Even though the dispute is ongoing in various courts, the problem of Goods and Services Tax (GST) on ocean freight has come to haunt many enterprises. The tax department has begun raising new questions about tax applicability on transportation of imported goods over the sea route.

Recently UP AAR in their Order Said GST payable under RCM in case of Import of Goods on Ocean Freight Says AAAR

The government has begun sending new tax requests and letters to corporations over GST on ocean freight in the last month or so, causing several companies to file writ petitions against the decision.

Concerns about “coercive action” were raised in a writ suit brought by an importer, Deoleo India, before the Bombay High Court.

 “Recovering GST on ocean freight by the authorities at this time is not a smart idea as per Many Industry Experts. The dispute is at the final stage before the Supreme Court, and one of the high courts in the country has already ruled these provisions to be extra vires.” “Any payment made by the taxpayer during the audit or investigation stage must be made willingly, and any coercive recovery measure used without a fair adjudication procedure must be challenged in the writ court.”

The government and a number of businesses, mostly importers, are litigating in the Supreme Court over the application of an integrated GST (IGST) on maritime freight.

The government had appealed to the Supreme Court a Gujarat High Court decision declaring the IGST on maritime freight illegal.

In the last month or so, a number of companies have gotten notices in this regard.

 “During the audit, it was discovered that you were importing items from your parent business… and that international vendors were paying for the ocean freight. In these circumstances, the taxpayer must pay a 5% GST on the ocean freight “”Eight,” said one such corporate notice.

The main issue is that, in most situations, the vendor or corporations based outside of India pay for the maritime freight. For example, if a corporation situated in Europe wants to export goods to India, it will most likely engage into a contract with a shipping company and pay for ocean freight.

The tax department is unable to recoup GST from the European corporation in such circumstances. Through a “reverse charge mechanism,” the tax authority intends to recoup the IGST from importers or corporations operating in India.

Source : Study Cafe