The Tamil Nadu Authority for Advance Ruling ( AAR ) ruled that Free on Board ( FOB ) exporters under the Reverse Charge Mechanism ( RCM ) basis wouldn’t be liable for Goods and Services Tax ( GST ) as they are not involved in arranging the freight.
M/s DCW Ltd., a manufacturer and exporter of chemical products, sought clarification on their GST liability for ocean freight charges borne by the overseas buyer in their FOB exports. The key question was whether they were liable to pay GST under the RCM for these freight charges arranged and paid by the overseas buyer.
M. Thyagarmoorthy, the authorised representative of the applicant, submitted that in cases of FOB-based export, the freight is paid by the overseas buyer to the freight forwarder or shipping line. The exporter hands over the export goods, either factory-stuffed or port-loaded, in the container to the shipping line at the customs. The exporter’s shipping bill is assessed by customs, and an export order is issued by customs after the containers are loaded into the ship
and it sails to port on the basis of the export general manifest filed by the shipping line.
The applicant argued that since they were not involved in arranging or paying the freight, they should not be liable for GST under RCM.
The AAR bench, comprising D. Jayapriya and A. Valli held that the place of supply for such services depends on the date of export. For exports occurring after 01.10.2023, the place of supply is likely the location of the recipient. Since the recipient is situated outside India, GST would not typically apply in such scenarios.
The Authority observed that “in the instant case of exports on a FOB basis, the exporter (applicant) is not at all involved in any way with the ‘export freight’, as the same is to be arranged by the overseas buyer themselves or through his agent. We further find that the exporter is neither the provider nor the recipient of service relating to ‘export freight’. Therefore, the question of payment of GST on an RCM basis on the export freight on the FOB basis of exports by the exporter (M/s. DCW Ltd.) does not arise.”
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