GST on Ocean Freight

GST on Ocean Freight

GST on ocean freight is not a single rule — it is a three-position matrix determined entirely by your shipping contract. For CIF imports, the Supreme Court's 2022 ruling in Union of India v. Mohit Minerals Pvt Ltd has settled the law permanently: no separate IGST on ocean freight is legally due. For FOB imports arranged by the Indian buyer, reverse charge IGST at 5% survives and is fully creditable. For outbound exports, the treatment depends on whether your shipping line is Indian or foreign. Get the Incoterm right on the purchase order; everything else follows from that single decision.

What "Ocean Freight" Covers Under GST

Ocean freight is the charge levied by a shipping line for carrying goods between ports by sea. Under India's GST architecture, it becomes taxable as a service — either as an import of service (attracting IGST) or as an export of service (eligible for zero-rating or falling outside scope altogether). The threshold question is always: who contracted with the shipping line, and under what Incoterm?

Three commercial arrangements generate three distinct GST outcomes:

• CIF imports — Cost, Insurance, Freight: the foreign seller arranges and pays freight; it is embedded in the invoice price.
• FOB imports — Free on Board: the Indian buyer separately contracts and pays freight, usually to a foreign shipping line.
• Outbound export shipments — the Indian exporter pays a shipping line (Indian or foreign) to carry goods from an Indian port to a foreign destination.

Each sits in a different part of the IGST Act 2017, the CGST Act 2017, and, for imports, the Customs Tariff Act 1975. The Incoterm on your purchase order is therefore a legal document, not merely a commercial preference.

CIF Imports — What Mohit Minerals Settled and What It Means Today

Background: The 2017 Double Taxation Problem

When GST launched in July 2017, the government issued Notification No. 8/2017-IGST(Rate) (setting 5% IGST on transportation of goods by vessel) and Notification No. 10/2017-IGST(Rate) (making the Indian importer liable under RCM to pay this IGST on ocean freight even in CIF contracts). The stated rationale was that the Indian importer is the "beneficiary" of the transportation service.

The problem was immediate and mathematical. Under Section 3(7) of the Customs Tariff Act 1975, IGST on imported goods is levied on an assessable value that already includes CIF — Cost, Insurance, and Freight. Charging 5% IGST again on the freight component under RCM meant the same rupees bore IGST twice: once embedded inside the customs assessment, and once separately via the importer's self-invoice.

The Supreme Court's Ruling (May 2022)

In Union of India v. Mohit Minerals Pvt Ltd (Civil Appeal No. 1390 of 2022), a five-judge Constitutional Bench held:

• In a CIF contract, the shipping contract is between the foreign seller and the foreign shipping line. The Indian importer is not the recipient of the transportation service.
• Section 3(7) of the Customs Tariff Act already captures IGST on the full CIF value. A further IGST under RCM on the same freight component is an impermissible double levy.
• Notifications No. 8/2017-IGST(Rate) and 10/2017-IGST(Rate) are unconstitutional and void to the extent they imposed IGST on ocean freight in CIF import transactions.

Operational Position in FY 2026-27

The law is fully settled. If your import contract is CIF:

• No self-invoice is required or appropriate for ocean freight.
• No entry in GSTR-3B Table 3.1(d) for ocean freight IGST.
• IGST is collected only at Customs on the CIF assessable value as part of the Bill of Entry.
• If your ERP or consultant is still generating RCM entries for CIF ocean freight, correct the configuration immediately. Every such payment since May 2022 is a voluntary excess payment with its own administrative burden to recover.

Verify that the shipping line's freight invoice is addressed to the foreign seller, not to you. If the freight invoice comes in your name despite the contract being CIF, the GST treatment may need to be reassessed.

FOB Imports — The Surviving Reverse Charge Liability

Why RCM Still Applies

Under an FOB contract, the Indian buyer takes responsibility and cost from the origin port onward. The buyer contracts with a shipping line — almost always a foreign entity — and pays freight directly. This is unambiguously an import of service under Section 2(11) of the IGST Act: the supplier (foreign shipping line) is outside India, the recipient (Indian importer) is in India.

The place of supply is determined under Section 13(9) of the IGST Act: for transportation of goods by vessel, the place of supply is the destination of the goods — an Indian port. India is the place of supply; the supply is taxable in India. Under Section 5(3) of the IGST Act read with the surviving portions of Notification No. 10/2017-IGST(Rate), the Indian importer pays 5% IGST under reverse charge mechanism (RCM).

One nuance worth noting: Customs, for assessment purposes, will add freight to your declared FOB value under Rule 10(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules 2007, converting it to a CIF-equivalent assessable value. This means freight partially enters the customs IGST base as well. The RCM on the freight service is legally distinct from Customs IGST on the goods — two different charging sections, two different taxable events. Mohit Minerals specifically carved out CIF transactions; for FOB, the RCM obligation has not been struck down and remains operative.

Step-by-Step: Self-Invoice, Payment, and ITC

Step 1 — Identify freight amount. Obtain the freight invoice or debit note from the foreign shipping line in foreign currency.

Step 2 — Convert at the customs exchange rate. Use the rate notified by the Central Board of Indirect Taxes and Customs (CBIC) for the Bill of Entry date — not your bank's spot rate.

Step 3 — Raise a self-invoice under Section 31(3)(f) of the CGST Act, dated on or before the date of payment to the foreign shipping line. Include your own GSTIN as both supplier and recipient, the foreign shipping line's name, their invoice reference, and the converted INR amount.

Step 4 — Pay IGST in GSTR-3B. Report the liability under Table 3.1(d) in the GSTR-3B for the tax period in which the self-invoice is raised. Pay by the 20th of the following month (standard filer) — or the applicable date if you are on QRMP.

Step 5 — Claim ITC in the same GSTR-3B. Once the RCM IGST is paid in cash, claim ITC under Table 4(A)(3). Subject to the four conditions in Section 16 of the CGST Act (goods/services received, tax paid, returns filed, credit not blocked under Section 17(5)), the ITC is available in the same period. For most importers whose output supplies are taxable, the net cash cost of this exercise is nil.

Step 6 — Reconcile quarterly. Map each freight payment to its self-invoice, GSTR-3B table, and Bill of Entry. The CBIC's ITBA system pulls import data from ICEGATE; any mismatch between your freight data and GSTR-3B disclosures is a leading trigger for scrutiny notices in FY 2026-27.

Export Ocean Freight — Zero-Rating and Out-of-Scope Legs

Indian Shipping Line Charging an Indian Exporter

When an Indian shipping line transports goods from an Indian port to a foreign port and charges an Indian exporter, the supplier is in India. The place of supply under Section 12(13) of the IGST Act is the first scheduled point of departure — an Indian port. This is a domestic taxable supply. However, because the goods are being exported, the service is zero-rated under Section 16(1)(a) of the IGST Act.

You have two options:

• LUT/Bond route (preferred): Furnish a Letter of Undertaking for FY 2026-27 on the GST portal (www.gst.gov.in under Services → Refunds → Furnish LUT) before the first shipment. Export the service without paying IGST; claim a refund of accumulated input tax credit under Section 54 of the CGST Act.
• Pay-and-refund route: Pay 5% IGST on the freight invoice and file Form RFD-01 for a cash refund. The refund should be processed within 60 days; interest at 6% per annum accrues under Section 56 of the CGST Act for delays beyond that.

File your FY 2026-27 LUT by April 2026 if you export regularly. Do not wait for the first shipment.

Foreign Shipping Line Charging an Indian Exporter

When a foreign shipping line charges an Indian exporter to carry goods from India to a foreign port:

• The supplier (foreign shipping line) is outside India; Section 13 of the IGST Act governs place of supply.
• Under Section 13(9), the place of supply for transportation of goods is the destination — a foreign port.
• The place of supply is outside India; the supply is not taxable in India at all.
• No GST, no RCM, no self-invoice is required or appropriate.

This is the most common export freight scenario in Indian trade, and many exporters incorrectly raise self-invoices and pay RCM on it. Do not. Check the shipping line's country of registration. If it is a foreign entity, the charge falls entirely outside the scope of Indian GST.

Worked Example: FOB Import — End-to-End IGST Calculation

Scenario: A Pune-based capital goods importer buys industrial compressors from Germany on FOB terms. The German seller invoices EUR 40,000; the Indian importer separately arranges ocean freight with a Danish shipping line for USD 4,500.

Conversion (at customs notified rates):

• Goods (FOB): EUR 40,000 × Rs. 90.00 = Rs. 36,00,000
• Ocean freight: USD 4,500 × Rs. 83.80 = Rs. 3,77,100

RCM IGST on freight service: Rs. 3,77,100 × 5% = Rs. 18,855

Self-invoice raised by importer (dated: date of freight wire transfer)

• Supplier: Danish Shipping Line A/S (foreign)
• Recipient: Importer's own GSTIN
• Freight (INR): Rs. 3,77,100
• IGST @ 5% (RCM): Rs. 18,855

GSTR-3B entries for the relevant month:

Indicative landed cost summary:

The Rs. 18,855 RCM IGST is not a cost for a business with taxable output — it flows in and out via ITC in the same GSTR-3B. The customs IGST of approximately Rs. 7,80,000 on the goods is also creditable as ITC on the Bill of Entry, subject to Section 16 of the CGST Act.

Refund Claims for Legacy IGST on CIF Ocean Freight (2017–2022)

Importers who paid RCM IGST on CIF ocean freight between 1 July 2017 and 19 May 2022 (the date of the Mohit Minerals judgment) — roughly 58 months — are entitled to refunds of tax paid under void notifications.

How Large Can These Claims Be?

An importer with average monthly CIF freight of Rs. 8,00,000 would have paid 5% IGST = Rs. 40,000 per month. Over 58 months: Rs. 23,20,000. This is a recoverable amount — not an accounting footnote.

Filing Procedure

Refunds are governed by Section 54 of the CGST Act — two years from the relevant date. For RCM payments, the relevant date is generally the date of payment. Several High Courts have held that limitation begins differently when tax was paid under a notification subsequently declared void, but do not rely on this judicial generosity to delay. Payments approaching the five-year mark are practically unrecoverable.

Documents required for Form RFD-01:

1. Bill of Entry for each CIF consignment — confirming CIF assessable value and Customs IGST paid
2. Freight invoice showing it was addressed to the foreign seller (proving CIF nature)
3. Self-invoices raised by the importer for ocean freight (the very documents now acknowledged as legally incorrect)
4. Form GST PMT-06 challans showing RCM IGST payment in cash
5. GSTR-3B extracts for each period showing the liability reported in Table 3.1(d) and ITC claimed in Table 4(A)(3)
6. A consignment-wise summary table mapping each Bill of Entry to the corresponding RCM challan

File under RFD-01 on the GST portal, category: "Excess payment of tax." Sanctioned amounts carry interest at 6% per annum under Section 56 of the CGST Act if not refunded within 60 days of a complete application.

Caution: If you claimed ITC on the RCM IGST that was then used to offset output tax liability, a straight refund may not be available — you may need to reverse the ITC chain first. Map the credit trail before filing.

Documentation Discipline for Freight Forwarders

Indian freight forwarders typically combine inland haulage, port handling, ocean freight, freight-forwarding agency charges, and sometimes customs brokerage into a single invoice. This composite billing is administratively convenient but legally risky.

Principal vs Agent — The GST Consequences

As principal: The forwarder contracts with the shipping line in its own name, takes freight risk, and re-supplies each leg to the client. Ocean freight (by vessel) attracts 5% GST, not 18%. Freight forwarding or logistics management attracts 18%. Inland transport under GTA attracts either 5% (without ITC) or 12%. Applying a flat 18% to the ocean freight component when acting as principal is legally incorrect and can expose the client's ITC claim to reversal.

As agent: The forwarder books freight on behalf of the client, passes through the shipping line invoice as a disbursement (not a supply), and charges only its agency commission at 18% GST. The disbursement does not attract GST; the invoice must clearly mark it as "paid on behalf of" the client.

The correct mode must be agreed before the first shipment and documented in the freight-forwarding agreement. Switching mode retrospectively after a GST notice creates an adverse inference.

Leg-Wise GST Reference

Common Mistakes and Pitfalls to Avoid

1. Continuing to pay RCM IGST on CIF freight post-May 2022. Still the most frequently seen error in practice. If your ERP has a standing instruction to raise a self-invoice for ocean freight on every import, audit whether the underlying contracts are CIF. Payments made after Mohit Minerals are recoverable but require internal reversal entries and potentially an amended GSTR-3B.

2. Late self-invoices on FOB imports. Section 31(3)(f) requires the self-invoice on or before the date of payment to the foreign party. Backdating a self-invoice after a notice arrives invites a penalty under Section 125 of the CGST Act (up to Rs. 25,000 per instance) and queues an ITC timing dispute.

3. Raising RCM self-invoices for export freight paid to foreign shipping lines. The place of supply is outside India; there is no IGST liability. Self-invoices in this situation create fictitious liabilities on your GSTR-3B and a corresponding ITC that has no legal basis.

4. Not reconciling freight with AIS/TIS before filing returns. The CBIC's systems now pull import data from ICEGATE and reflect freight amounts in your Annual Information Statement. If your GSTR-3B does not align with ICEGATE-sourced freight data, your AIS will flag the mismatch — and so will your GST officer during scrutiny.

5. Freight forwarders billing 18% on the ocean freight component. When acting as principal, the correct rate for ocean freight by vessel is 5%. An incorrect 18% rate inflates the client's cost, creates an ITC claim that may be disputed (because the correct rate was 5% and excess tax collected by the forwarder is not automatically available as ITC to the recipient).

6. Missing the limitation window for legacy CIF refund claims. If you have CIF freight RCM payments from before May 2020, they are at or approaching the outer edge of the two-year limitation period. Amounts from 2017–2019 may already be time-barred regardless of judicial sympathy. File immediately for any amounts within the defensible window — FY 2021-22 and later are relatively safe.

7. Not documenting the CIF vs FOB distinction contemporaneously. A purchase order silent on Incoterms, combined with a freight invoice in the Indian importer's name, invites a GST officer to treat the transaction as FOB and demand RCM — even if the underlying contract was CIF. Ensure that the purchase order, the shipping line's freight invoice, and the Bill of Lading are all internally consistent.

Documentation Checklist — What to Retain and for How Long

Under Section 36 of the CGST Act, every registered person must maintain accounts and records for 72 months (six years) from the due date of the Annual Return (GSTR-9) for the year to which they relate. For FY 2026-27 returns, that means documents must be retained until at least December 2033.

For every import consignment, retain:

• Bill of Entry — confirms assessable value, Incoterm basis, Customs IGST paid
• Bill of Lading — shows shipper, consignee, port of loading and discharge, freight terms (prepaid vs collect is the CIF/FOB indicator)
• Commercial invoice from foreign seller — must explicitly state Incoterm
• Freight invoice from shipping line — address of invoice (seller's name = CIF; buyer's name = FOB) is the decisive document
• Self-invoice (FOB only) — must be in your self-invoice register
• RCM challan (Form GST PMT-06) and GSTR-3B extract (FOB only)
• Customs IGST payment challan from the Bill of Entry

For export consignments, additionally retain:

• LUT acknowledgement for the relevant financial year (FY 2026-27 LUT is valid only for that year)
• Shipping bill certified by Customs
• Bank Realisation Certificate (BRC) or Foreign Inward Remittance Certificate (FIRC)

Index your documents by consignment reference and cross-link to the GSTR-3B period. A clean digital archive converts a potential month-long audit into a half-day exercise.

Key Takeaways

• CIF imports: Zero separate GST on ocean freight. Mohit Minerals (May 2022) is settled law. IGST is collected by Customs on the CIF assessable value; no self-invoice, no RCM, no GSTR-3B disclosure is required or valid for the freight component.
• FOB imports: 5% IGST under RCM applies and is creditable. Raise the self-invoice under Section 31(3)(f) by the date of freight payment, report in GSTR-3B Table 3.1(d), and recover via Table 4(A)(3) in the same period. Net cash cost is nil for a fully taxable business.
• Export freight via Indian shipping line: Zero-rated. File your FY 2026-27 LUT on the GST portal before the first export shipment; maintain the shipping bill and BRC for any ITC refund claim.
• Export freight via foreign shipping line: Outside Indian GST scope. No IGST, no RCM, no self-invoice. Raising one creates a false liability and an untenable ITC claim.
• Legacy refund window is closing. RCM IGST paid on CIF ocean freight before May 2022 is recoverable via Form RFD-01 — but the two-year limitation is live from each payment date. Prioritise filing in FY 2026-27 for amounts paid in FY 2022-23.
• Freight forwarders must choose their GST identity. Principal billing requires leg-wise correct rates (5% for ocean freight, 18% for agency services). Agent billing requires only the commission to be taxed at 18%. Document the role upfront; do not decide it at invoice stage.
• Reconcile every quarter. Match freight payments, self-invoices, GSTR-3B RCM disclosures, and Bill of Entry data before the CBIC's ITBA system does it for you and flags discrepancies as a potential compliance risk for FY 2026-27.