Shipping Companies are Now Subjected to the GST Regime

By Consultants Review Team Monday, 23 October 2023

The shipping industry is being investigated by GST officials for failing to pay integrated GST on ocean freight. GST regulators are investigating the shipping industry for failing to pay past IGST dues on ocean freight. Several ocean liners are also being investigated for charging operational expenditures to foreign head offices rather than local branch offices.  

The Directorate General of GST Intelligence is investigating these incidents, according to sources. According to experts, the total tax burden on the sector will be between Rs 2 lakh and Rs 2.5 lakh crore. 

The government exempted ocean freight from the 5% integrated GST (IGST) beginning October 1 this year, in compliance with the Supreme Court's decision in the Mohit Minerals case.  

In May 2022, the Supreme Court ruled that if an Indian importer pays IGST on the "composite supply" of products and services as well as the supply of services of Cost Insurance and Freight, they do not need to pay IGST individually for the supply of services or commodities. Until last month, importers paid 5% IGST via the reverse charge method, although this was viewed as double taxation. 

While the finance ministry notification addresses this issue in the future, analysts note that earlier incidents are still being investigated by the DGGI.  

According to Bimal Jain, Founder of A2Z Taxcorp LLP, while the government has exempted payments made for commodities imported via ocean freight from 5% integrated GST with effect from October 1, the issue is still being debated in previous cases prior to October 1, 2023. "The DGGI had already initiated investigations against many ocean goods liners and has sought recovery of past dues," Jain went on to say. 

Meanwhile, foreign shipping lines operating in India under the branch model are believed to be under scrutiny by the DGGI for alleged tax avoidance on import of services as they book operational costs for rent and salaries to the head office. This is considered an import of services under GST legislation and is subject to tax.  

Shipping lines, according to sources, are in negotiations with the finance ministry about both difficulties and are looking for some respite. However, no decision has been made on this matter as of yet. 


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