Now, shipping firms under the GST ambit

The shipping industry is now under the radar of GST (Goods & Service Tax) authorities for payment of past dues of integrated GST on ocean freight. Even some of the ocean liners are being investigated on booking operational expenses to the head offices located abroad instead of the local branch offices.

According to the experts, both the issues are being checked by the Directorate General of GST intelligence and the overall tax liability of the industry is around Rs. 2 lakh crore to Rs 2.5 lakh crore.

The government has from October 1 this year exempted ocean freight from integrated GST (IGST) of 5%. The apex court had in May 2022 said that if the Indian importer is giving IGST on the “composite supply” of goods and services and supply of services of Cost Insurance and Freight, they do not need to pay IGST individually for supply of services or freight. Till last month, importers paid 5% IGST under the reverse charge mechanism for this but it was seen as double taxation.

However, while the finance ministry announcement takes care of this issue prospectively, experts note that preceding cases are still under investigation by the DGGI.

Bimal Jain, Founder, A2Z Taxcorp LLP said that while the government has exempted payments made for goods imported via ocean freight from 5% integrated GST with effect from October 1, the issue remains a matter of discussion in previous cases prior to October 1, 2023 “The DGGI had already started inquiries against many ocean freight liners and has pursued recovery of past dues,” Jain said.

Meanwhile, foreign shipping liners that are functioning under a branch model in India are also assumed to be under examination by the DGGI for alleged dodging of taxes on the import of services as they book operational charges for rent and salaries to the head office. Under GST laws, this is seen to be an import of services and attracts tax
Sources said shipping liners are in discussions with the finance ministry on both issues and are hoping for some relief. However, a decision on this issue has not been taken as of now.