Finance Ministry amends Service Tax on Freight pre-paid Shipments

Posted by Daily Shipping Times on 24-04-2017        Tweet

NEW DELHI : The Finance Ministry has amended its service tax on pre-paid ocean freight following strong lobbying from agents, leaving Indian importers/consignees and foreign shipping lines responsible for remitting payments when overseas exporters charter non-Indian flagged ships to supply goods to India.

Such transactions were brought under the service tax net from January this year and created an uproar among Global Shipping Lines and shippers. Originally the move had put this liability on the foreign lines and the ship’s agents in India, but the Ministry issued an amendment on 13 April, absolving the agent and instead making the importer/consignee along with the lines responsible.

Given the lack of clarity on the freight element in cost, insurance, and freight (CIF) contracts for the purpose of calculating the service tax levy, the Ministry also said that 1.4% of the CIF value would be the freight component in the CIF value of imported goods and on that 4.5% will be charged as service tax. 

“The clarification comes as a huge relief for us,” said K P Desai, Chairman of the legal and taxation sub-committee of the Mumbai and Nhava Sheva Ship Agents Association (MANSA). “We have been having sleepless nights”, he added.

When an Indian importer/consignee buys cargo on CIF basis from a foreign party, he is not privy to the freight paid for the ship that hauls the goods to India.

“The person liable for paying service tax for the taxable 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, shall have the option to pay an amount calculated at the rate of 1.4% of the sum of cost, insurance, and freight [CIF] value of such imported goods,” Mohit Tewari, an Under-Secretary in India’s Finance Ministry, wrote in the 13 April gazette notification.

“For the purposes of this notification, in respect of 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, person liable for paying service tax other than the service provider shall be the importer as defined under clause [26] of section 2 of the Customs Act, 1962 [52 of 1962] of such goods,” Tewari wrote in the notification.

“Determination of the point of taxation in respect of services provided by a person located in non-taxable territory to a person 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, shall be the date of bill of lading of such goods in the vessel at the port of export,” Tewari further explained.

The new rules will take effect from 23 April.

“With this notification, the Indian Government has agreed that the ships agents will not be held responsible for paying the service tax liability on freight pre-paid shipments. Apart from the lines, it can also be paid by the importer/consignee who would also get a tax set off in the form of CENVAT credit,” Desai explained.

The service tax is imposed by the Indian Government and should be collected from persons that are part of the Indian tax regime, the International Federation of Freight Forwarders Associations (FIATA), a global trade lobby said in an 8 February press statement.

“It is unreasonable to collect a tax from a foreign person who is not part of the Indian tax regime. Instead, it is recommended that the service tax be collected at destination, in India and from the consignee who is party to the Indian tax regime and could offset the same as per local regulations available to him/her,” FIATA said in the statement.