AUGUST 16, 2017

By G Mohana Rao, Assistant Commissioner (Retd.)

ATTENTION of Importers and Custom Brokers is drawn to the incidence of IGST on the ocean freight paid or payable on the imported goods. The ocean freight services on import of goods wherein the carrier is contracted by the supplier in the exporting country and the freight is also paid by the exporter are being charged to GST. The Integrated tax@ 5% is leviable on the value of import freight under heading 9965(ii) as per Notification No. 8/2017-Integrated tax (Rate) dated 28 th June, 2017. The heading is reproduced below:

“(ii) 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 station of clearance in India.”

The Notification further states that where the value of taxable service provided by a person located in a non-taxable territory to a person located in a 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.

Who has to pay?

Usually the supplier needs to pay GST. In some cases, the recipient is liable to pay tax under reverse charge mechanism. In the present case, the supplier as well as the recipient is outside of India. The responsibility for paying GST has been cast on a third person i.e. the importer who is neither a supplier nor recipient of service. However, the importer is the real beneficiary of the service and, therefore, has to bear the incidence of GST on the freight amount. As per the Notification No. 10/2017- Integrated Tax (Rate) dated 28 th June, 2017, in respect of 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, the Importer, as defined in section 2(26) of the Customs Act, 1962 located in the taxable territory is liable to pay integrated tax.

Thus, the importer is liable to pay integrated tax on the ocean freight wherever the supplier of service of transportation is located outside India. The importer will have to show these invoices in his GSTR-2 and pay the requisite IGST at the time of filing of GSTR-3. The importer shall be eligible for credit of the integrated tax so paid in the further supply chain. So even though this is a revenue neutral situation, it will have some cash flow as well as compliance implications for the importers. The importers will need to produce the freight receipt, otherwise the department shall have to take 10% of the CIF value, especially, in the cases where the freight amount of ocean freight is much less than 10%. Therefore, the importer will have to get the freight invoice from the shipping line so as to not end up paying higher IGST on 10% of the CIF value of the goods imported.

A Customs Broker may have nothing to do with this as the importer will have to pay the requisite IGST at the time of filing GSTR-3 before 20 th of the succeeding month in which the import is affected. This will be a post import event and, therefore, a customs broker will have no role to play except to the extent of collecting the freight bill from the shipping line and handing over the same to the importer. Even the Customs will have no responsibility to ensure that integrated tax is paid by the importer in such cases.

Furthermore, there is no compulsion on the importer to register under the GST. In many cases, goods may be imported by individuals, small importers and even by the government who are not registered under the GST. There appears to be no responsibility cast on the Customs Brokers or Customs to ensure that IGST is paid on import freight before clearance of goods from the Customs. Even the importer registered under GST has to pay the requisite IGST at the time of filing GSTR-3 , therefore, there is a probability of missing the payment of IGST since there is no provision for cross checking or effective control. It appears the controlling shall be given to Customs department since the department can exercise perfect control at the time of assessment. Necessary changes may be required in the EDI system to ensure 100% collection under this head.

(The author is Partner, Elysian Tax Advisors, Mumbai and the views expressed are strictly personal.)