Ocean freight is the transportation of goods by sea from one country to another. The GST on ocean freight is levied on the transportation charges incurred by the shipping line or the freight forwarder. The GST rate on ocean freight is 5% of the total ocean freight charges.
GST on Import of Goods by Sea : When importing goods by sea, the GST on ocean freight is applicable on the transportation charges incurred by the shipping line or the freight forwarder. The importer is required to pay the GST on ocean freight along with the customs duty at the time of clearance of the goods.
GST on Export of Goods by Sea : When exporting goods by sea, the GST on ocean freight is applicable on the transportation charges incurred by the shipping line or the freight forwarder. The exporter is required to pay the GST on ocean freight to the shipping line or the freight forwarder at the time of booking the shipment.
GST on Ocean Freight for Goods in Transit : Goods in transit refer to the goods that are being transported from one country to another via sea and pass through India. In such cases, the GST on ocean freight is applicable only on the portion of the transportation charges that is attributable to the transportation of goods from the port of origin outside India to the port of destination outside India. The GST rate on such transportation charges is 5%.
Impact of GST on Ocean Freight : The implementation of GST has led to a reduction in the overall taxation burden on the transportation of goods by sea. Previously, service tax and various other state taxes were applicable on ocean freight. However, with the implementation of GST, only a single tax in the form of GST is applicable, making the taxation process simpler and more streamlined.
GST on Outbound and Export Ocean Freight:
- When goods are transported from India to a destination outside India via ships or vessels operated by shipping lines, the shipping lines charge Ocean Freight.
- GST is applicable to Ocean Freight for transporting goods at a rate of 5% without Input Tax Credit (ITC) or 18% with ITC.
- To determine the type of tax to be paid, we must refer to the place of supply provisions regarding transportation of goods by vessel.
- The place of supply for transportation of goods by mail, courier, or vessel is as follows: for registered persons, it is the location of the person, and for unregistered persons, it is the location where the goods are handed over for transportation.
- If the transportation of goods is to a place outside India, the place of supply is the destination of those goods, according to the aforementioned proviso, which was added in 2019.
- However, the Finance Act of 2023 removed this proviso to eliminate confusion surrounding ITC availability and other unnecessary complexities.
- According to section 13(9) of the IGST Act, the place of supply for transportation of goods, other than by mail or courier, is the destination of those goods.
- Although subsection 9 of section 13 was recently omitted by the Finance Act of 2023, the date of effect of such an amendment is yet to be notified.
- After notifying the change, the location of the recipient of services will be the default or residual entry, i.e. the place of supply for services in cases of transportation of goods other than by mail or courier.
- The CBIC granted absolute exemption from GST liability under Section 11 of the CGST Act 2017 for outbound international freight by inserting Entry No. 20B in Notification No. 02/2018 IGST (Rate) dated 25/01/2018, without any conditions.
- This exemption was valid from 25th January 2018 until 30th September 2022.
- However, after removing the exemption entry, outbound transportation services will be liable to GST as they were prior to the insertion of the exemption entry, effective from 1st October 2022.
| S. No | Description of Services | Status from 25-01-2018 till 30-09-2022 | Status from 01-10-2022 |
|---|---|---|---|
| 20B | Services by way of transportation of goods by a vessel | Exempt | Taxable |
Prior to October 1, 2022, these services were exempt from GST. However, from that date onwards, they became taxable.
We will now look at the effects of GST on several outbound transactions:
| Transportation Service provider (shipping line) | Recipient of Transportation Service | Place of Supply | Type of Tax | Taxability from 25th Jan 2018 till 30th Sep 2022 | Taxability w.e.f. 1st Oct 2022 |
|---|---|---|---|---|---|
| India (Gujarat) | India (AP) | AP (before 01.02.2019) / Outside India (Section- 12 (8)) | IGST / IGST | Exempted | Taxable (FCM) |
| India (AP) | India (AP) | AP (before 01.02.2019) / Outside India (Section-12 (8)) | CGST+SGST / IGST | Exempted | Taxable (FCM) |
| Foreign shipping line | India (AP) | Outside India (Sec-13(9)) / India (Sec 13(2) – FA 2023) | No levy (Note-1) / IGST – FA 2023 | Not applicable | Taxable under RCM – FA 2023 |
| India (Gujarat) | Foreigner | Outside India (Section-13(9)) / 13 (2) – FA 2023 | IGST | Exempted | Zero rated (Note-2) |
| Foreign Shipping line | Foreigner | Not in purview of Indian GST | – | – | – |
Note:
- No levy of GST was applicable prior to the Finance Act of 2023 for this scenario.
- Transportation service from India (Gujarat) to a foreigner outside India is considered as zero-rated supply, which means that the transaction is exempt from tax but the service provider can claim Input Tax Credit (ITC).
GST on Inbound and Ocean Freight for Imports :
- Goods transported by shipping lines via vessels/ships from outside India to India are charged Ocean Freight.
- Ocean Freight for transporting goods is subject to GST at the rate of 5% without ITC or 18% with ITC.
- Unlike outbound Ocean Freight, there is no exemption provided for inbound Ocean Freight.
- Before analyzing the GST impact on various inbound freight scenarios, we need to understand the GST liability on the import of services.
- Entry 1 of Notification 10/2017 – IGST (Rate) states that in the case of any service supplied by a person located in a non-taxable territory to any person other than a non-taxable online recipient (i.e., import of service), the person located in the taxable territory other than a non-taxable online recipient should discharge GST under reverse charge.
- The GST impact on various inbound transactions will be examined.
| Transportation Service provider | Recipient of Transportation Service | Place of Supply | Type of Tax |
|---|---|---|---|
| India (Gujarat) | India (AP) | Andhra Pradesh (Section- 12(8)) | IGST (5% / 18%) (FCM) |
| India (AP) | India (AP) | Andhra Pradesh (Section- 12(8)) | CGST + SGST (FCM) (5% / 18%) |
| India (AP) | Foreigner | Andhra Pradesh (Section-13(9)) / Outside India (Sec-13(2) – FA 2023) | CGST + SGST (FCM)/ IGST (Sec 7 (5)) (FCM) (5% / 18%) / Zero rated or IGST if the export conditions are not satisfied (FA – 2023) |
| Foreigner | India (AP) | Andhra Pradesh (section-13(9) of IGST Act) / India (sec – 13(2)) | IGST (RCM) (5%) (Note-1) |
| Foreigner | Foreigner | Refer (Note-2) | Refer (Note-2) |
Note-1: Recipient of service located in India is required to pay GST under Reverse Charge Mechanism (RCM) Note-2: GST implications for this scenario are not applicable or require further clarification.
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