This is to apprise you about the withdrawal of following two exemptions* from October 1, 2022:
- Services by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India
-
Services by way of transportation of goods by an
aircraft from customs station of clearance in India to a place outside India
*[Refer S. No. 20A and 20B of Notification No.
9/2017-Integrated Tax dated June 28, 2017]
| Remarks on Impact of Exemption
Withdrawal
·
The Indian shipper will now charge GST on all the
outbound shipments based on mode of transport as follows:
Mode of transport |
GST Rate |
Vessel only |
5 percent |
Air only |
18 percent |
Multi-model where sea
voyage is dominant (E.g. in Door-to-Door incoterm) |
5
percent if considered a composite supply Note: Some service providers are also charging
separate GST on separate modes of transport. E.g., transport of goods other
than GTA is exempt. So, for road transport part, some are not charging GST. |
Multi-model where air
transport is dominant (E.g., in Door-to-Door incoterm) |
18 percent if
considered a composite supply
Note: Some service providers are also charging
separate GST on separate modes of transport. E.g., transport of goods other
than GTA is exempt. So, for road transport part, some are not charging GST. |
·
This may not be the good news for logistics sector
especially dealing only in sea freight services.
·
However, this could be a relief for some
freight forwarders whose Input Tax Credit (‘ITC’) became cost earlier because
of this exemption.
·
For example, in case of ‘Door-to-door’
incoterms, the freight forwarders had to pay GST under reverse charge on road
transport services till port of export but could not avail ITC because the
outbound freight was exempt. Similar impact was on domestic handling services.
This automatically led to 5-12 percent increase in freight cost on outbound
shipments earlier. In fact, to avoid that some became GTAs themselves. Going
forward, they can utilise the ITC on GTA services as well as on other input
handling services received in India against GST on outbound shipments. However,
in such case 18 percent GST has to be charged for sea transport since for 5
percent GST, ITC will still be restricted.
·
It is to be noted that impact of the withdrawal of
exemption must be seen in each fact of the case analysing various incoterms. It
may benefit some and may adversely affect others, depending on the dynamics and
horizon of the business.
·
But one thing is certain that this will affect the
working capital of exporters, especially SMEs.
| Remarks on Possible Tax Planning for
Indian Exporters
·
Under the Service Tax regime, all outbound shipments
were non-taxable since the place of provision of service was inextricably
connected with the levy under Section 66B of Chapter V of the Finance Act 1994.
·
However, the Parliament made a departure under GST
laws. The levy under GST laws is being disconnected with the place of supply.
Meaning that even if the place of supply is outside India, IGST shall be levied
where the supplier is in India. Thus, even if the place of supply in outbound
shipments are outside India (destination), IGST shall be applied if the shipper
is Indian.
·
As a corollary, where the shipper is a foreign entity,
IGST shall not be levied since the place of supply remains outside India. In
simple words, where the supplier and place of supply is outside India, levy
under Section 5 of the IGST Act does not arise.
·
However, one has to analyse other feasibility or costs
aspects in hiring a foreign shipping lines.
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