In a potential boost to GST collections, the Directorate General of GST Intelligence ( DGGI ) has issued summonses to the Indian offices of 18 foreign shipping lines.
The DGGI alleges that these companies, including Maersk, Orient Overseas Container Line Ltd, Hapag Lloyd Mediterranean Shipping, and others, have not paid legitimate taxes due, with alleged evasion detected in relation to the import of services from their head offices by Indian branch offices.
The DGGI, the investigative arm under the GST regime, contends that the foreign shipping lines, headquartered abroad but with branch offices in India, have not paid GST under the reverse charge mechanism for services such as rental, maintenance of aircraft, and crew salary provided abroad.
Detailed clarifications are currently being sought by the DGGI, and officers are in discussions with the implicated foreign shipping lines.
The investigations, conducted by DGGI in Ahmedabad and Mumbai zones, have been ongoing since October 2023. Under the GST law, establishments of companies in India and abroad are treated as distinct persons, and any services provided by the head office to the branch office are deemed as a supply, even without any consideration, according to a mainstream media house, which first reported on the probe in October 2023.
Despite detailed representations from shipping liners to the Finance Ministry, Central Board of Indirect Taxes and Customs ( CBIC ), and DGGI seeking resolution, the DGGI continues its heightened scrutiny on the GST applicability of salaries paid to expatriate employees. This approach may face disapproval, particularly from international corporations viewing it as discriminatory.
Experts highlight the complexity of taxability and valuation of intra-entity cross charges under GST, emphasizing the need for shipping lines to evaluate potential legal arguments. Concerns are raised about the DGGI’s method of issuing summonses, with experts questioning its alignment with recognized protocols and legal standards. The industry suggests that a definitive resolution may only come from the highest court.
An advocate dealing with import of supplies and cost allocations for different sectors explains that the unique cost allocation for the shipping industry makes it challenging to analyze the relevant cost for the value of imported services. The issue revolves around whether the import of such services between related parties has escaped taxation, especially when tax is paid on the freight element in India.
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