{"id":30397,"date":"2020-04-06T10:37:44","date_gmt":"2020-04-06T05:07:44","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=30397"},"modified":"2021-02-19T10:55:57","modified_gmt":"2021-02-19T05:25:57","slug":"a-complete-assessment-of-gst-on-ocean-freight","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/a-complete-assessment-of-gst-on-ocean-freight\/","title":{"rendered":"A Complete Assessment of GST on Ocean Freight"},"content":{"rendered":"<p class=\"has-drop-cap\">The shipping industry is an essential part of global freight transportation, and it manages global trade supply-chain. More than 90% of the world trade is done through oceans because it is affordable and also an efficient mode for transporting goods. Through waterways, a large volume of goods can be carried on vessels for long distances at a cheaper rate, in comparison to other modes of transport like railways, roadways, air, etc. The Central Government has implemented <strong><em>service tax on ocean freight from 22 Jan 2017<\/em><\/strong> and has continued similar provisions under the GST regime.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is Ocean freight?<\/h2>\n\n\n\n<p>Ocean\nfreight shipping plays a significant role in the shipping of goods between\ncountries and continents.&nbsp; It offers an attractive\ntransportation solution. It is better to opt for ocean freight if\ntransportation time is not important for the transporter of goods and services.\nThis mode of transportation of goods is normally used to ship large and heavy\nfreight. Freight or commonly known as cargo is defined as goods transported for\ncommercial profits. The shipment of cargo\/freight through the ocean or sea is\nknown as ocean freight shipping. <\/p>\n\n\n\n<p>Ocean freight shipping is important for the world\neconomy, as it carries the bulk of international trade.<\/p>\n\n\n\n<p>The\nsignificant types of cargo which are shipped by ocean\/sea include automobiles,\nbulk cargo containers, break-bulk cargo and heavyweight cargo.<\/p>\n\n\n\n<ul><li>The bulk cargo consists of goods which\ninclude oil, salt, scrap metal, tallow, etc. It can be explained as commodities\nthat are neither on bunks nor in containers.<\/li><li>Break-bulk cargo is explained as\nmaterial stacked on wooden pallets.<\/li><li>Project cargo and heavy weight cargo\nincludes manufacturing equipments, power equipments and factory components. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Types of Ocean Freight with Respect to\nGoods\/Cargo<\/h2>\n\n\n\n<p>Ocean freight is further divided into two types\nbased on the destination of goods or cargo as follows:<\/p>\n\n\n\n<ul><li>Ocean freight with regard to imports of\ngoods.<\/li><li>Ocean freight with respect to export of\ngoods.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">How are both the types of Ocean Freight\ntaxed?<\/h2>\n\n\n\n<p>When both the service\nreceiver and agent are within India, outside India, or one in India and another\noutside India taxation is done as mentioned below in different scenarios:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>\n  S.\n  No\n  &nbsp;\n  <\/td><td>\n  Type\n  of Ocean Freight\n  <\/td><td>\n  Location\n  of Service Receiver\n  &nbsp;\n  <\/td><td>\n  Agent\n  Location\n  <\/td><td>\n  Taxability\n  of service\n  <\/td><\/tr><tr><td>\n  1.\n  &nbsp;\n  <\/td><td>\n  Export\n  of Goods\n  <\/td><td>\n  In\n  India\n  <\/td><td>\n  In\n  India\n  <\/td><td>\n  Specific\n  exemption for services till Sept, 2020\n  <\/td><\/tr><tr><td>\n  2.\n  &nbsp;\n  <\/td><td>\n  Export\n  of Goods\n  <\/td><td>\n  In\n  India\n  <\/td><td>\n  Outside\n  India\n  <\/td><td>\n  Specific\n  exemption of services till Sept, 2020\n  <\/td><\/tr><tr><td>\n  3.\n  &nbsp;\n  <\/td><td>\n  Export\n  of goods\n  <\/td><td>\n  Outside\n  India\n  <\/td><td>\n  In\n  India\n  <\/td><td>\n  Export\n  of service in case all the conditions are not satisfied, then\n  service-specific exemption\n  <\/td><\/tr><tr><td>\n  4.\n  &nbsp;\n  <\/td><td>\n  Export\n  of goods\n  <\/td><td>\n  Outside\n  India\n  <\/td><td>\n  Outside\n  India\n  <\/td><td>\n  Not\n  in scope of GST\n  &nbsp;\n  <\/td><\/tr><tr><td>\n  5.\n  &nbsp;\n  <\/td><td>\n  Import\n  of goods\n  &nbsp;\n  <\/td><td>\n  In\n  India\n  <\/td><td>\n  In\n  India\n  <\/td><td>\n  GST liability is charged at the rate of 5% under forward\n  charge.\n  <\/td><\/tr><tr><td>\n  6.\n  &nbsp;\n  <\/td><td>\n  Import\n  of goods\n  <\/td><td>\n  In\n  India\n  <\/td><td>\n  Outside\n  India\n  <\/td><td>\n  RCM\n  liability must be discharged on freight paid by the service receiver.\n  <\/td><\/tr><tr><td>\n  7.\n  &nbsp;\n  <\/td><td>\n  Import\n  <\/td><td>\n  Outside\n  India\n  <\/td><td>\n  In\n  India\n  <\/td><td>\n  GST\n  liability is charged at the rate of&nbsp; 5%\n  under forward charge\n  <\/td><\/tr><tr><td>\n  8.\n  &nbsp;\n  <\/td><td>\n  Import\n  <\/td><td>\n  Out\n  of India\n  <\/td><td>\n  Out\n  of India\n  <\/td><td>\n  GST\n  liability must be discharged by the importer as prescribed in RCM&nbsp; considering 10% of CIF value as the ocean\n  freight\n  <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\">What are the Exemptions in Services relating to GST on Ocean freight on\nExports?<\/h2>\n\n\n\n<p>According to entry number&nbsp;<strong>19B<\/strong> of Notification, No 21\/2019 of the CGST Act, 2017 (related to GST on Ocean freight), the services provided for transportation of goods by a ship from the customs station of clearance in India to a place located out of India is exempted from <strong><a href=\"https:\/\/enterslice.com\/gst-registration\">GST<\/a><\/strong>. This condition shall apply only up to 30th September 2020.&nbsp; <\/p>\n\n\n\n<figure class=\"wp-block-image\"><a href=\"https:\/\/enterslice.com\/gst-return-filing\"><img decoding=\"async\" loading=\"lazy\" width=\"730\" height=\"90\" src=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/02\/GST-Registration-Return.jpg\" alt=\"GST-Registration\" class=\"wp-image-28956\" srcset=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/02\/GST-Registration-Return.jpg 730w, https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/02\/GST-Registration-Return-300x37.jpg 300w\" sizes=\"(max-width: 730px) 100vw, 730px\"\/><\/a><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\">What Conditions must be satisfied to become Export of Service relating to\nGST on Ocean Freight?<\/h2>\n\n\n\n<p><strong>According to section 2(6) of IGST Act, 2017, &lsquo;export of services&rsquo; means a supply of service where:<\/strong><\/p>\n\n\n\n<ul><li>The supplier of service is located in\nIndia.<\/li><li>The location of receiver of service is\nin India.<\/li><li>The supply of the service is made out of\nIndia.<\/li><li>Payment received for the service is in\nConvertible foreign exchange.<\/li><li>The receiver of service and supplier\nboth are not a mere institution of a distinct person.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">RCM Liability to be discharged on GST on Ocean freight relating to Imports<\/h2>\n\n\n\n<p>According\nto Serial Number 10 of the Notification no. 10\/2017 of the IGST Act, 2017, RCM\nliability arises with respect to the services supplied by a person located in\nnon-taxable territory by way of transportation of goods by a ship from a place\nout of India up to the customs station on India for clearance. The liability to\ndischarge GST on ocean freight, under the reverse charge mechanism is on the importer,\nlocated in the taxable territory.<\/p>\n\n\n\n<ul><li><em>The\nrate of GST needs on the freight amount is 5% in accordance (IGST Rate).<\/em><\/li><\/ul>\n\n\n\n<ul><li><em>The\nvalue of the ocean freight is deemed to be at 10% of the CIF value when the\nfreight amount not known.<\/em><\/li><\/ul>\n\n\n\n<div class=\"shadow4\"><strong><em>The GST liability must be\ndischarged on forward <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Basis&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;In finance, the &amp;quot;basis&amp;quot; is a term with several applications, including representing the difference between the spot price and the future contract price of an asset, which is vital in investment(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/basis\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>basis<\/a> to be charged at the rate of 5 %.<\/em><\/strong><\/div>\n\n\n\n<h2 class=\"wp-block-heading\">Case Law Related to Controversy on GST on Ocean Freight<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">In Mohit&nbsp;Minerals&nbsp;Pvt.&nbsp;Ltd&nbsp;Vs. Union of&nbsp;India<\/h3>\n\n\n\n<p>The judgment, in this case, was passed by the Honourable <strong>Gujarat High Court on 23<\/strong><sup><strong>rd<\/strong><\/sup><strong> January, 2020<\/strong>. The Honourable High court, in this case, has set aside the charges on separate integrated GST on ocean freight for import of goods made on CIF basis. It has also held that on Notification No.8\/2017 &ndash; No. 9 and 10, which levies tax on the supply of service of transportation of goods by a person located in non-taxable territory to a person also in non-taxable territory from a place which is situated out of India till the customs station for clearance in India and also making the importer liable for paying such tax, are ultra-vires as per the provisions prescribed in the IGST Act, 2017.<\/p>\n\n\n\n<p>The\ncourt, after observing that IGST was already charged and received on the import\nof goods on the value, including the ocean freight, the separate tax charged on\ncomponents of freight was considered as an erroneous misconception. It held\nthat the notifications which levied tax again as a supply of service, without\nare illegal and must be struck down. Further, it also noted that the importer\nin course of importing goods on CIF basis, neither took the services of\ntransportation of goods in a ship nor he was accountable to pay the\nconsideration of such service recieved, and hence the writ-applicant who is the\nimporter here was not the &lsquo;recipient&rsquo; of the &lsquo;Transportation of Goods in a\nVessel service&rsquo; under Section 2(93) of the CGST Act, 2017. It was decided here\nthat the importer cannot be forced to pay tax on some assumed conception that\nthe importer is directly or indirectly the receiver of service.<\/p>\n\n\n\n<p>The\nCourt also had a view that the service here was neither an inter-state supply\nservice nor an intra-state supply service and that S. 7(5) (c) of the IGST Act does\nnot apply to this type of case. The complete transaction took place in a\nnon-taxable territory. The High Court also said that charging of tax here comes\nunder the scope of double taxation, which is not permitted in any statute.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<br><div class=\"shadow1\">Though the Gujarat High Court held that the provisions relating charges made on ocean freight as unconstitutional, there is a need for clarity on the matter whether the other High Courts will take similar action or will the Government choose any retrospective to have any <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Amendment&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;An &amp;quot;amendment&amp;quot; refers to the formal change or correction of a legal document, often involving additions, variations, or deletions to address irregularities or clarify points in an agreement.(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/amendment\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>amendment<\/a> to validate the levy. It is also essential for the Government to make necessary amendments to the <strong>CGST Act, 2017<\/strong><sup><a href=\"https:\/\/www.taxmanagementindia.com\/visitor\/acts_rules_provisions.asp?ID=736\"><strong>[1]<\/strong><\/a><\/sup> , and the CGST Rules. It is necessary that the law makers engage with the trade businesses and deal with the concern of the stake holders to prevent any further litigation on the matter.<\/div>\n\n\n\n<div class=\"read\"><p><b>Also, Read:<\/b> <mark><a href=\"https:\/\/enterslice.com\/learning\/simplified-and-new-gst-returns-from-april-2020\/\">Simplified and New GST Returns from April 2020<\/a><\/mark>.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>The shipping industry is an essential part of global freight transportation, and it manages global trade supply-chain. More than 90% of the world trade is done through oceans because it is affordable and also an efficient mode for transporting goods. Through waterways, a large volume of goods can be carried on vessels for long distances [&hellip;]<\/p>\n","protected":false},"author":27,"featured_media":30401,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[49,2562],"tags":[2883],"acf":{"service_id":"96"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v14.6.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>A Complete Assessment of GST on Ocean Freight - Enterslice<\/title>\n<meta name=\"description\" content=\"The liability to discharge GST on ocean freight, under the reverse charge mechanism is on the importer, located in the taxable territory.\" \/>\n<meta name=\"robots\" content=\"index, follow\" \/>\n<meta name=\"googlebot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta name=\"bingbot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/enterslice.com\/learning\/a-complete-assessment-of-gst-on-ocean-freight\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"A Complete Assessment of GST on Ocean Freight - Enterslice\" \/>\n<meta property=\"og:description\" content=\"The liability to discharge GST on ocean freight, under the reverse charge mechanism is on the importer, located in the taxable territory.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/enterslice.com\/learning\/a-complete-assessment-of-gst-on-ocean-freight\/\" \/>\n<meta property=\"og:site_name\" content=\"Enterslice\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/enterslice\" \/>\n<meta property=\"article:published_time\" content=\"2020-04-06T05:07:44+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2021-02-19T05:25:57+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/04\/GST-on-Ocean-Freight-1.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"670\" \/>\n\t<meta property=\"og:image:height\" content=\"352\" \/>\n<meta name=\"twitter:card\" content=\"summary\" \/>\n<meta name=\"twitter:creator\" content=\"@enterslice\" \/>\n<meta name=\"twitter:site\" content=\"@enterslice\" \/>\n<!-- \/ Yoast SEO plugin. -->","authorName":"Deepti Shikha","authorImageUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/01\/Deepti-Shikha.jpg","authorDescription":"Deepti is a Law graduate with an avid interest in reading and very proficient in summarizing legal cases. 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