Transport of goods by Vessel under reverse charge basis - Service Tax w.e.f 01.06.2016

[Guest]

Dear Sir,

Please advise in detail on the point - Whereas such services are provided by the foreign shipping line, then the service tax will be paid by the business entity located in India under reverse charge.

Request you to please advise us when such leviablity will be there under reverse charge basis when the service provider (foreign shipping co.) where import is carried out on CIF value or FOB value.

Further please explain in detail regarding such CIF value and FOB value transactions.

[Ganeshan Kalyani]

Sir, this provison was already there in the law. Refer Notification No. 30/2012 which states that if the service provider is in non-taxable territory and the receiver of the service is in taxable territory then the service shall be paid by the person in taxable territory. In this budget it is specifically mentioned about the taxable as mentioned by you in your query. Thanks.

[Ganeshan Kalyani]

Sir, CIF means cost, insurance and freight. It means insurance and freight is borne by the importer. Whereas FOB is free on board meaning only cost of goods is paid for. Further for service tax liability under reverse charge on import of service there no such criteria that tax should be paid in CIF or on FOB. It will be paid on the Value of Service availed if any. Thanks.

[Ganeshan Kalyani]

Sir, in Bill of Entry such details are clearly given . Detials of freight, insurance and assessable value is also mentioned along with various other details.

Sir, I would suggest you to go through a book - import, export made easy to get idea of all the formalities. This will boost you in carrying out your work. Thanks.

[Ganeshan Kalyani]

Sir, in case any query please feel free to revert. Further I welcome my expert colleague to cast their view on this query. Thanks.

[KASTURI SETHI]

I endorse the views expressed in all the replies by Sh.Ganeshan Kalyani, Sir. I further add that regarding the interpretation of the term, 'FOB', the querist may go in detail in the book advised by Sh.Kalyani, Sir.

[KASTURI SETHI]

In this context, para no.4.1 (C) -Negative List of TRU letter No.334/8/2016-TRU dated 29.2.16 is worth reading.

"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-C.E. (N.T.), as amended by Sl. Nos. 2(b) and 5(h) of notification No. 13/2016-C.E. (N.T.) dated refers. ]"

(Clause 146 of the Bill refers)

[KASTURI SETHI]

FOB and CIF are types of contract for international sale of goods, and now also sales involving domestic transportation.

By an FOB contract the seller's duty is fulfilled by placing the goods aboard the carrier. Domestically, the use of FOB indicates that freight charges have been paid to transport the goods up to the destination, whatever it may be for example ; seller's plant or buyer's dock.“FOB Value” is relevant for Customs purposes and other schemes like drawback, exports under DEEC etc.

By CIF contract the seller agrees not only to supply the goods but also to make a contract with a seas carrier (under which the goods will be delivered at the contract port of destination), to pay the freight, and to insure the goods while they are in transit.

As per para no.14.5 of CBEC's FAQ dated 1.9.10

What constitutes import of services?

The Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 specifies 3 categories of cross border transaction of services and conditions that will be construed as import of services, namely -

(i) specified services which are provided in relation to immovable properties situated in India [See list of services in Appendix-4]

[Ref. Rule 3(i) of the Taxation of Services Rules, 2006].

(ii) specified services which are provided partly in India [See list of services in Appendix-4]

[Ref. Rule 3(ii) of the Taxation of Services Rules, 2006].

(iii) the remaining taxable services, barring a few exceptions, when provided in relation to business or commerce, to a recipient located in India. [See list of services in Appendix-4]

[Ref. Rule 3(iii) of the Taxation of Services Rules, 2006].

Thus, each transaction has to be seen individually to ascertain if it constitutes import of services, fulfilling the requisite parameters.

 

AI Summary

Indian Businesses to Pay Service Tax for Foreign Shipping Services Under Reverse Charge Since June 2016 A query was raised regarding the service tax on goods transported by foreign shipping lines to India under a reverse charge mechanism effective from June 1, 2016. The discussion clarified that when services are provided by a foreign shipping company, the Indian business entity receiving the service must pay the service tax. It was explained that service tax liability under reverse charge applies regardless of whether the transaction is on a CIF (Cost, Insurance, and Freight) or FOB (Free on Board) basis. Additional insights were provided on the nature of CIF and FOB contracts and their relevance to customs and service tax regulations.