Service tax on ocean freight - Notification No 1/2017-ST & 3/2017-ST

[Yatin Bhopi]

Dear expert

We are manufacturer and regularly import raw material. Most of the times goods are on CIF basis and freight is paid by supplier. In January vide notification no 1/2017 ST date 12.01.2017 exemption was withdrawn for inward ocean freight. And vide Notification no 3/2017-ST dated 12.01.2017, Notification no 30/2012 ST (reverse charge) was amended and person incharge of vessel or shipping company agent liable to pay service tax .

We have received bills from shipping company (office in India) for Service tax on inward ocean freight (only service tax bill no freight. Freight is paid by foreign supplier).

Can shipping company recover only service tax charged under reverse charge basis from importer?

Or he has to utilse this payment toward service tax liability on his output services

If he has correctly charged service tax from us, whether taking CENVAT credit (without any taxable value mentioned and without any payment of freight to him is in line with law?

Please share your views.

[Rajagopalan Ranganathan]

Sir,

Since the shipping company has an office in India they have correctly charged the service tax since they are provider of service. Only when the shipping company do not have an office in India the importer in India has to pay service tax on reverse charge mechanism. Since it is an input service for you you can take the credit of service tax charged by the service provider.

[Ganeshan Kalyani]

100% Service tax is payable by a person liable to pay tax other than the service provider in respect of services provided or agreed to be provided by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India.

[KASTURI SETHI]

I support the views of both experts.

[Yatin Bhopi]

thanks a lot sir

[YAGAY andSUN]

Taxability of services by way of transportation of goods by vessel for import into India where provider and receiver both are located in non-taxable territory.

EXISTING EXEMPTION WITHDRAWN

• Entry 34 under Notification No. 25/2012-ST, dated 20.06.2012 grants exemption to specified services received from a provider of service located in a non-taxable territory, including services received by a person located in a non-taxable territory.
• By Notification No. 1/2017-ST, dated 12.01.2017, a proviso has been inserted to the aforesaid entry. According to the proviso, services by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India will not be covered under the said entry.
• In view of the above, services by way of transportation of goods by a vessel for import into India provided by a provider located in a non-taxable territory to a receiver in non-taxable territory are chargeable to service tax now.

AMENDMENT TO SERVICE TAX RULES, 1994 (STR) and INTRODUCTION OF REVERSE CHARGE

Rule 2(1)(d) of the STR has been amended to stipulate that the person liable to pay service tax in respect of such services, shall be :-

The person in India who complies with Sections 29, 30 or 38 read with section 148 of the Customs Act, 1962 with respect to such goods will be the person liable to pay service tax. Accordingly, in terms of the aforesaid provisions of the Customs Act, the following shall be the person liable to pay tax on the aforesaid services:-

• person-in charge of the vessel

• An agent appointed by the person-in charge or any person who represents himself as the agent of the person-in charge to a Customs officer and is accepted as such(Section 148 of the Customs Act)

• Any other person as notified under Section 30 of the Customs Act.

Corresponding changes have been introduced in Notification No. 30/2012-ST so as to make the above person liable to pay tax under reverse charge on 100% of the taxable value. [All changes effective from 22.01.2017].

As to who will be subject to payment of service tax, in this situation, it has been provided that the person in-charge of the vessel (who files the IGM with the customs authorities) will be liable for discharging the said service tax liability. These amendments have been carried out vide Notification No. 01/2017-ST, 02/2017-ST and 03/2017-ST dated 12.01.2017. Again, in this situation no CENVAT credit of the service tax paid will be available to the Indian importer adding to the cost of the entire transaction.

Further, the person in-charge of the vessel / freight forwarder, as the case may be, will recover the service tax amount from the foreign exporter. The foreign exporter will in turn recover this service tax amount from the Indian importer as a part of his cost of imported goods. This will in turn increase the assessable value of the imported items for the purpose of calculation of customs duty, further leading to added costs to the Indian importer.

[Yatin Bhopi]

Dear Sir

Thanks for your replay and detailed explanation. But I am not clear about non availability of CENVAT credit on service tax charged by shipping agent to us. Since this service is used for importing our raw material, CENVAT credit should be available to us as a input service.

please comment

AI Summary

Service Tax on Ocean Freight: Impact of Notification No. 1/2017-ST & 3/2017-ST on Indian Importers and CENVAT Credit. A discussion on service tax applicability on ocean freight arose following the withdrawal of exemptions via Notifications No. 1/2017-ST and 3/2017-ST. A manufacturer queried about the service tax charged by a shipping company on inward ocean freight, paid by a foreign supplier. Experts clarified that since the shipping company has an office in India, they correctly charged the service tax. The importer can take CENVAT credit as it is an input service. Amendments stipulate that the person in charge of the vessel is liable for service tax under reverse charge, impacting the cost for Indian importers.