NEWS

INDIAN SERVICE TAX

20.02.17

Please be informed that service tax regulations in India have been changed vide Notification No. 3/2017 issued by the Government of India. A service tax of 4.5 % on freight (basis charter party agreement) is payable by all vessels that arrived on or after 22nd Jan 2017 for discharging cargo in Indian ports. Owners or charterers have to declare the freight and provide supporting documents. According to the notification transportation of goods by a vessel from a place outside India up to the customs station of clearance of India is a taxable service. Agent is required to collect this tax so it would have to be paid by the appointing principal or vessel operator who is settling the port cost. The operator may subsequently recover it from the receivers or charterers from their end.

In June 2016, the Finance Act, brought Import Freight into the Service Tax Net, however where the Owner and Charterer were both non-residents, most experts were of the opinion that service tax was not payable. Now in January 2017, the Indian Government, to bring CFR contracts (where foreign supplier chartered the Vessel), into the Import Service Tax net, decided to issue the two attached circulars.  

The attached Circular No. 1/2017 – Service Tax dated 12.01.2017 removes the exemption given to non-resident service providers of import freight.  

The attached Circular No. 3/2017 – Service Tax dated 12.01.2017 states that where the provider of service (foreign ship owner) provides service to the foreign exporter (also located outside India), in such case the person responsible for the service tax will be the “person who complies with section 29, 30 or 38 of the Customs Act” which means the agent of the foreign ship operator.  

Thus the attached two circulars have now made it clear that service tax will be payable by the agent of the non-resident ship owner on his behalf and now even CFR contracts where both charterer and ship operator of import cargo are located outside India are covered in the net of service tax via the agent, at the same rate as published in the Indian budget of June 2016 (4.5 percent).  

The circular mentions an effective date from 22 January 2017. Therefore for any import cargo agents have to collect 4.5 percent Service Tax on freight immediately from their Principals towards Service Tax.  

The following advice received from tax consultant in India.

  1. It is clear that service tax is applicable on ocean freight for inward transportation from abroad to India which means from place outside India up to Customs station of clearance in India.
  2. The rate of service tax applicable is 4.5% (i.e. 15% of 30% being the abated value).
  3. This is effective from 22.01.2017 i.e. the ships arrived on or after 22.01.2017 in India.
  4. A combined reading of the notifications and section 148 of the Indian Customs Act makes it abundantly clear that where both the service provider as well as the service recipient are non-residents or located in non-taxable territory, then the service tax on transportation of goods by vessel (import freight) shall be payable by the agent appointed under the Customs Act at the percentage specified.
  5. In order to ascertain the amount of service tax to be paid on import freight the agent needs to collect following documents/information from the Principal.
  6. Commercial Invoice
  7. Charter Party
  8. Fixture Note
  9. Packing List
  10. Certificate of Origin
  11. Bill of Lading
  12. Name & Address of the Supplier of the Cargo
  13. Name & Address of the Receiver of the Cargo
  14. Any other documents which can help establish the amount of freight

 

In view of above agents have started collecting the service tax from the principals with immediate effect as it is the agent’s responsibility to collect and pay the service tax.


The shipping agents association MANSA have raised this issue with Central Board of Excise and Customs and asked for either withdrawal of this or postponement until October 2017. Representations are also being made to the Indian Government by some other associations to either withdraw or postpone this service tax.

 

Case Study Example

 

Vessel 1 – Service Tax charge was 20700 USD basis on calculation 4.5% of freight USD 460,000.

 

 

Will keep you updated in case any changes are announced by the Indian Government.

Please be informed that service tax regulations in India have been changed vide Notification No. 3/2017 issued by the Government of India. A service tax of 4.5 % on freight (basis charter party agreement) is payable by all vessels that arrived on or after 22nd Jan 2017 for discharging cargo in Indian ports. Owners or charterers have to declare the freight and provide supporting documents. According to the notification transportation of goods by a vessel from a place outside India up to the customs station of clearance of India is a taxable service. Agent is required to collect this tax so it would have to be paid by the appointing principal or vessel operator who is settling the port cost. The operator may subsequently recover it from the receivers or charterers from their end.

In June 2016, the Finance Act, brought Import Freight into the Service Tax Net, however where the Owner and Charterer were both non-residents, most experts were of the opinion that service tax was not payable. Now in January 2017, the Indian Government, to bring CFR contracts (where foreign supplier chartered the Vessel), into the Import Service Tax net, decided to issue the two attached circulars.  

The attached Circular No. 1/2017 – Service Tax dated 12.01.2017 removes the exemption given to non-resident service providers of import freight.  

The attached Circular No. 3/2017 – Service Tax dated 12.01.2017 states that where the provider of service (foreign ship owner) provides service to the foreign exporter (also located outside India), in such case the person responsible for the service tax will be the “person who complies with section 29, 30 or 38 of the Customs Act” which means the agent of the foreign ship operator.  

Thus the attached two circulars have now made it clear that service tax will be payable by the agent of the non-resident ship owner on his behalf and now even CFR contracts where both charterer and ship operator of import cargo are located outside India are covered in the net of service tax via the agent, at the same rate as published in the Indian budget of June 2016 (4.5 percent).  

The circular mentions an effective date from 22 January 2017. Therefore for any import cargo agents have to collect 4.5 percent Service Tax on freight immediately from their Principals towards Service Tax.  

The following advice received from tax consultant in India.

  1. It is clear that service tax is applicable on ocean freight for inward transportation from abroad to India which means from place outside India up to Customs station of clearance in India.
  2. The rate of service tax applicable is 4.5% (i.e. 15% of 30% being the abated value).
  3. This is effective from 22.01.2017 i.e. the ships arrived on or after 22.01.2017 in India.
  4. A combined reading of the notifications and section 148 of the Indian Customs Act makes it abundantly clear that where both the service provider as well as the service recipient are non-residents or located in non-taxable territory, then the service tax on transportation of goods by vessel (import freight) shall be payable by the agent appointed under the Customs Act at the percentage specified.
  5. In order to ascertain the amount of service tax to be paid on import freight the agent needs to collect following documents/information from the Principal.
  6. Commercial Invoice
  7. Charter Party
  8. Fixture Note
  9. Packing List
  10. Certificate of Origin
  11. Bill of Lading
  12. Name & Address of the Supplier of the Cargo
  13. Name & Address of the Receiver of the Cargo
  14. Any other documents which can help establish the amount of freight

 

In view of above agents have started collecting the service tax from the principals with immediate effect as it is the agent’s responsibility to collect and pay the service tax.


The shipping agents association MANSA have raised this issue with Central Board of Excise and Customs and asked for either withdrawal of this or postponement until October 2017. Representations are also being made to the Indian Government by some other associations to either withdraw or postpone this service tax.

 

Case Study Example

 

Vessel 1 – Service Tax charge was 20700 USD basis on calculation 4.5% of freight USD 460,000.

 

 

Will keep you updated in case any changes are announced by the Indian Government.

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