GST: Freight on Import of Goods into India

Post-implementation of GST in India there were so many concerns of exporters/importers related to export & import process and procedures which have been addressed and clarified by several Government Notifications/Circulars.

The author of this blog has been approached by the EX-IM community requesting the explanation of GST applicability on freight on Export & import of goods from/to India. 

Here, in this blog author has tried to explain the GST applicability on freight on import of goods into India in a simplified manner i.e. author used the “Question & Answer” method for explaining the same for ease of understanding of readers.


Ms. Seema: Good day sir, how are you?

Author: Hi, Seema! I am good, how about you?

Ms. Seema: I am doing good sir?

Author: Tell me how can I help you today?

Ms. Seema: Can you tell me about freight forwarding and logistics under GST Regime?

Author: Why not? I am here to help you in this matter. Freight forwarding and logistics are a “Supply of Services” including the movement of goods by air, sea, inland waterway, rail, and road. GST treatment on freight transportation will depend on whether transportation is international or domestic.

Practically, international freight transportation of goods is carried out in association with overseas agents (counterpart) of domestic freight forwarders as a part of a global network. They use each other’s services in order to provide last-mile delivery in the respective destination country of the logistics operation.

In export, an exporter appoints domestic freight forwarder to perform logistics operations till Consignee/Buyer’s facility. In a similar manner in import, an importer appoints a domestic freight forwarder to perform logistics operations from outside India to his/her facility in India.

Here, we will discuss GST applicability on Freight on the Import of Goods into India.

Ms. Seema: Thank you, sir, for clarifying the international freight transportation. Can you please tell me about the “Place of Supply” in such cases?

Author: Oh, great! You have asked a very good question. Place of Supply is very important to determine the taxability of Cross Border transaction.

In cross border transactions the area of impact is the “Place of Supply” provisions to determine the taxability.

At first, I make you understand the taxability on transportation of goods for import into India prior to the GST regime.

Prior to the GST regime, the transportation of goods by vessel/ship, outbound shipments, were considered as exports, whereas inbound shipments for import of goods into India by vessel/ship were subject to Service Tax.

In the case of transportation of goods by air in both types of shipments (outbound & inbound) were not subject to Service Tax.

Under the GST regime, the taxability depends on where is the Place of Supply of “Transportation of Goods” services?

Section 12(8) of IGST Act, 2017 defines The Place of Supply of Services by way of transportation of goods, including by mail or courier to:

– a registered person shall be the location of such person;

– a person other than a registered person shall be the location at which such goods are handed over for their transportation.

(The above section is essential to determine Place of Supply of Transportation of Goods services)

Ms. Seema: Can you please tell me the taxability under GST on various legs on the transaction involved in the import of goods into India?

Author: Sure Seema, you are right while importing the goods into India there are various legs involved in this transaction which are further defined as per agreed Delivery Terms (INCOTERMS) between Consignor/Shipper and  Consignee/Buyer.

INCOTERMS define the role and responsibilities of both the parties involved in the transaction by which their nominated freight forwarder and associated overseas agent do perform their activities to make goods clear for import into India and last-mile delivery till Consignee/Buyer’s facility.

Here, I will explain 04 INCOTERMS which are majorly used in the legs of a transaction for transportation of goods into India for import. These are:

  • Ex-Works
  • FOB
  • CIF
  • DDP     

Considering the aforesaid, and basis the origin and destination of the transaction, analysis of each transaction under GST are below mentioned:

EX-WORKS

(Where Consignee/Buyer is responsible to discharge the entire liability of transactions)

Type of Transactions

A transaction between Consignee/Buyer & Indian Freight Forwarder including custom clearance in India.

Scope of Services

Consignee/Buyer does contract for the delivery of goods from the Consignor/Shipper (outside India) facility to Consignee/Buyer’s facility in India including clearance of goods for import.

Taxability prior to GST under Service Tax​

Service Tax was applicable under Rule 10 of POPS, 2012 including Ocean Freight.

Taxability under GST Regime w.e.f  01-Jul-2017

  • Taxable under Rule 9 of GST- Place of Supply
  • GST on Ocean Freight is @ 5%
  • GST on Air Freight is @ 0%
  • GST on all Origin & Destination Charges are @18%

FOB

(Where Consignee/Buyer will liable to pay Ocean Freight(FOB) / Air Freight (FCA) and Destination Charges)

Type of Transactions

The transaction between Consignee/Buyer & Indian Freight Forwarder including custom clearance in India.

Scope of Services

Consignee/Buyer does contract for the delivery of goods from Port of Loading (outside India) to Consignee/Buyer’s facility in India including custom clearance in India.

Taxability prior to GST under Service Tax​

Service Tax was applicable to entire consideration under Rule 10 of POPS, 2012.

Taxability under GST Regime w.e.f  01-Jul-2017

  • Taxable under Rule 9 of GST- Place of Supply
  • GST on Ocean Freight is @ 5%
  • GST on Air Freight is @ 0%
  • GST on all Destination Charges are @18%

CIF

(Where Consignor/Shipper is liable to deliver the goods and pay Cost, Insurance & Freight till Port of Discharge/Import in India)

Type of Transactions

A transaction between Consignee/Buyer & Indian Freight Forwarder for Customs Clearance and Domestics Transportation till Consignee/Buyer’s facility in India.

Scope of Services

Consignee/Buyer does contract for clearance of goods at Port of Discharge/Destination Port and transportation of goods from clearance port to Consignee/Buyer’s facility in India.

Taxability prior to GST under Service Tax​

Service Tax was applicable to entire consideration under Rule 10 of POPS, 2012.

Taxability under GST Regime w.e.f  01-Jul-2017

  • Taxable under Rule 9 of GST- Place of Supply
  • GST on Ocean Freight is @ 5% under Reverse Charge Mechanism (RCM). If freight is not known then GST would be 5% on 10% of the CIF value of goods. Hence tax applicability would be 0.5% on the CIF value of goods. 
  • GST on Air Freight is @ 0%
  • GST on all Destination Charges are @18%

Refer IGST Tax (Rate) Notification No 8/2017 dated 28-Jun-2017 read with Corrigendum dated 30-Jun-2017

Author comment: Please obtain Freight Certificate in any form along with Import Documents to avoid paying higher tax on Invoice Value.​

DDP

(Where Consignor/Shipper is liable to discharge entire liability to make deliver the goods clear for import and transportation till Consignee/Buyer’s facility in India)

Type of Transactions

A transaction between Overseas Agent and Indian Freight Forwarder for Destination legs of transactions.

Scope of Services

Overseas Agent does contract to Indian Freight Forwarder to perform Indian leg of transactions involved to make clear goods for import and delivery till the Consignee/Buyer’s facility in India.

Taxability prior to GST under Service Tax​

Service Tax was applicable under Rule 10 of POPS, 2012.

Taxability under GST Regime w.e.f  01-Jul-2017

  • Chargeable under GST @ 18% for entire consideration of the Indian leg of the transaction.
  • If Indian Freight Forwarder will Bill into Foreign Currency to Overseas Agent then GST will not apply.
  • GST on Ocean Freight will be governed by IGST (Rate) Notification No 8/2017 dated  28-Jun-2017 read with Corrigendum dated 30-Jun-2017.
  • GST on Air Freight is @ 0%

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