Audit u/s.65 on international freight forwarders for period 2020-24

[Raam Srinivasan Swaminathan Kalpathi]

Client is an international freight forwarder.  Foll audit paras have been provided raising demand, viz.

1)  GST under RCM on amounts paid to insurance underwriters like ACIS taken on goods export 

2)  Exemption availed under Not. 9/2017-IGST (Rate) for transportation of goods with HSN 9965 by alleging that the client provides freight forwarding services, port and terminal handling services, documentation services falling under SAC 9967 wherein GST is chargeable @18%.

Request the experts to provide their valuable inputs.  Thanks

[Sadanand Bulbule]

Dear Sir

Acknowledge the RCM liability, but immediately offset the entire amount by claiming corresponding ITC. However you may focus the disupte only on interest and penalty.

As regards to classification of demand, you can counter the demand by establishiing the entire transaction as a Composite Supply with Transportation ( SAC 9965) as the principal, exempt element.

[KASTURI SETHI]

Dear Sir,

Your email ID is required. I intend to email comprehensive note on the issue. 

 

 

[Raam Srinivasan Swaminathan Kalpathi]

Respected Sri.Kasthuriji

Profuse thanks in advance.  My email id is [email protected];  [email protected].

 

[KASTURI SETHI]

Dear Sir,

Emailed. There is ceiling of words. Otherwise I would have preferred to post my comprehensive note here.

[Raam Srinivasan Swaminathan Kalpathi]

Respected Sri Kasthuriji

Email received and gratefully acknowledged.

[Ryan Vaz]

APPLICABLE LAW / NOTIFICATIONS

Insurance / RCM

Notification 10/2017-IGST (Rate) – RCM only on “services supplied by an insurance agent to any person carrying on insurance business.”

Sections 2(7) & 2(87)CGST Act – definition of agent/supplier.

IGST ActSections 7 & 13 – import of services, place of supply for insurance and performance-based services.

Transportation Exemption

Notification 9/2017-IGST (Rate), Entry 18 – exempts “services by way of transportation of goods by aircraft or by a vessel from customs station of clearance in India to a place outside India” (SAC 9965).

SAC 9965 vs SAC 9967 – as per GST classification of services.

CBIC Circular No. 203/15/2023-GST (27-10-2023) – freight forwarder may act as principal or agent; classification depends on this role.

Circular No. 214/8/2024-GST (26-06-2024) – reiterates classification principles for logistics sector; bundled transportation remains 9965 when principal delivers end-to-end carriage.

SHORT PRACTICAL ANSWERS

Issue 1: RCM on Insurance

RCM does NOT apply merely because insurance premium is paid.

RCM in Notification 10/2017 applies only when the supplier is an insurance agent and the recipient is engaged in insurance business.

If client buys insurance from an insurance company (Indian or foreign), the supplier is not an “insurance agent.”

If insurer is Indian ? supplier must charge GST under forward charge; no RCM.

If insurer is foreign ? it becomes import of insurance service; IGST under RCM may apply only if place of supply is India per Section 13.

In export cargo insurance where subject matter is goods situated outside India during risk period or where contract is performed abroad, POS may lie outside India, negating GST.

Issue 2: Exemption under Notification 9/2017

Exemption is valid if client provides transportation as principal and issues HBL/HAWB, assumes risk/liability, negotiates freight, and bills customers a composite transportation charge.

If the client merely arranges transport, coordinates with shipping lines, and charges fees for documentation/handling, then service is under SAC 9967 and taxable @18%.

Audit must establish agency role; exemption denial is unsustainable where client contracts freight in its own name.

AI Summary

GST audit on freight forwarder: RCM on export insurance, composite supply vs exemption under Notification 9/2017-IGST An international freight forwarder undergoing GST audit for 2020-24 faces two issues: (1) demand for GST under reverse charge on insurance premiums paid to underwriters for export cargo; and (2) denial of exemption under Notification 9/2017-IGST (Rate) for transport services classified under HSN 9965, with the department alleging that the services are freight forwarding, port/terminal handling, and documentation under SAC 9967 taxable at 18%. Forum experts suggest that reverse charge liability, if any, may be neutralized through input tax credit, limiting dispute to interest and penalty, and that bundled services should be argued as a composite supply where transportation (SAC 9965) is the principal, exempt element, contingent on whether the freight forwarder acts as principal or agent.