Import shipment by sea

[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.

[Ganeshan Kalyani]

Sir, since the company is registered in India it has to comply the tax as per the Law prevailing in India. In the current budget it is provided that the company availing the service of freight upto the customs frontier of India is liable for service tax under reverse charge. S.Tax shall be paid by the receiving company. Thanks.

[Rajagopalan Ranganathan]

Sir,

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 your case the place of provision of service is non-taxable territory, that is, outside India though it originates in India. Hence the service provided by you qualifies as export of service. Therefore in my opinion you need not pay any service tax.

Only in the case of import the manufacturer or output service provider who avails the service of a foreign shipping company, has to pay service tax under reverse charge mechanism.

[SURESH ASTEKAR]

Dear Shri Chawla,

My understanding of your query is that you charge for transportation of goods from abroad to India by vessel and the foreign party pays the charges in foreign currency. This means the vessel is provided by you for transportation of goods from abroad to India. On this understanding, you become the provider of service. You want to know why Service Tax is to be paid in India on such transaction, since you are providing service to a foreign customer who pays you in convertible foreign currency. My views on this transaction are as under:

Rule 10 of the Place of Provision of Services reads:

"Place of provision of goods transportation services.-

10. The place of provision of services of transportation of goods, other than by way of mail or courier, shall be the place of destination of the goods:

Provided that the place of provision of services of goods transportation agency shall be the location of the person liable to pay tax."

Since this is a specific rule, the general Rule 3 is not applicable. In terms of this rule, the place of provision of service is India since the destination of the goods is India in your case. Therefore, this does not come under "export of service" category since Rule 6A(1)(d) of Service Tax Rules, 1994, provides that for treating any service as export service, one of the conditions is that the place of provision shall be outside India.

Coming to the chance from 01.06.2016, please note that up to 31.05.2016 Section 66D(p) of the Finance Act, 1944, had put the following service under Negative List:

"(p) services by way of transportation of goods-

(ii) by an aircraft or a vessel from a place outside India upto the customs station of clearance in India;"

Therefore, up to 31.05.2016 there was, inter alia, no Service Tax liable to be paid in respect of inward transportation of goods by vessel. However, the above entry (ii) under Section 66D(p) has been omitted with effect from 01.06.2016 vide Finace Act, 2016. Therefore, the service has become taxable from 01.06.2016.

AI Summary

Place of provision for goods transport makes import freight taxable in India, with tax payable under reverse charge where applicable. Under the specific rule for goods transportation the place of provision is the place of destination; where the destination is India the service is treated as provided in India and is not an export of service. Inward transportation by vessel, having had its Negative List exclusion removed, is therefore taxable in India and tax may be payable by the Indian recipient under the reverse charge mechanism.