service tax 1.5%on Import material value(IGST ON OCEAN FREIGHT) AND Service tax credit on outwards transportation.

[BHAKTIKANT BHATT]

SIR,

we are a packaging material manufacture unit.We have import our Raw Material (Plastic Granual) Now Excise EA-2000 Auditor raise a question on import Raw Material and ask us to Pay Service Tax 1.5%on Import Material CIF Value From April-2017 to June-2017 IGST ON OCEAN FREIGHT IN RESPECT OF IMPORT MATERIAL. AS PER CIRCULAR NO.206/4/2017- Service Tax Dt.13/4/2017.

Kindly give us your valuable suggestion with cited any case whether we need to PAY 1.5% Service tax on import material value and after it allowable to take credit then in GST Rule How can we take credit ?

2. query.

We have paid service tax on our outwards transportation of goods from our factory to customer premises.Also we have paid Excise duty on transportation charge from our factory to customer premises and freight amount separate mention in our sale invoice.

Now Excise Auditor say your are not avail cenvat credit of service tax paid on outwards freight from factory premises to customer place. also give us supreme court Judgment copy of Commissioner of Central Excise Service Tax Versus Ultra Tech Cement Ltd. CIVIL APPEAL NO. 11261 OF 2016. = 2018 (2) TMI 117 - SUPREME COURT OF INDIA

KINDLY GIVE YOUR EXPERT SUGGESTION FOR ABOVE TWO MATTERS.

Thanking You,

[KASTURI SETHI]

Department's stand is 100% correct.

[Kishan Barai]

On imports, while filing import duty for home consumption, you need to pay import duty on CIF afterwords "Out of Charge" would be given then department cant charge additional service tax.

[Praveen Nair]

Hi Mr. Bhatt

Query 1:

Let me put the law relating to Ocean Freight from the erstwhile Service Tax regime upto the latest GST law in the following manner:

Service Tax (Pre-2017) 10.5.2013-21.1.2017

• Services by way of transportation of goods by an aircraft or a vessel from a place outside India to the Customs station of clearance in India as specified in the negative list which thereby, exempted service from Service Tax U/s 66 D(p)(ii).
• The said entry under the Negative list as omitted with effect from 1.6.2016 and a provision was incorporated in the Mega Exemption Notification No.25/2012-ST, dtd 20.6.2012 vide Entry 53 continuing the exemption.

Service Tax (Post-2017) 22.1.2017 - 01.07.2017

• The Mega Exemption Notification was amended vide Notification No. 1/2017-ST, dtd. 12.1.2017 and a proviso was inserted excluding from the ambit of the exemption services by way of transportation of goods by a vessel from a place outside India upto the Customs station of clearance in India received by a person located in a non-taxable territory.
• Further Notification No. 2/2017-ST & 3/2017-ST dtd. 12.1.2017 were introduced and the same entrusted the liability to pay tax on the person in India who complied with Section 29, 30 or by their agent U/s 148 of the Customs Act, 1962 i.e., the foreign shipping liner.
• Notification No.15/2017-ST & 16/2017-ST dtd. 13.4.2017 introduced amendments that made the importer located in India fully liable for paying Service Tax in case of the services provided by the person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel. The notifications did not provide for differential treatment for imports on CIF or FOB basis.
• Hence the Ocean Freight is Taxable at the hands of Importer under Service Tax effective 23.4.2017.

GST (Effective 01.07.2017):

• Notification No. 8/2017-Integrated Tax (Rate) dtd. 28.6.2017 prescribes rate for 5% for the services in question.
• Notification No. 10/2017-Integrated Tax (Rate) dtd. 28.6.2017 prescribes the services in relation to which the recipient of service is liable to pay GST under reverse charge. S. No. 10 of the said Notification provides that liability of GST on services supplied by a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India upto the customs station of clearance in India would vest on the importer, located in India.
• This is a double taxation issue where IGST is leviable on the CIF value of the goods and also separately on the Freight amount. Input Tax Credit is available on the IGST paid under RCM.
• Refer a recent case where the clarification from the Revenue is awaited for further proceedings against a the said issue.

2018 (2) TMI 770 - GUJARAT HIGH COURT

Mohit Minerals Pvt Ltd Versus Union of India Dated:- 9-2-2018

In: GST

Special Civil Application No. 726 of 2018

Levy GST on ocean freight whereas the value of import goods includes Ocean Freight. - Vires of N/N. 8/2017-Integrated Tax [Rate] dated 28th June 2017 and Entry 10 of the N/N. 10/2017-Integrated Tax [Rate] also dated 28th June 2017 - petitioner's grievance is that under the impugned Notifications, the petitioner is asked to pay tax at the prescribed rate all over again on the ocean freight - Counsel for the petitioner submitted that the impugned Notifications are ultra vires the Act and are in any case in exercise of excessive delegation of powers of subordinate legislation

Held that: - Notice and notice as to interim relief, returnable on 9th March 2018.

Query 2:

According to Cenvat Credit Rules 2004, credit on Input services are available upto the place of removal for manufacturers:

“Rule 2(l) – “Input Service” meansany service, –

1. used by a provider of output service for providing an output service; or
2. used by a manufacturer, whether directly or indirectly, in or in relation to manufacture of final products and clearance of final products upto place of removal,and includes services used in relation to modernization, renovation and repairs of factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto place of removal, procurement of inputs, accounting auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportationupto place of removal

“(C) “place of removal” means –

1. a factory orany other placeor premises of production or manufacture of the excisable goods ;
2. a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty;
3. a depot, premises of consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory;

It is clear from the above definition of place of removal can be factory or any other place or depot, premises of consignment agent or any other place or premises from where the goods are to be sold which clearly includes customers premises or depot from where the goods are sold. As the place of removal is not defined in CENVAT Credit Rules, 2004 but Rule 2(t) of CCR, 2004 says thatwords and expressions used in these rules and not defined but defined in the Excise Act or Finance Act shall have the meanings respectively assigned to them in those acts.

This issue has been examined in length in the case of Gujarat Ambuja Cement Ltd.VsCCE, Ludhaina =  2007 (3) TMI 1 - CESTAT,NEW DELHI and in the case of Ultratech Cement Ltd.VsCCE, Bhavnagar, = 2007 (3) TMI 738 - CESTAT AHMEDABAD which your Excise Auditor has mentioned.

The said circular proceeds to clarify that the eligibility for the manufacturer to take credit on service tax paid on outward transportation would depend upon the above definition of place of removal as per Central Excise Act, 1944. However the circular states that,

“there may be situations where the manufacturer /consignor may claim that the sale has taken place at the destination point because in terms of the sale contract /agreement

1. the ownership of goods and the property in the goods remained with the seller of the goods till the delivery of the goods in acceptable condition to the purchaser at his door step;
2. the seller bore the risk of loss of or damage to the goods during transit to the destination; and
3. the freight charges were an integral part of the price of goods.

In such cases, the credit of the service tax paid on the transportation up to such place of sale would be admissible if it can be established by the claimant of such credit that the sale and the transfer of property in goods (in terms of the definition as under section 2 of the Central Excise Act, 1944 as also in terms of the provisions under the Sale of Goods Act, 1930) occurred at the said place.

Trust the above explanation helps!

[RamKumar Lakkoju]

Thank you Mr Praveen Nair for sharing facts of important judgement yet to come.

[YAGAY andSUN]

In our view, the rationale behind the afore-noted entries against Sl. No 9(ii) of notification No. 8/2017-IT(R) and Sl. No. 10 of Notification No. 10/2017-IT(R) appears to bring the ocean freight suffered for importing goods under tax net, not to tax it even when it is otherwise taxable/taxed as composite supply. Any apprehension about double taxation of ocean freight is thus misplaced.

AI Summary

Ocean freight taxation: importer liable under reverse charge with potential double taxation, credit subject to rules. Ocean freight for imports is taxable on the importer under a reverse charge mechanism, producing potential double taxation where freight is included in import value (CIF); input tax credit is available for tax paid under reverse charge subject to rules. Credit for service tax on outward transportation by a manufacturer depends on the statutory definition of place of removal and factual contract terms showing transfer of property at destination, including retention of ownership, transit risk, and freight forming part of the price.