Ocean freight services qualify as inter-state supply under Section 7 IGST Act with importer liable for reverse charge

AAR held that ocean freight services constitute import of services qualifying as inter-state supply under Section 7 of IGST Act. The applicant, being the importer who pays consideration inclusive of freight charges, is deemed the service recipient. The applicant is liable to pay IGST on ocean freight under reverse charge mechanism per Notification No. 10/2017-Integrated Tax (Rate) read with Notification No. 8/2017-Integrated Tax (Rate), with no available exemption despite paying IGST on imported goods.

---

---

Issues involved:
1. Whether ocean freight is leviable to GST as a supply of serviceRs.
2. Whether the transaction qualifies as an import of serviceRs.
3. Whether the transaction qualifies as an inter-state supplyRs.
4. Whether the applicant can be deemed as the recipient of the serviceRs.
5. Whether the applicant is liable to pay tax under the reverse charge mechanismRs.
6. Whether the levy of IGST on ocean freight amounts to double taxationRs.
7. Whether the exclusion of subsidy value and levy of IGST on ocean freight lead to the accumulation of credit against the spirit of GST lawRs.

Analysis:

1. Ocean Freight and GST:
The Authority determined that ocean freight is leviable to IGST as an inter-state supply of service. The Applicant, as the importer, is liable to pay IGST under the reverse charge mechanism as per relevant notifications.

2. Import of Service and Inter-state Supply:
The transaction involving the transportation of goods in a vessel from a non-taxable territory to a taxable territory qualifies as an import of service and an inter-state supply under the IGST Act.

3. Recipient of Service:
The Applicant is considered the recipient of both goods and services as the consideration paid for the transaction is inclusive of freight charges. Therefore, the Applicant is liable to pay tax on the transaction.

4. Reverse Charge Mechanism:
The Applicant is liable to pay tax under the reverse charge mechanism prescribed by Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017, regardless of the valuation method adopted for the import of goods.

5. Double Taxation and Accumulation of Credit:
The issues of double taxation, subsidies, and the cascading effect leading to the accumulation of credit were deemed beyond the purview of Section 97 of the CGST / APGST Act, 2017.

In conclusion, the Authority ruled that the transportation of goods in a vessel from a non-taxable territory to a taxable territory constitutes an import of service, and the Applicant is liable to pay IGST on the ocean freight under the reverse charge mechanism. The issues of double taxation and credit accumulation were considered outside the scope of the GST law.

---