2017- Integrated Tax (Rate) dated 28.06.2017 (IGST to be paid by the recipient of Services under Reverse Charge Mechanism).
S.No.
|
Category of Supply of Services.
|
Supplier of Service
|
Recipient of Service.
|
1
|
Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient.
|
Any person located in a non-taxable territory
|
Any person located in the taxable territory other than non-taxable online recipient
|
10
|
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
|
A person located in nontaxable territory
|
Importer, as defined in clause (26) of section 2 of the Customs Act, 1962(52 of 1962), located in the taxable territory.
|
(E):- Relevant exemption notifications under CGST Act and IGST Act
(a) Exemption Notification No. 12/2017 - Central Tax (Rate) dated 28.6.2017.
S.No.
|
Chapter, Section, Heading, Group or Service Code (Tariff)
|
Description of Services
|
Rate (Per cent)
|
Condition.
|
19
|
Heading 9965
|
Services by way of transportation of goods by an aircraft from a place outside India upto the customs station of clearance in India
|
NIL
|
NIL
|
(b) Exemption Notification No: 9/2017- Integrated Tax (Rate) dated 28.06.2017.
S.No.
|
Chapter, Section, Heading, Group or Service Code (Tariff)
|
Description of Services
|
Rate (Per cent)
|
Condition.
|
20
|
Heading 9965
|
Services by way of transportation of goods by an aircraft from a place outside India upto the customs station of clearance in India.
|
NIL
|
NIL
|
(c):- Exemption Notification No. 8/2017- Integrated Tax (Rate) dated 28.06.2017.
S.No.
|
Chapter, Section or Heading
|
Description of Service
|
Rate
|
Condition.
|
9
|
Heading 9965 (Goods transport services)
|
(ii) Transport of goods in a vessel including services provided or agreed to be 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.
|
5
|
Provided that credit of input tax charged on goods (other than on ships, vessels including bulk carriers and tankers) used in supplying the service has not been taken Explanation: This condition will not apply where the supplier of service is located in nontaxable territory. [Please refer to Explanation no. (iv) to this Notification].
|
(d) CORRIGENDUM dated 30.06.2017 to Notification No. 8/2017 -Integrated Tax (Rate), dated the 28th June, 2017
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. POT IS DATE OF BILL OF ENTRY.
( The views expressed are strictly personal)
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