Service tax on ocean freight-on import export transportation of goods by Sea

[Narendra Soni]

Dear Experts,

Service tax has been introduced on inward & outward transportation of goods by Sea. Kindly confirm Is service tax now payable on Ocean freight paid to shipping and air lines ??

[Narendra Soni]

Dear TMI Experts,

Awaiting your views, Please refer union Budget 2016-17,Servicee tax on transportation of goods by vessel from India to out side India and from out side India to India is imposed,please confirm IS it applicable on ocean freight..URGENT Please.

[Narendra Soni]

Dear TMI Experts,

Awaiting your views, Please refer union Budget 2016-17,Service tax on transportation of goods by vessel from India to out side India & vice versa is imposed, kindly confirm is service tax applicable on Ocean freight paid to s/line & freight forwarders through we book our container and paid them ocean freight.URGENT PLEASE.

[Rajagopalan Ranganathan]

Sir,

In para 4.1 (C) of the D. O. Letter of Joint Secretary to Govt. of India, namely D.O.F. No.334/8/2016-TRU dated 29.02.2016 it is clarified that the entry in the Negative List that covers 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 [section 66D (p)(ii)] is proposed to be omitted with effect from 1.06.2016. Clause 146 of Finance Bill 2016 may please be seen in this regard. However such services by an aircraft will continue to be exempted by way of exemption notification [Not. No. 25/2012-ST, as amended by notification No. 09/2016-ST dated 1st March, 2016 refers]. The domestic shipping lines registered in India will pay service tax under forward charge while the services availed from foreign shipping line by a business entity located in India will get taxed under reverse charge at the hands of the business entity. The service tax so paid will be available as credit with the Indian manufacturer or service provider availing such services (subject to fulfillment of the other existing conditions). It is clarified that service tax levied on such services shall not be part of value for custom duty purposes.

In addition, Cenvat credit of eligible inputs, capital goods and input services is being allowed for providing the service by way of transportation of goods by a vessel from the customs station of clearance in India to a place outside India. Consequential amendments are being made in Cenvat Credit Rules, 2004 [Not. No. 23/2004-CE (N.T.), as amended by Sl. Nos. 2(b) and 5(h) of notification No. 13/2016-C.E. (N.T.) dated refers. ]

[Ganeshan Kalyani]

Sri Narendra Soni ji, refer the bold line in Sri Rajagopalan Sir reply. It clarifies your question clearly. Thanks.

[Narendra Soni]

Thanks Mr.Ranganathan & Kalyani for updating relevant portion of Budget.

It was already in our knowledge, our query is whether service tax is applicable on OCEAN FREIGHT payable to s/line or freight forwarders paid for export & Import container shipment by Vessel.

Kindly confirm whether POT/POP is applicable.

[Narendra Soni]

Dear Experts,

For more clarity, we re-producing relevant portion of Budget, now please confirm whether ocean freight paid to shipping line for transportation of Import & Export goods by vessel is liable for service tax.

"Service by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India is being excluded from the definition of “exempted service”. This would allow shipping lines to take credit on inputs and input services used in providing the said service. [Amendment in rule 2, clause (e) refers]"

"Negative List that covers 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 is to be omitted [section 66D (p)(ii)]"

 

[Rajagopalan Ranganathan]

Sir,

section 66D (p)(ii) will be omitted with effect from 01.06.2016. Therefore till 01.06.2016 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 is not liable to service tax (vide Annexure-1 enclosed with D. O. letter D.O.F. No. 334/8/2016-TRU dated 29.02.2016 of Joint Secretary to Govt. of India.

Services by way of transportation of goods by an aircraft from a place outside India upto the customs station of clearance in India is exempted from service tax vide Sl. No. 53 of Notification No. 25/2012-ST dated 20.06.2012 as amended by Notification No. 09/2016-ST dated 01.03.2016 vide Sl. No. (xiii). This amendment will come into force from 01.04.2016.

As per para 11.5 of the above referred D.O. Letter "recipient of services availed from foreign shipping line by a business entity located in India will get taxed under reverse charge at the hands of the business entity. (No fresh provision is being made in this regard, as it is already covered by Place of Provision of Service Rules.). As per rule 3 of Place of Provision of Service rules, 2012 "the place of provision of a service shall be the location of the recipient of service." In view of the above ocean freight paid to shipping line for transportation of Import & Export goods by vessel is liable for service tax. But this liability arises only from 01.06.2016.

[Ganeshan Kalyani]

I shall try to put it in a simple way. 1. The service of transportation from shipping line received by a business entity is taxed on business entity under reverse charge. 2. And if the Indian shipping line avails the service of foreign shipping line then it will have to pay tax. In first one it was exempt earlier now made taxable. The reverse charge notification also stated that if provider of service is in non taxable territory and recipient of service is in taxable territory then recipient shall have to pay the tax. Thanks.

[Naveen Bohra]

Dear Experts

I have some queries

Being a freight forwarder I am giving service to my overseas clients where I am taking ocean freight service from Malaysia/ Singapore based shipping lines & paying them in USD & then invoice it to clients in Malaysia again in USD with my value addition.

The goods are exported to India from Malaysia so as a freight forwarder do I need to pay service tax on the same under new rule. If yes on which amount I need to pay, the freight invoice I have received from shipping line or on the value of invoice I have raised to my client,

Also is service tax applicable on the clients in India buying under CIF terms as ocean freight will be paid by the shipper in overseas country.

Please help.

Thanks

[Suryanarayana Sathineni]

Dear Friend,

Shri. Govindarajan Ji and Ganesh Kalyan Ji already given their views in a very detailed manner.

However, to put in a simple way .....

Air and Ocean Freight under Negative list omitted in the present Budget resulting that they are liable for Service Tax.

However, For Air freight, exemption was provided by inserting a new entry in the Mega Exemption Notification No. 25/2012-ST

Ocean Freight having not covered under the above exemption, it is made liable for Service Tax on imported goods

Hence, the ocean freight having borne by the importer on the imported consignments, the importer being the recipient, liable to pay the Service Tax under Reverse charge irrespective who ever pay and collect the same on behalf of the shipping lines from actual importer who is the ultimate payer of such freight.

Further, this concept is certainly nothing but double taxation since Freight on the imported goods (part of CIF value) is already subject to Customs Duties.

The JS (TRU) in his DO letter clarifying the budget chages on service tax, though stated that an enabling provision would be made under customs, the same is not yet notified. Let us hope the same may be issued on or before 1.6.2016 or after the Finance Bill get the assent of the Hon'ble President .

Unfortunately, there are divergent view on this in various judgments where some are in favour of the assessee and some are in favour of the revenue.

Very recently, the AAR while giving its ruling considered the view of certain appellate decisions wherein it was stated that there is no such restriction in the law to tax the same amount under different statutes, held that in the case of an importer, who appointed an agent in abroad to facilitate the import transactions on behalf of him and the agent in turn raising a combined bill for his service and also to other amounts like freight. insurance etc incurred by him, the Service tax to be paid on the amounts excluding the amounts which are not covered under ST valuation Rules ( Rule 5).

In view of this, there is every possibility that the Board may not issue any clarification on this aspect and there is a likely hood that an importer will have to pay both Customs duties and Service Tax on the ocean freight incurred on the imported consignments.

Hope this clarifies your query.

Best Regards

Suryanarayana

[Guest]

Dear Experts,

Thanks for your patience & elaborate reply for our queries. I am from a freight forwarding company in Chennai & we have regular import / export shipments. We need to clarify few points with regard to the new S.Tax implementation on inward/outward freight charges. We need your assistance on below points.

1. It is understand that, the service tax is applicable for import ocean freight shipments. If the shipment is exworks or fca terms,(i.e. our agent will arrange the pickup from foreign shipper premises & arrange the custom clearance at Origin, which are called as ex-works terms). In that case, is the exwork charges will also cover service tax or just ocean freight rate alone?

2. It is understand that, the s.tax is exemption for import air freight shipments. So, we dont need to worry about about the Shipment terms in that matter. Is it correct?

3. As per the post submitted by Mr. Rajagopalan Ranganathan on 04-03-2016, he mentioned " OCEAN FREIGHT PAID TO SHIPPING LINE FOR TRANSPORTATION IMPORT & EXPORT is liable for Service Tax. Is it right? We aren't charged service tax for any of our export shipments till date. Pls clarify. IF AT ALL APPLICABLE, WHAT ABOUT OUR ORIGIN CHARGES? DO WE NEED TO CHARGE FOR THOSE HEADINGS TOO?

Pls clarify us.

Regards

Mahalingam

[Gagan Chawla]

Dear Sir,

We are a shipping company based and registered in India.

We understand that Service tax has been levied @ 4.5 % on Import Freight.

My querry is , if the Invoice is raised on an Overseas party for Import freight coming into India, is Service tax levied.

The Invoice is raise don overseas party and payment is also received from overseas, please advise.

As the Company is not based in India so why should they fall into the net of Service tax of India.

[A SUBRAHMANYAM]

Dear all

Deviating a little from the issue, once the Transportation of goods in a vessel is out of the purview of Notfn 25/2012, Srl No. 10 of Notfn 26/2012 gets invoked for the Category of Service, whereby the specific condition is NO Cenvat is availed. This forum, therefore, needs to consider this for discussion. Especially for the reason that the implications are --- payment of full rate of 14% plus plus on out-service when set-off is availed on in-service (irrespective of the rate of tax paid to shipping liners)

[R. Meenakshi Ramiah]

Dear all,

I have a doubt. Who is a foreign liner for the purpose of reverse charge mechanism. We are importing goods and the agencies of the foreign liners in India charges the ocean freight. Should we consider the agency as a foreign liner and pay Service tax?

[Rajagopalan Ranganathan]

Madam,

If foreign shipping lime or airliner has a permanent establishment in India and raise the invoice in Indian rupees, then RCM is not applicable and the service provider is liable to pay the service tax. If the shipper raises the bill in foreign currency and you pay the same in freely convertible foreign currency then you have to pay service tax under reverse charge.

AI Summary

Service tax on ocean freight: cross border sea carriage now taxable and importers may be liable under reverse charge. The 2016 Budget omits the negative-list exclusion for carriage of goods by vessel up to the customs station of clearance, making ocean freight taxable where the recipient is in India; foreign providers render the Indian recipient liable under reverse charge while Indian shipping lines pay under forward charge. Air carriage remains exempt by notification. Amended Cenvat rules permit credit for inputs and input services for services from India to outside India, and service tax on such carriage is excluded from customs valuation. Practical issues include treatment of freight forwarders, combined invoices and potential double taxation.