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Service Tax on Trans-shipment Freight--Welcome Circular

Srivatsan Ranganathan

To recap a flashback, the Finance Act, 2016 had brought in service tax on ocean freight imports by making it a taxable service through an amendment in the Negative List with an abatement of 70% making the overall taxable service at 4.50% including (KKR cess).

It was also clarified that such service tax paid will not be included in the calculation of customs duty so as to avoid dual imposition of tax on tax which otherwise is not possible, except with the authority of the Parliament. Where the freight is levied by a non-resident freight forwarder or by a shipping line without any presence in India, then the same will need to be discharged by the Indian importer on reverse charge basis.

It is to be noted that the levy was only on ocean freight with no levy on airfreight primarily for the reason that in airfreight vessels do not bring cargo on charges collect basis also because of mega exemption notification granting the exemption for airlines.

As for freight forwarders charging for airfreight for charges collect shipments, it still remains a grey area, though the department has clarified vide Circular No. 197/7/2016, dated 12-8-2016 that if export freight forwarders are acting on principal-to-principal basis and not as mere intermediaries, then there shall be no levy on them under the head of intermediaries. It also flows that such abatement of 70% is likely to be given to them if they are acting as intermediaries. This circular has also opened controversies which were discussed by this author under the article Service Tax on Freight Forwarders for Export Clarification Circular Likely to Rekindle Problems.

Circular No. 204/2/2017, dated 16-2-2017 has now clarified that in case of trans-shipped cargo throu