service tax on cif value on imports

[Ramakrishnan Seshadri]

Dear Sir,

We are the manufacturer of automobile parts suppliying to OEM. We are having regular imports of CKD parts and machineries. Now we heard from other companies that the Excise department during audit asking the assessees to pay service tax of 1.5%(including cess) on the CIF value of imports from April 23rd to June 2017.and also this applicable under gst regime also.

They are giving the details as File no.354/42/2016 TRU dt.13.04.2017 and the notification no.14/2017/ 15/2017/ 16/2017 dt.13.04.2017.

Kindly request the experts to guide us the same on this issue.

Thanks & REgards

S.Ramakrishnan

[Rajagopalan Ranganathan]

Sir,

Rule 6 (7) (CA) of Service Tax Rules, 2004 stipulates that "the person liable for paying service tax for the taxable services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, shall have the option to pay an amount calculated at the rate of 1.4% of the sum of cost, insurance and freight (CIF) value of such imported goods. This rule was inserted vide Not. 16/2017 - dated 13-4-2017, w.e.f. 22nd January, 2017

2. In case supplier of imported material is in non-taxable territory and transporter of the said goods by vessel is also in non-taxable territory this rule makes the importer in India liable to pay service tax @ 1.4% of the sum of cost, insurance and freight (CIF) value of such imported goods. In addition the importer has to pay Swatch Bharat Cess and Krishi Kalyan Cess. Now the Department is raising audit objection regarding non-payment of service tax under rule 6 (7CA) of Service tax Rules, 1994 for the period 22.1.2017 to 30.6.2017.

3. Moreover the element of freight is already included in the assessable value of the imported goods for charging basic customs duty, CVD, SAD and educational cess. Will it not amount to double taxation, if service tax is charged @ 1.4% on the CIF value in addition to various duties charged under Customs Act, 1962? Whether it is permissible under law? This has already been challenged in the case ofMohit Mineral Pvt. Ltd - {2018 (2) TMI 770 - GUJARAT HIGH COURT}.

4. From 1.7.2017 on wards (under GST Regime)-

Vide Sl. No. 9 (ii) of Notification No. 8/2017-Integrated Tax (Rate) dated 28.6.2017 as amended “Transport of goods in a vessel including services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India” is chargeable to IGST @ 5%.

Provided that credit of input tax charged on goods (other than on ships, vessels including bulk carriers and tankers) used in supplying the service has not been taken

Explanation: This condition will not apply where the supplier of service is located in non-taxable territory.

5. According to Sl. No.10 of Notification No. 10/2017-Integrated Tax (Rate) dated 28.6.2017 as amended when the services are supplied by a person located in non- taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, the IGST on the freight element is payable by the Importer, as defined in clause (26) of section 2 of the Customs Act, 1962(52 of 1962), located in the taxable territory under reverse charge.

6. Again even under GST Act the stakeholders will challenge the levy of IGST on freight as double taxation since freight element is already included in the value for imported goods for charging BCD, IGST and Educational Cess under Customs Act, 1962

[Ramakrishnan Seshadri]

Dear Sir,

Mr.Rajagopalan sir thanks for your reply. The conclusion is that we need not pay the service tax demanded by the excise department .how can they demand that from 23rd april 2017 this is effective. This service tax has to be paid under reverse charge mechanism and cenvat credit can be taken and not to be utilised as they are saying . Is it so or correct sir.

Please reply sir.

Thanks & REgards

S.Ramakrishnan

[Rajagopalan Ranganathan]

Sir,

As per para 2 (ii) (a) of Notification 16/2017-Service Tax dated 13.4.2017 this amendment, namely insertion of rule 6 (7CA) in Service Tax Rules, 1994 is effective from 22.1.2-17. Therefore the Department's view that this amendment is effective from 23.4.2017 is not correct.

According to Section 142 [8] [a] of CGST Act, 2017 “where in pursuance of an assessment or adjudication proceedings instituted, whether before, on or after the appointed day, under the existing law, any amount of tax, interest, fine or penalty becomes recoverable from the person, the same shall, unless recovered under the existing law, be recovered as an arrear of tax under this Act and the amount so recovered shall not be admissible as input tax credit under this Act.

In view of the above provisions of CGST Act, 2017 even if you pay the service tax as per rule 6 (7CA) of Service Tax Rules, 1994 on or after 1.7.2017 the same will not be admissible as credit under CGST Act, 2017 and the rules made thereunder.

AI Summary

Service tax on CIF value: importer liable under reverse charge for sea freight services, raising double taxation and credit issues. Insertion of Rule 6(7CA) made the importer liable to pay service tax on the CIF value where supplier and vessel transporter are located outside India, effective from 22 January 2017, producing audit demands for that period; concerns of double taxation arise because freight is included in customs assessable value. Under GST, the same activity is made taxable to IGST with reverse charge on the importer when the supplier is abroad and input tax credit is restricted by statutory exclusions, while recovery provisions treat pre-GST liabilities as arrears not admissible as input tax credit.