Change of Service Tax on Prepaid Ocean Freight to India

The Government of India Ministry of Finance, through its three new notifications dated 13 April 2017, has shifted the responsibility of discharge of Service Tax on ‘Freight paid at Origin’ from the person in-charge of the Vessel to the Importer of goods, in India.

“… [I]n respect of services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, person liable for paying service tax other than the service provider shall be the importer,” the Ministry of Finance said in its revised decree issued last week and slated to take effect April 23.

“… [I]n case of foreign shipping lines, their services being exports from their home country, are zero-rated in their home country and thus have suffered no taxes. Further, the foreign shipping lines do not get registered in India and do not follow the provision of CENVAT credit rules,” the amendment notification stated. “Hence, [the] benefit of conditional exemption will not be available to them and service tax will be paid [levied] on full value of services.”

As a result, invoices issued by those carriers for prepaid freight would be subject to a service tax of 15 percent instead of the 4.5 percent previously announced.

This is effective on all shipments with Bills of lading dated on or after 23 April 2017.

Please contact RCL Agencies  representative at 973-779-5900  if you have any  questions.