Dear experts
Demurrage charges in sea transportation are incidental charges that arise when the consignee delays clearance/return of containers beyond the free period. Such charges are to be treated as additional consideration for the principal supply of transportation service. Accordingly, in my opinion, they are taxable at the same rate as freight in terms of Section 15(2)(c) of the CGST Act, 2017.
Many are under the misconception that such chrages are for 'tolerating an act' falling under Sl. No. Entry 5(e) of Second Schedule to the CGST Act.
Plz validate.
Whether demurrage is taxable as additional freight or is compensatory and outside GST under Section 15 valuation rules The forum debates whether demurrage in sea transport is taxable as additional consideration for freight or is compensatory/penal and outside GST. One view treats demurrage as part of the transport supply and taxable at the freight rate under valuation rules; the opposing view sees it as a penalty/compensation not forming consideration and therefore outside GST, citing administrative guidance and recent court reasoning that compensation-like charges fall outside the tax net. The correct treatment may turn on facts (who levies the charge and contractual terms) and applicable legal authorities. (AI Summary)
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