What is Ocean Freight?
The expense incurred for the logistics of exporting and importing of cargo through shipping mode is called Ocean Freight. The goods to be exported/ imported are packed in the shipping containers and the freight forwarder ensures the availability of space and container in consultation with the ship agent.
Statutory Provisions of Ocean Freight – Importer
The Ocean Freight in relation to transportation of goods by vessel from a place outside India upto the customs station of Clearance in India is liable to IGST (Integrated Goods and Services Tax).
As per Notification No 8/2017, Integrated Rate dated 28th June 2017, IGST is leviable @5% under the clause (ii) of heading 9965 for the services described as under-
“Transport of goods in a container including services provided or agreed to be provided by a person located in a non-taxable land to a person located in non-taxable land by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance of India”
Who is Responsible to Pay the GST liability?
The importer is required to pay tax under Goods and Services Tax. The importer will mean the same as mentioned in the clause 26 of the section 2 of the Customs Act 1962. The importer will pay tax on the services specifically specified as below-
“Services supplied by a person located in the 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”.
What is the method applicable for calculating levy of Integrated Goods and Services Tax on the Ocean Freight Services?
The Valuation Rules 27 to 35 as mentioned under CGST Rules does not specifically states the method to be used for valuation of such services. But the Government has released a CORRIGENDUM to Notification No. 8/2017-Integrated tax (Rate) dated 28.06.2017 vide F. No. 334/1/2017- TRU dated 30.06.2017 whereby the following has been inserted:
“Wherever the value of taxable service provided by a person located in non-taxable land 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.”
The importer can claim IGST paid on import of services as credit subject to credit rules.
The GST on Importation Freight should be exempted where the goods are imported on CIF basis. Anyways the importer is paying GST on Import value of goods as the import value is computed on CIF basis. Giving GST again on Freight amounts to double taxation and hence, should be avoided.
If the Customs Value of goods is calculated on CIF basis then technically there is no need to charge GST on Ocean Freight thereby reducing the working capital of the importer and reducing the paperwork. Once the goods are valued on CIF, the Government is protected of its revenue and hence, should pay a thought for levy of GST on Ocean Freight.