Service Tax on Ocean Freight- Law And Impact


Deletions from Section 66D (“Negative list”) has become an annual exercise as part of the Finance Bill. This year, three services were removed from the Negative list. Amongst such deletions is the service of transportation of goods from outside India to first customs station in India. The article discusses the law relating to levy of Service Tax on such services post 1.6.2016 and implications thereof on various transactions.

Levy of Service Tax on transportation of goods prior to 01.6.2016

Service of transportation of goods from India to outside India and vice versa was nontaxable prior to 01.06.2016. The non-levy was because of Rule 10 of Place of Provision of Services Rules, 2012 read with Clause (p)(ii) of Negative list. In brief Rule 10 of Place of Provision of Services Rules, 2012 provides that place of provision of a service of transportation of goods is the place of destination of goods, except in the case of services provided by a Goods Transportation Agency in respect of transportation of goods by road, in which case the place of provision is the location of the person liable to pay tax (as determined in terms of rule 2(1)(d) of Service Tax Rules, 1994 (since amended). For eg. A consignment of computers is consigned from Mumbai to Shanghai. The place of provision of goods transportation service will be the destination of goods viz., Shanghai. Since the destination is outside taxable territory, such services of transportation is not liable to service tax. Conversely, if a consignment of machines is consigned from Berlin to New Delhi, the place of provision of such service will be New Delhi.

Thus, service of transportation to destination outside taxable territory is a non taxable service and conversely, service of transportation to destination in taxable territory is taxable and Service Tax shall be levied accordingly. However, while as per Place of Provision of Services Rules, 2012, such service of transportation of imports into taxable territory was taxable, such services were listed in negative list. Accordingly, even transportation of goods in case of imports also good out of the purview of Service Tax. Accordingly, no Service Tax could be levied on Ocean freight and air freight paid for import of goods prior to 01.6.2016.

Levy of Customs Duty on services of transportation in case of imports

Primary reason of inclusion of such transportation in negative list was that since such value of ocean freight is already included in the value for the purpose of levy of Customs Duty thus, levying Service Tax would be levy of two taxes on same value. Section 14of Customs Duty Act, provides that for the purposes of the Customs Tariff Act, 1975 (51 of 1975), the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale. The Section further provides that such transaction value in the case of imported goods shall include, in addition to the price as aforesaid, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner specified in the rules made in this behalf. Accordingly, Rule 10 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 provides that in determining the transaction value, there shall be added to the price actually paid or payable for the imported goods

Service Tax on Ocean Freight – Law and impact is written by CA Gaurav Gupta.Though the levy has lead to a situation of double taxation, still, compliance under Service Tax is required and should not be left under the belief that Customs duty is levied on such value.