GST on export ocean freight - freight forwarder

[Sunish Ahuja]

Afternoon Sir/Mam,

Under GST regime, ocean freight on export is exempted. Shipping line (based outside India) doesn't charge GST on ocean freight.

Now, the point I need to understand - A (Freight forwarder) buys a freight of $1000 from a shipping line and sells $1500 to an actual exporter. Since, ocean freight is exempted from GST. Shipping company doesn't charge GST on $1000 nor did the freight forwarder charged his customer GST on ocean freight of $1500.

Is GST payable on the profit/margin earned of $500 on the name of ocean freight?

Your any help in aforesaid issue would be much appreciated!

Regards

Sunish

[CA Hemanth Kumar]

Dear Sunish Ahuja,

In case if such services are provided as a separate part, it will still be an exempt supplies.

However, care has to be taken and see whether supply customs services along with ocean transport can be classified as composite supply?

[Sunish Ahuja]

Dear Hemanth ji,

Thank you for looking into it and for your feedback.

Please guide with an explanation how? Because freight forwarder is acting as an agent between shipping line and an exporter. The agent who books space with the shipping line on behalf of an exporter and charge them ocean freight (with no GST on it).

Lets take it this way, there is one invoice with multiple headings - Ocean freight is charged as 0% and rest all items under 18%.

Thank you once again, and look forward to hear from you :)

Kind Regards

SA

[Shilpi Jain]

What the agent is doing is he is trading in the space. The $500 earned by him would be the margin for this trading. If the orignal supply is exempt i.e. $1000 charged by the shipper, this $1500 will also be exempt. We should not look at $500 separately.

There are a couple of case laws in this respect I have noted in the service tax regime where a similar exemption existed.

[Shilpi Jain]

Because freight forwarder is acting as an agent between shipping line and an exporter. The agent who books space with the shipping line on behalf of an exporter and charge them ocean freight (with no GST on it).

In this case, the agreement will play an important role. Pls see, in many cases the agent will be liable to the customer and not the shipping line for any breach of the contract.

The shipping line will be liable to the agent. So that agent maybe called the agent but he actually functions on principal to principal basis.

These are explained in the cases that I was referring to under ST.

[VenkataSatyaPhaniKiran Mula]

Sunish Ahuja,

Can u share the other line items where he is charging GST@ 18%.

If he is only a freight forwarder, there there will not be any other services accompanies with it.

Is it a CHA services or only a freight forwarder>?

[KASTURI SETHI]

This case law may help you.

DIRECT LOGISTICS INDIA PVT. LTD. Versus COMMR. OF S.T., BANGALORE S.T.-I - 2021 (9) TMI 500 - CESTAT BANGALORE

[KASTURI SETHI]

There is no doubt freight forwarder is an intermediary/agent/broker etc. who acts for and behalf of an other person. If intermediary arranges to supply exempted service, then his profit (commission) is not liable to GST. Freight forwarder is to ensure that he fulfills the conditions of an intermediary/agent.

[KASTURI SETHI]

Sharing just for additional knowledge

Freight forwarder is the best example of naturally bundled services taking delivery, packing, loading, unloading and delivery to the recipient.

[Sunish Ahuja]

Thank you very much Kasturi ji, your help has been much appreciated :)

[Anwar Uddin]

Hello All,

we are working as Freight Forwarders and recently our GST Audit completed by CGST Audit Meerut, received audit report copy and surprised to see that GST @ 18% imposed on our total freight billing , as per CGST Audit team Freight Forwarder can't bill Ocean Freight in their invoice because they have no such set up, Freight forwarder can only bill Freight under supporting services under HSN code:998599 , even they are not ready considor what Ocean freight we paid to shipping line, Whole Ocean Freight billing has been considered as Support service and imposed GST @18 % + Interest + penalty

Any one has solution on above? Please help.

[SAM JAYARAJ]

Hi ! Sunish

My understanding is GST exemption of ocean freight applicable to ship owning companies not to freight forwarders. based on the Service Accounting Code (SAC)

Service Accounting code for Ocean transport is 9966521 nil GST

Whereas SAC for C&F agents is 996713 under GST slab 18%

Regards...Sam Jayaraj

AI Summary

Intermediary margin on ocean freight may follow the exempt underlying service; role and contract determine GST exposure. Whether a freight forwarder's markup on export ocean freight is taxable depends on whether the forwarder acts as an intermediary/agent arranging an exempt ocean transport service or functions as principal; the agreement, factual allocation of liability, composite supply characterisation, and Service Accounting Code classification determine whether the markup is part of the exempt supply or a taxable service, with audit exposure where invoices are recharacterised.