Conditional IGST Exemption to Foreign-Flagged-Foreign-Going Vessels: GST Council

Conditional IGST Exemption - Foreign Flag - Foreign Going Vessels - IGST Exemption - IGST - GST Council - GST -taxscan

The 52nd Goods and Services Tax (GST) Council Meeting, presided by Union Finance Minister, held on October 7th, 2023. The minister was accompanied by Revenue Secretary Sanjay Malhotra, State Finance Minister Pankaj Chaudhary, CBIC chairman ..etc. The Council has given a conditional Integrated exception to  Foreign Flag and Foreign Going Vessels.

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One of the noteworthy outcomes of this Council meeting was the conditional Integrated GST (IGST) exemption granted to foreign flags and foreign-going vessels. This exemption is designed to boost tourism and facilitate the operation of cruise ships during the winter months, specifically targeting the coastal regions extending from Northern Maharashtra to Kochi.

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Under normal circumstances, these overseas vessels are subject to a 5% IGST when operating in Indian waters. However, the GST Council has taken a proactive step to stimulate tourism in India by granting an exemption during the winter season. This exemption comes into play when these cruise ships are temporarily converted for coastal runs within India during this period.

The rationale behind this decision is to encourage cruise operators to choose the scenic coastal routes of India during the winter months, taking advantage of the favourable weather conditions. By providing this tax exemption, the GST Council seeks to make India a more attractive destination for cruise tourism, thereby boosting the local economy and promoting the country as a premier tourist destination.

According to the press release “Foreign-going vessels are subject to a 5% Integrated Goods and Services Tax (IGST) on the vessel’s value when it transitions to coastal operations. However, the GST Council has suggested a conditional IGST exemption for foreign-flagged foreign-going vessels when they switch to coastal operations, provided they return to their foreign-going status within a six-month period.”

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Recently, the Central Government has exempted 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.

Read More: Central Govt Exempts 5% GST on Ocean Freight Imports w.e.f. October 1st

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