Shipping sector is looking for some government attention in areas including discrimination in taxability of outbound freight in the hands of Indian shipping companies versus foreign shipping companies, import of vessels face IGST of 5%, place of supply and Input Tax Credit (ITC) in case of bunker fuel and other goods, no refund of ITC for GST on outbound freight services provided to Indian customers, sale of vessel located outside India, and possible classification issue for bareboat charter of vessels, among others.
There is discrimination in the taxability of outbound freight when compared between Indian and foreign shipping companies. For example, if an Indian shipping company is providing services of transportation of goods outside the country by a vessel to a domestic exporter, then the place of supply of such transportation services is the exporter’s location and 5% GST is payable by the Indian shipping company. However, if a foreign shipping company is providing the same services to an Indian exporter, then the place of supply of such transportation services will be the place of destination of such goods, i.e., outside India and thus, GST is not applicable.
As per a recent EY’s paper this might reduce the competitiveness of the domestic shipping companies as compared to foreign companies who carry out same activities without any taxation in India.
The government extended the exemption of transportation of goods from India to outside India by air or sea vessel without the requirement of reversal of ITC42 to address this issue. However, this exemption has a sunset clause restricting it up to September 30, 2019.
Also, there is no ITC refund on outbound freight services for Indian customers. Services by way of transportation of goods by a vessel provided by an Indian shipping company to a domestic exporter in case of exports is treated as an exempt supply till September 30, 2019.If shipping companies do not have sufficient taxable supplies, it will result in the accumulation of ITC leading to a blockage of working capital for shipping lines.
Further, refund of unutilised ITC in the hands of an Indian shipping company will not be available as it is not a zero-rated supply. Therefore, post-September 30, if the exemption is not extended, the supply will become taxable and there will not be any accumulation of ITC in the hands of an Indian shipping company.
On inbound freight front or import of goods, GST is applicable to the transportation services at 5% irrespective of service provided by an Indian shipping line or by a foreign shipping line.
Valuation for calculating customs duty and IGST payable on import of goods would include the charges for ocean freight. Payment of IGST separately for ocean freight would result in the same getting taxed twice- under Customs Tariff Act and under IGST Act.
All these issues have been presented to the ministries concerned.
Source: https://www.dnaindia.com/business/report-shipping-companies-seek-gst-parity-2715740
