The Central Government has introduced a significant change in the tax regulations by exempting 5% integrated Goods and Services Tax (GST) on RCM basis on Ocean freight starting from October 1. Thus, there is no GST on Ocean Freight.
Under the CGST Act, importers are obligated to remit a 5% Integrated Goods and Services Tax (IGST) on ocean freight using the Reverse Charge Mechanism (RCM). The Reverse Charge Mechanism is governed by Section 5(3) of the IGST Act, which delineates the categories of supplies subject to GST under this mechanism. Essentially, the reverse charge mechanism shifts the responsibility of paying GST from the supplier to the recipient of goods or services.
This decision comes as part of the Finance Ministry’s efforts to streamline and clarify the taxation framework. Specifically, the Finance Ministry has issued a notification to amend the Integrated Goods and Services Tax (IGST) Act, which now specifies that no integrated GST shall be levied on the ‘ocean freight’ component of imported goods, effective October 1. This move is expected to have a positive impact on businesses engaged in international trade and reduce the overall tax burden on imports.
The vide notification no. 11/2023 G.S.R. 689(E) was issued by the Central Board of Indirect Taxes and Customs (CBIC) on 26th September 2023 relaxing the GST on Ocean Freight.
The Notification states “In exercise of the powers conferred by sub-sections (1), (3) and (4) of section 5, sub-section (1) of section 6 and clauses (iii), (iv) and (xxv) of section 20 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), read with sub-section (5) of section 15, sub-section (1) of section 16 and section 148 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, and on being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No. 8/2017- Integrated Tax (Rate), dated the 28th June, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 683(E), dated the 28th June, 2017, namely:-
In the said notification, in the Table, against serial number 9, in column (3), in item (ii), the words “including services provided or agreed to be provided by a person located in non-taxable territory to a person located in nontaxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India”, shall be omitted.
2. This notification shall come into force with effect from the 1st October, 2023.”
The GST legislation explicitly mandates that importers must fulfill their obligation to pay 5% IGST on ocean freight charges through the reverse charge mechanism. Concurrently, importers also incur customs duties on the Cost, Insurance, and Freight (CIF) value, which encompasses the freight component, when importing goods into India. Consequently, there exists a situation of dual taxation on ocean freight as per the GST law, causing an obstacle and inflating the overall cost of imports.
Recently, in a landmark ruling, the Gujarat High Court in the case of Mohit Minerals Pvt. Ltd. & Ors. Vs. Union of India & Ors., has held that no tax is leviable on ocean freight for services provided by 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.
Also read: GST not leviable on Ocean Freight: Calcutta HC quashes Service Tax Demand of 28 crores
Also, after a long litigation, as on 19/05/2022 supreme court upheld the decision of the Gujarat High Court in the case of Mohit Minerals Pvt. Ltd. & Ors. Vs. Union of India & Ors.
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