GST on vessel freight

September 19, 2017   admin  GST Articles
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Payment of GST on freight paid to person outside India

Import of goods generally includes cost of goods, freight and cost of insurance as part of cost of goods.  In case the importer is making payment for freight, it is usual for him to identify the payment made for services of transportation of goods through vessel to India and pay reverse charge on such value as required by Notification No. 10/2017- Integrated Tax (Rate) dt. 28.06.2017 which requires person located in taxable territory to pay IGST on payment made to a person who is located in a non-taxable territory for any service supplied to such person.  Accordingly, IGST shall be paid on such freight by such importer at the rate of 18%.

However, most of the goods are imported into India from the supplier abroad on CIF basis i.e. including value of insurance and freight.  Accordingly, in such cases, the foreign supplier pays to the shipping line or its agent and the importer never gets to know the value of import.  However, vide Notification No. 10/2017- Integrated Tax (Rate) dt. 28.06.2017, the following liability has been casted on an importer:

S.no. Category of Supply of Services Supplier of Service Recipient of Service
10 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. A person located in nontaxable territory Importer, as defined in clause (26) of section 2 of the Customs Act, 1962(52 of 1962), located in the taxable territory

Importer as has been defined in Customs Act, 1962 is as under:

(26)      “importer”, in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes any owner, beneficial owner or any person holding himself out to be the importer;

An importation of goods shall be made at the legal landing place or at the place permitted by the proper officer of customs.  Upon their arrival, all goods need to be declared by the owner or his agent in the prescribed form assessing the duty payable on such goods.  On payment of such duty, the goods are then cleared into India.  Thus, any person who is a owner between the time of importation and time of clearance into India shall be required to comply with the requirement of payment of IGST on freight included in the value of such goods as CIF value.

In such cases, the value of freight of vessel shall be taken as provided in Notification No. No. 8/2017-Integrated Tax (Rate), dated the 28th June, 2017, as under:

  1. Where the value of taxable service provided by a person located in non-taxable territory to 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 is not available with the person liable for paying integrated tax, the same shall be deemed to be 10 % of the CIF value (sum of cost, insurance and freight) of imported goods

Accordingly, such person shall pay 10% of CIF value multiplied by rate of IGST viz., 5%.  Thus, the effective liability on services of Transport of goods in a vessel including services provided or agreed to be provided by a person located in non-taxable territory to 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 works out to be 0.5% of CIF value.

The above discussion is summarised as under:

Particular Person providing services of transportation of goods in a vessel located in India Person providing services of transportation of goods in a vessel located outside India
Importer paying freight to Shipping Line Shipping line to charge GST from Importer on his invoice Importer to pay IGST on actual value of freight paid @5%
Importer paying to freight forwarder in India Freight forwarder to charge GST from Importer on his invoice Freight forwarder to charge GST from Importer on his invoice
Importer paying to freight forwarder outside India Importer to pay IGST on actual value of freight paid @5% Importer to pay IGST on actual value of freight paid @5%
Importer paying to Supplier of Goods Importer to pay IGST on 10% of CIF value @5% Importer to pay IGST on 10% of CIF value @5%

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