TDS under CGST for foreign shipping companies

[BRIJMOHAN GOYAL]

As per CBDT circular 723 of 1995, foreign shipping companies or their agents are exempted from TDS under section 194C – payment to contractors . However, as per section 51 of CGST Act, 2017 our company is mandated to deduct TDS @ 1% CGST & SGST each or 2% IGST. Shipping companies/agents are submitting GST invoices for destination charges, which our company is processing after 2% TDS deduction as per CGST Act, 2017. Shipping companies however are not accepting this deduction. Is there any exemption available to foreign shipping companies/agents from TDS under GST? Please share details of circular/notification, if any. In addition, what is the recourse if Shipping companies does not accept deduction. We are incurring heavy detention charges in comparison to small amount of TDS.

[Rajagopalan Ranganathan]

Sir,

According to Section 51 (1) of CGST Act, 2017 "Notwithstanding anything to the contrary contained in this Act, the Government may mandate,––

(a) a department or establishment of the Central Government or State Government; or

(b) local authority; or

(c) Governmental agencies; or

(d) such persons or category of persons as may be notified by the Government on the recommendations of the Council,

(hereafter in this section referred to as “the deductor”), to deduct tax at the rate of one per cent. from the payment made or credited to the supplier (hereafter in this section referred to as “the deductee”) of taxable goods or services or both, where the total value of such supply, under a contract, exceeds two lakh and fifty thousand rupees:

Provided that no deduction shall be made if the location of the supplier and the place of supply is in a State or Union territory which is different from the State or as the case may be, Union territory of registration of the recipient.

Explanation.––For the purpose of deduction of tax specified above, the value of supply shall be taken as the amount excluding the central tax, State tax, Union territory tax, integrated tax and cess indicated in the invoice.

Under clause (d) above

(a) an authority or a board or any other body, -

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by any Government,

with fifty-one per cent. or more participation by way of equity or control, to carry out any function;

(b) Society established by the Central Government or the State Government or a Local Authority under the Societies Registration Act, 1860 (21 of 1860);

(c) public sector undertakings vide Notification No. 50/2018-C.T., dated 13-9-2018.

Since your supplier is foreign shipping company you are not required to to deduct TDS @ 1% CGST & SGST each or 2% IGST. This is my opinion.

[Rajagopalan Ranganathan]

Sir,

In continuation of my reply dated 29.05.2020 since the shipping company is located outside the taxable territory (that is, India) as per Notification No.10/2017-Integrated Tax (Rate) dated 28.06.2017, vide Sl. No.10, when "services 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., then the Importer, as defined in clause (26) of section 2 of the Customs Act, 1962 (52 of 1962), located in the taxable territory is liable to pay IGST on the freight charges charged by the shipping company under reverse charge mechanism and you can avail the credit of such IGST paid under reverse charge.

[BRIJMOHAN GOYAL]

Dear Sir,

Thanks for reply. Let me elaborate further, we work for a public sector undertaking and thus liable to deduct TDS as per section 51 of CGST Act. Foreign shipping line or its agents are billing for services provided at ports - like documentation charges, detention charges, container maintenance etc.. These are local charges at destination to be paid by us in INR for GST invoices billed by Line/Agents. Line/agents are registered with GST number. As per CBDT circular 723 of 1995 we are not deducting TDS for income under section 194C as they are furnishing tax exemption certificate. However we have to deduct 2% under CGST Act and Line/Agents can take tax credit based on GSTR-7 details submitted by us.

Please suggest if our view is correct and what recourse we have if Line/Agent neither agrees not provide any exemption certificate for TDS under GST.

[Rajagopalan Ranganathan]

Sir,

In relation to transporting of cargo by ship from a place outside India to a place/port in India when the service provider is located in non-taxable territory (that is in a foreign country) the importer who is located in the taxable territory (that is India) is liable to pay IGST under reverse charge mechanism. Provisions regarding TDS under Income Tax Act is not applicable to GST Law. Provisions of TDS under GST Law is different from provisions of TDS under Income Tax Law. Under GST Law TDS provisions are contained in Section 51 of CGST Act, 2017. Under GST Law only those persons/entities mentioned in Section 51 are liable to collect GST under TDS method.

[YAGAY and SUN]

In addition to above replies, Under the GST regime, section 51 of the CGST Act, 2017 prescribes the authority and procedure for ‘Tax Deduction at Source’. The Government may order the following persons (the deductor) to deduct tax at source:

(a) a department or establishment of the Central Government or State Government; or

(b) local authority; or

(c) Governmental agencies; or

(d) such persons or category of persons as may be notified by the Government on the recommendations of the Council.

AI Summary

Tax Deduction at Source under GST may not apply to foreign shipping companies; importer may pay IGST under reverse charge.
Section 51 GST TDS applies only to persons or categories notified as deductors (governmental bodies and notified entities). Services supplied by a person located outside the taxable territory (foreign shipping company) make the importer in India liable to pay IGST under the reverse charge mechanism and claim input tax credit; Income Tax TDS exemptions do not affect GST TDS obligations.