Ocean freight on imported goods has always been a controversial topic in indirect taxation regime. Transport of ocean freight is a physical process of transporting commodities and merchandise goods and cargo through ship line.

Import on CIF Basis

While importing goods on CIF (Cost, Insurance & Freight) basis, the supplier/ exporter located in the foreign country is liable to engage and bear the cost of transportation of goods, from the respective country up to Indian ports. Hence, for the transportation of the goods, the supplier / exporter avails the services of such transportation of goods from a foreign shipping company, for bringing the said goods to India in a vessel. Here since it is an importation of goods, the importer is paying customs duty & IGST on CIF Value as per the applicable provisions of the Customs Act.

Is GST levied on service by foreign shipping entity for transportation of goods in ships to ports in India

The services by the foreign shipping entity, by way of transportation of goods in a ship to a port in India are an ‘Inter-state supply’. Hence, IGST is leviable on the same. IGST has to be paid by the recipient of the supply under Reverse charge mechanism that is it has to be paid by the Importer.

SI.No.	Category of Supply of Services	Supplier of Service	Recipient of Service
(1)	(2)	(3)	(4)
10	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.	A person located in non-taxable territory	Importer, as defined in clause (26) of section 2 of the Customs Act, 1962 (52 of 1962),

Is GST applicable on the component of ocean freight if goods are imported on CIF basis?

The important issue is when the goods are imported on CIF basis, Is the Importer liable to pay GST on component of Ocean freight paid by the foreign supplier of goods to shipping company for availing the transportation of goods by sea.

Determining the supplier and recipient in case of transportation of goods by vessel to the ports in India on CIF basis?

In view of above discussion, it appears that the notification was intended to pertain to the situation where the importer is engaging the transporter of the goods who is located in the non-taxable territory, however, if it is not the case then the Notification appears to be ultra-vires to the provisions of the Act and as such the person (simply because an “Importer”) is not liable to pay IGST on transportation of goods by vessel under reverse charge mechanism (RCM).

However, in following cases, AAR (Authority for Advance Ruling) has ruled that the applicant is liable to pay IGST on transportation of goods by vessel under RCM under said Notification :

• M/s. Chambal Fertilisers & Chemicals Ltd. (Rajasthan AAR – Order dated 25.08.2018
• M/s. Bahl Paper Mills Ltd. (Uttarakhand AAR – Order dated 04.05.2018)

However, a writ petition (SCP No. 726 of 2018) has already been filed before Hon’ble the High Court of Gujarat on 09.02.2018 by M/s. Mohit Minerals Pvt. Ltd. challenging Entry No. 10 of Notification No. 10/2017 dated 28.06.2017.

Under the present circumstances, if one wants to avoid litigation, he may opt to pay IGST under RCM on transportation of goods by vessel and take full credit of tax paid in the same month against the output liability.

Disclaimer:"The information contained herein is only for informational purpose and should not be considered for any particular instance or individual or entity. We have obtained information from publicly available sources, there can be no guarantee that such information is accurate as of the date it is received or it will continue to be accurate in future. No one should act on such information without obtaining professional advice after thorough examination of particular situation."