Service Tax and GST onOcean Freight
Query (Issue) Started By: – Prashant Gupta Dated:- 14-3-2018 Last Reply Date:- 18-6-2018 Service Tax
Got 15 Replies
Service Tax
Sir
Recently in my final audit of Excise and Service Tax for pre GST era, I was taxed for Ocean Freight for the period 23rd April 2017 to 30th Juna 2017.
I was aware of notification of 1/2017 & 2/2017 of Service Tax Act but was not aware of notification no 16/2017 which transfers the liability on the Importer.
Not GST is also payable on it on RCM.
I just want to ask that don't you think that this is double taxation.
When we have pade custom duty and Excise/GST on CIF value of our goods imported than why shall we pay again Service Tax/ GST on F part of this CIF value.
Can you please explain the matter.
Reply By rajkumar shukla:
The Reply:
issue is not clear.. which tax was paid on ocean freight?
Reply By CS SANJAY MALHOTRA:
The Reply:
Service tax has to be paid on ocean freight under RCM from April
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orter.
Reply By CS SANJAY MALHOTRA:
The Reply:
Anything which is subject to RCM can never be treated as Double Taxation. Consider case of domestic supply of Goods, wherein in case of FOR price GST is paid on value of goods which is inclusive of freight.
Furthermore, you pay tax under RCM also on the same freight amount if services taken from transporter. It's actually the transporter liability and the burden to pay has been shifted on recipient as highlighted by Sh. Shukla ji.
The issue of non taxability of ocean freight has already been challenged in High Court as tax as recipient of service is actually the supplier of goods in case of CIF shipments and tax should not be charged.
Reply By Rajagopalan Ranganathan:
The Reply:
Sir
Whether credit of service tax paid for the period April 2017 to June 2017 under rule 7 CA of Service Tax Rules, 1994 can be availed on or after 1.7.2017 (after introduction of GST)? What is the provision available for availing the credit under CGST
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cation one can say that an exporter don't have to pay GST on Air & Sea export freight. Earlier GST on Ocean Freight was 5% & Air Freight was 18%
Now enjoy CIF , CFR Shipment without GST . While in case of FOB Shipments the question of GST on Freight does doesn't arise.
Reply By Prashant Gupta:
The Reply:
@Kishan Barai
What is the status for importers importing the material on CIF basis
Reply By Kishan Barai:
The Reply:
For Importers GST on Freight has to be paid.
Reply By Ankit Bansal:
The Reply:
In this case, writ petition has been filled before Hon'ble High Court by M/s Mohit Minerals and which is still pending for final order.
Reply By gstwithtmi tmi:
The Reply:
@prashant: I understand that the service tax audit was conducted at your premises after Jul 2017 and they asked you to pay tax on ocean freight for the period Apr to Jun 2017. Let me know whether they asked you to pay the same as GST or Service tax?
If Service tax, is it possible to claim credit?
Reply
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ct, 1962 ("CA"), includes inter alia the freight element as well; and
(ii) No. 8/2017-IT(R) dated 28.6.2017 which fixes the iGST rates on services including, as indicated against Sl. No. 9(ii) of the table appended to that notification, on 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.
2. Notably, notification No. 8/2017-IT(R) unambiguously recognizes and provides that though both the provider/supplier and recipient of service, by way of transportation of goods by a vessel from a place outside India up to the Customs station of clearance in India, may be located in a non-taxable territory, i.e. outside India, the iGST shall nevertheless beleviable on the service.
3. It is relevant to bear in mind here that import of both goods a
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ssued under that section.
5. The importers of goods vehemently argue that levy of same tax (iGST) on same service (ocean freight), in the manner elaborated above, amounts to double taxation. Is this argument valid? Is the freight paid on the imported goods indeed subject to double GST levy? These questions naturally throw up following three issues for consideration and determination
A. What is the nature of supply involved here?
B. How is this supply taxable under GST law?
C. Is it indeed subject to double taxation?
But before analyzing and answering these questions, let us understand the meaning of two very pertinent and commonly used terms relating to price of imported goods, viz FOB and CIF.
6. When an importer places an order on an overseas seller for supply of goods, he pays not only the price of goods as such but also the costs and charges incurred to deliver those goods to him in India. These costs and charges inter alia include, where the goods come in a vessel, the insur
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.
8. The CIF price, on the other hand, generally followed by the name of destination port, e.g. CIF – NhavaSheva, means that the overseas supplier has also paid for both the insurance and freight up to the destination port and is thus entitled to collect from the importer full price of the goods payable for taking the goods to such port. This price equals the FOB price (payable up to the load port) plus freight and insurance from the load port to the destination port. The letter "C", representing cost in the CIF price, is nothing but the FOB price. (Conventionally, all international commercial terms such as FOB, CIF, CFR (cost and freight), EXW (ex-works) etc. are only 3-letter acronyms. Thus, when the price payable is CIF, i.e. FOB + I + F, the 3-letter term "FOB" is replaced by a single letter "C" to make another 3-letter term – CIF). By and large, most of the agreements for import of goods are CIF contracts.
9. Where the price of imported goods payabl
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above, though an importer places an order with his foreign supplier for supply of goods, he ends up paying not only for the goods but also other costs and charges necessary for importing those goods into India. In case of an FOB price, such cost and charges may be attributable to loading of those goods from the supplier's warehouse on to a motor vehicle; transportation from the warehouse to the load port; unloading at the port; and various port services including that required to load the goods on to the vessel. In case of CIF transaction, the services may additionally include freight and insurance payable for transporting those goods from the load port to the destination port.
12. In case of a CIF-based import contract, as already observed, the overseas seller supplies goods as well as associated services including that of transportation of goods by vessel up to the destination port. It is he who receives the shipping service and pays freight charges to the shipping line. It is h
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gue that, for any supply to be treated as a composite supply u/s2(30), its supplier has to be a taxable person which an overseas supplier may not be. However, it is to be kept in mind that:
(a) S.2(107) of cGST Adefines taxable person as a person who is registered or liable to be registered u/section 22 or section 24 ibid;
(b) a recipient of supply, required to pay tax under reverse charge, is indeed liable to be registered u/s.24(iii)ibid; and
(c) as noted earlier in para 4 supra, an importer of goods or services or both is indeed liable to pay tax under reverse charge.
For the purposes of S. 2(30) of cGSTA, therefore, an importer is indeed a taxable person and a composite supply received by him continues to be a composite supply.
14. As a matter of fact, the S. 14 of CA which deal with valuation of imported goods, treats such a supply,without describing it as such, as nothing but a composite supply. It is because for the purpose of levying Customs duties, ocean freight paid on i
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ring, design work, royalties andlicencefees, costs of transportation to the place of importation , insurance, loading, unloading and handling charges to the extent and in the manner specified in the rules made in this behalf: (emphasis supplied)
15. It is also notable that the composite nature of supply of imported goods does not change under the CA even where the supply received is FOB value-based; the importer himself directly receives the service; and pays the ocean freight directly to the shipping line. When it comes to levy of duties of Customs, including iGST, in accordance with the provisions of S.12 CA read with S.3(7) of CTA, the transaction value of goods assessed u/s14 CA read with S.3(8) CTA,in reality, is the transaction value (CIF) of composite supply, with goods being the principal supply.
16. Evidently, therefore, import of goods is considered, under the CA and CTA too, as a composite supply of goods and services for levy of duties of Customs including the iGST u/s 3(
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h the unambiguous provisions of S.8, at the rate applicable to the goods imported. Any attempt to tax goods and services, which clearly comprise a composite supply, individually will be a clear violation of the provisions of S.8 cGSTA.
C. Double Taxation
19. We have already seen that:
(i) the two notifications, referred to in para 1 supra, prescribe the rates at which various goods and services classified thereunder are to be taxed u/s. 5 of iGSTA;
(ii) Notification No. 10/2017-IT(R) specifies the services in respect of which tax is payable by the recipient under reverse charge; and
(iii) a composite supply of goods or services or both is taxable at a rate applicable to the principal supply.
Now, assume a situation wherein a supplier of goods engages a GTA for moving the goods to a recipient located in another state; pays freight charges to the said GTA; raises an invoice on the recipient for the composite supply of goods and transportation; pays iGST on invoiced value at the rat
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ice by the supplier of goods.
20. It is noteworthy that the concept of composite supply and the method of its taxation, enshrined in S.8 of the cGSTA, has been made applicable to iGSTA as well u/s20(ii) ibid. Consequently, any naturally bundled supply of goods and services, comprising a composite supply, can be taxed only in the manner prescribed in S.8 of cGSTA and in no other manner. Splitting and taxing such a bundled supply of goods and ocean freight separately would make the provisions of S.8 otiose.
21. Thus, where an individual supply of goods or services has been taxed as an element of composite supply, it can't be taxed again as goods or service separately. It is true that Notification No.8/2017-IT(R) prescribes a rate of tax on the service of transportation of goods into India by vessel, even where both the supplier and recipient of the service are located outside India. However, it is equally true that under Notification 10/2017-IT(R) dated 28.6.2017 (Sl. No. 10 of the
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e provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods u/section 12 of the Customs Act, 1962. And u/s12 of the CA, duties of Customs are collected at the time when the goods are cleared for home consumption u/s 47 ibid. The iGST is to be levied and collected along with other duties of Customs in accordance with the provisions of sub-sections (7) & (8) of S.3 of CTA which are reproduced below:
(7) Any article which is imported into India shall, in addition, be liable to integrated tax at such rate, not exceeding forty per cent. as is leviable u/section 5 of the Integrated Goods and Services Tax Act, 2017 on a like article on its supply in India, on the value of the imported article as determined u/sub-section (8) .
(8) For the purposes of calculating the integrated tax u/sub-section (7) on any imported article where such tax is leviable at any percentage of its value, the
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