In course of import of goods by sea route, good are transported by vessel and ocean freight has to be paid either by supplier of goods or importer of goods located in India.
IGST on ocean freight to be paid by importer on Reverse charge mechanism:
As per Serial No. 10 of Notification No.10/2017 – Integrated Tax (Rate) dated 28/06/2017, importer has to pay IGST on ocean freight on reverse charge basis. In other words recipient of such service is liable to pay GST
The relevant para of said notification is as under :-
“Services supplied by a person located in non- taxable territory (outside India) by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India.”
Recipient of such service as per the above notification is Importer as defined in clause (26) of section (2) of Customs Act, 1962
Therefore the responsibility of paying IGST is on importer who is actual beneficiary of services.
Rate of GST on ocean freight:
As per Serial No. 9 of Notification No.8/2017 – Integrated Tax (Rate) dated 28/06.2017 IGST is payable on ocean freight @ 5% under the heading 9965(ii) for the services described as under
“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.”
Valuation of services:
Now the point is what should be the value of ocean freight services. Ocean freight services can be executed on the basis of one of the following 2 contracts
- Free on board (F.O.B.) contract
- Cost, Insurance and Freight (C.I.F.) contract
Valuation of ocean freight services under both the contracts is discussed as follows.
Under F.O.B. contract seller has to put goods on board the ship at his own expense. In other words ocean freight for transportation of goods via vessel is incurred by importer. In such cases amount of ocean freight can be ascertained easily. Value of such services shall be amount of ocean freight incurred by importer. Rate of IGST on such value shall be 5%.
This can be explained with the following example
Ocean freight incurred by importer on import of goods under F.O.B. contract = Rs. 3 lakh
IGST @ 5% on Rs. 3 lakh i.e Rs. 15000 to be paid by importer on reverse charge mechanism.
Under C.I.F. contract cases total value (cost of goods + insurance + freight) ]is shown in invoice. Freight is not separately shown in invoice. At this point problem arises. Importer is liable to pay IGST on reverse charge basis on the services of transportation of goods by vessel.
But the amount of freight which is subjected to IGST is not known as it is not shown separately in invoice.
For this Corrigendum to Notification No.8/2017 – Integrated Tax (Rate) is issued which states that:
Where value of taxable services provided by way of transportation of goods by vessel from place outside India up to customs station of clearance in India is not known to importer then value is determined as follows:
Value = 10% of CIF value (sum of cost, insurance and freight) of imported goods.
This is explained with the help of following example:-
Invoice value for import of goods via vessel = Rs. 20 lakh
This value is inclusive of cost of goods, insurance and freight but freight element cannot be ascertained.
Value as per above mentioned rule will be 10% of Rs.20 lakh i.e. Rs. 2 lakh.
This value of Rs. 2 lakh will be subjected to IGST @ 5%
Therefore 5% of Rs.2lakh i.e. IGST Rs.10000 to be paid by importer on reverse charge mechanism.
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