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Amendment in Service Tax Applicability in case of Ocean Freight

Sequential Amendments in taxability of freight paid, whether pre-paid or otherwise on Import of goods

(1) Since the introduction of Negative List (even before), there was no service tax on air or sea freight paid for import of goods by virtue of negative list entry in Section 66D (p) (ii) which read as under:

(ii) “Services of transportation of goods by an aircraft or a vessel from a place outside India to the customs station of clearance in India”

 

(2)    The above negative list entry was deleted w.e.f. 01-06-2016 and hence import freight whether by sea or air became taxable. However, simultaneously, w.e.f. 01-06-2016, a new exemption entry no 53 was inserted in Mega Exemption Notification no 25/2012-ST granting exemption to transportation of goods by an aircraft from place outside India to the customs station of clearance in India which read as under:

“53. Services by way of transportation of goods by an aircraft from a place outside India up to the customs station of clearance in India.”

Hence,  effectively, w.e.f. 01-06-2016, air freight paid for import of goods was exempted and freight for vessel paid for import of goods became taxable. It is pertinent to note that w.e.f. 01-06-2016, such taxability occurred only where such Sea Freight was paid by the person located in taxable territory i.e. India. Such person was liable to pay service tax as receiver of service by necessary amendments carried out in Notification no 30-2012-ST and Rule 2 of Service Tax Rules, 1994.

However, there happened to be a situation where such Sea Freight is pre-paid by the person located in non-taxable territory i.e. person exporting the goods to the shipping line (also located in non-taxable territory)and person importing the goods is not responsible to pay such sea freight.

Service by person located in non-taxable territory to any other person located in non-taxable territory was exempted by virtue of entry no 34 (c) of Mega Exemption Notification no 25/2012-ST.

Hence, in such a situation, the person located in India is not the person liable to pay freight and hence there was no service tax liability casted on the importer of the goods. And services by person located in non-taxable territory to another person located in non-taxable territory was covered under exemption entry no 34 (c).

 

(3)    Further amendment was carried out on 22-01-2017 vide notification no 01/2017-ST dated 12th January, 2017, whereby service tax exemption was withdrawn for services 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 by inserting proviso to entry no 34 (c) of the exemption notification.

Hence, by this amendment, Sea Freight paid on import of goods whether pre-paid by person located in non-taxable territory or post-paid by the importer located in India became taxable.

In case of post-paid freight paid by the importer located in India; person liable to pay service tax was importer himself;

In case of pre-paid freight paid by the exporter located outside India; person liable to pay service tax was Person in charge of vessel or his agent in India

 

(4)    Now, further amendment is carried out vide notification no 13/2017-ST (amending Rule 2 of Service Tax Rules for person liable to pay tax and alternate valuation), 14/2017-ST (amending Point of Taxation rules) and 15/2017-ST (amending notification no 30/2012-ST) for shifting the liability to pay service tax from Person in charge of vessel or his agent in India to Importer of goods located in India.

Hence, whether it is pre-paid ocean freight paid by exporter located outside India or post-paid freight paid by importer located within India; the liability to pay service tax will rest upon IMPORTER OF GOODS LOCATED IN INDIA. Apart from such shift in liability, notification no 13/2017-ST carried out amendment in Rule 2 of Service Tax Rules for person liable to pay tax and also providing alternate valuation; 14/2017-ST carried out amendment in Point of Taxation rules by inserting Rule 8B specifically for services provided person located in non-taxable territory to another person located in non-taxable territory and 15/2017-ST amending notification no 30/2012-ST. Summary of such amendments are as under:

 

Period Person liable to pay freight Person liable to pay service tax Point of Taxation Alternate payment of service tax
22-01-2017 to 22-04-2017 Exporter of goods located in non-taxable territory Person In charge of vessel or his agent in India Date of Bill of Lading Service Tax to be paid @ 1.4% on sum of cost, insurance and freight
w.e.f. 23-04-2017 onwards Exporter of goods located in non-taxable territory Importer of goods located in India Date of Bill of Lading Service Tax to be paid @ 1.4% on sum of cost, insurance and freight

 

(5)  Furthermore, amendment is also carried out in  CENVAT Credit Rules, 2004 vide Notification no. 10/2017 – CENT dated 13.04.2017; where importer will allow to avail credit of service tax paid on the ocean freight. The same credit will be available on the basis of the paid challan copy.

 

Click here for relevant notifications and circular issued by CBEC in this regard.st13-updated-2017_Transportation of goods by vessel_S.T. Rules st14-2017_POT Rule_8(B) st15-2017_Non assessee online receipient st-circ-206-4-2017_Issues on transportation of goods by vessel