Input Tax credit on Export ocean freight charged by Shipping line @ 5% to Exporter of goods

[Ripen Sahu]

Whether an exporter of goods is eligible to avail Input Tax Credit (ITC) of GST charged at 5% on ocean freight by the shipping line, and if so, whether such ITC can be utilized for claiming a refund or for set-off against output tax liability. Further, whether the restriction of ITC in case of concessional GST rate (5%) is applicable only to the supplier (shipping line) or also extends to the recipient (exporter of goods). Additionally, whether ITC to the exporter is available only in cases where the shipping line charges GST at 18%, thereby restricting credit eligibility when GST is charged at 5%

[Shilpi Jain]

Exporter would be eligible for credit. Restriction if any is for supplier

[Pinnacle Tax Advisor]

You are eligible for ITC as well as to claim refund on accont of export without payment. Restriction of 5% without ITC is for supplier of service only, not for recipient

[YAGAY and SUN]

Under the scheme of the Central Goods and Services Tax Act, 2017 (“CGST Act”), Input Tax Credit (“ITC”) is governed primarily by Section 16, which permits a registered person to avail credit of input tax charged on any supply of goods or services used or intended to be used in the course or furtherance of business, subject to prescribed conditions.

Ocean freight services provided by a shipping line to an exporter qualify as “input services” where such services are integrally connected with the export of goods. Exports are treated as “zero-rated supplies” under Section 16 of the Integrated Goods and Services Tax Act, 2017 (“IGST Act”). Accordingly, the exporter is entitled either to (i) export under bond/LUT without payment of tax and claim refund of unutilized ITC, or (ii) export on payment of IGST and claim refund of such tax.

Where GST is charged at 5% on ocean freight, the concessional rate is typically notified subject to a condition that the supplier (shipping line) shall not avail ITC on input goods/services used in supplying such service. This restriction flows from the relevant rate notification (e.g., Notification No. 8/2017-Integrated Tax (Rate)) and applies specifically to the supplier. There is no express statutory bar under the CGST Act denying ITC to the recipient (exporter) merely because the supplier has opted for a concessional rate with restricted credit.

Therefore, the exporter, being the recipient of taxable supply, remains eligible to avail ITC of GST charged (even at 5%), provided the conditions under Section 16 and 17 of the CGST Act are fulfilled, including possession of tax invoice and receipt of service. Such ITC forms part of the electronic credit ledger and can be utilized either for (a) set-off against output tax liability, or (b) refund as unutilized ITC in case of zero-rated supplies under Section 54 of the CGST Act read with Section 16 of the IGST Act.

There is no legal requirement that ITC to the exporter is available only where GST is charged at 18%. The rate of tax (5% or 18%) does not, per se, determine the eligibility of ITC to the recipient unless a specific statutory restriction exists against the recipient, which is absent in the present context. Hence, denial of ITC solely on the ground that ocean freight is taxed at 5% would not be sustainable in law.

[Ripen Sahu]

Thank you for your prompt and insightful response to my query. I truly appreciate the time and effort you took to clarify the matter.

AI Summary

Input tax credit on ocean freight remains available to exporters even at a concessional GST rate.
Input tax credit is available to an exporter receiving ocean freight services even where GST is charged at 5%, if the CGST Act conditions are met. Ocean freight used for export is treated as an input service for zero-rated supplies, allowing set-off against output tax liability or refund of unutilized credit. The 5% concessional rate restricts the supplier's credit entitlement and does not, by itself, deny credit to the exporter; availability of credit does not depend on whether GST is charged at 5% or 18%.