Easy to Learn Ocean Freight Taxability Under GST Law with Impact

What is Ocean Freight Transport?

Ocean Freight transport is defined as the process through which merchandise goods and cargo and commodities are transported through shipways via shipping lines.

Latest Update

20th July

The high court of Rajasthan has issued an order related to IGST on ocean freights. The court approved the IGST refund and gives huge relaxation to exporters. Read PDF

Impact of GST on Ocean Freight

On the Basis of CIF (Cost, Insurance, Freight)

If no separate transportation charges are imposed on the importer during the import of goods from foreign countries to Indian Ports because the supplier or the exporter is employed in the services of Foreign or Indian shipping entity for bringing goods to India, then the value charged on the goods is called CIF value.

Section 5 (3) directs that those specified services which provide inward supply are liable under the Reverse Charge Mechanism(RCM), mentioned under S.N-10:-

• A person who provides his services of supply of goods from outside India to India and is located in a non- taxable territory.
• RCM would be applied in one another situation. If the supplier or exporter is providing the service of foreign shipping entity for bringing goods in India then, RCM would be applied as the supplier of the Ocean Freight transport is situated outside India whereas the recipient is in India

FOB Value

• In this scenario, the Importer is working for any Foreign shipping entity or the Indian Shipping entity for bringing goods to India from Foreign Port. Now, it is not the exporter who is responsible for goods transportation to the Indian port.
• Referring to section 5(3) the inward supplies of goods which are received from specified services falls under RCM and are liable to the same under heading S.N-10:-
• A person located in a non-taxable territory and provides services of transportation of goods from outside India to India.
• In such a situation where the importer is a service provider for Foreign shipping entity for bringing goods to India then, RCM case would be applied. The reason behind is that the supplier of the goods is outside India and recipient is in India.

Recommended: Easy Guide to RCM (Reverse Charge Mechanism) Under GST with All Aspects

Import of Goods and Taxes Applied

• Section 5(1) of IGST Act is the basis on which IGST shall be levied and should be collected accordingly. The charges should be levied and collected based on section 3 of Customs Tariff Act-1975.
• Custom Tariff Act-1975, the valuation of section 3, states the total cost of goods imported and the cost charged to the importer in bringing the goods to India.

Conclusion:

In the case of Import of Goods IGST shall be payable on the value of goods including freight.

Example:

Q. B Ltd import goods from A ltd which is outside India, cost of goods is Rs. 10,000

Calculate Custom duty (tax rate 10%) & IGST(Rate of goods @12%) paid by the importer in following conditions for bringing goods from outside India through the ship in India:

1. A Ltd hires a transport company T1, which is also outside India of Rs. 2000 and recover from B ltd.
2. A Ltd hires a transport company T2, which is in India of Rs. 2000 and recover from B Ltd
3. B ltd hires a transport company T3, which is outside India of Rs. 2000.
4. B ltd hires a transport company T4, which is in India of Rs. 2000.

Ans:

1) In this case, it is called goods imported by the importer under CIF value, and the exporter hires services of foreign shipping entity, so RCM applies as per section 5(3) of IGST Act.

• RCM paid by importer (i.e. B ltd)=2000*18/100=360  (tax rate on ocean freight @18%)
• Tax on Goods:

2)

• In this case, it is called goods importer by the importer under CIF value, and the exporter hires services of Indian shipping entity thus RCM does not apply.
• Tax on Goods: Same as above in 1.

3)

• In this case, it is called goods imported by the importer under FOB value, and the importer hires services of foreign shipping entity, so RCM applies as per section 5(3) of IGST Act.
• RCM paid by importer (i.e. Y ltd) = 2000*18/100=360 (tax rate on ocean freight @18%).
• Tax on Goods: Same as above in 1.

4)

• In this case, it is called goods imported by the importer under FOB value, and the importer hire services of Indian shipping entity, so RCM does not apply.
• Tax on Goods: Same as above in 1.

Read Also: Easy Guide to Capital Goods Under GST with Input Tax Credit Eligibility