While cases of tax applicability on transportation of imported goods through the sea route sit in the pile of pending cases in various courts across the nation, the issue of Goods and Services Tax (GST) on the ocean comes to bite importers as the tax department hits with fresh queries over tax applicability.
Over the last month, the tax department has started issuing fresh tax demands and notices to companies over GST on ocean freight, prompting some of the companies to file writ petitions against the decision.
Deoleo India, one of the importers to file for writ petition in the Bombay High Court has raised concerns against “coercive action”.
“Recovery of GST on ocean freight by the authorities at this stage is not a good idea when the matter is at the final stage before the apex court and one of the high courts in the country has already held these provisions to be ultra vires. Any payment at the audit stage or the investigation stage can only be made voluntarily by the taxpayer, and any coercive measure to recover without a fair process of adjudication needs to be challenged.Abhishek A Rastogi, partner at Khaitan and Co
Over the last few years, the center and importers are fighting a battle against the Supreme Court over the imposition of integrated GST (IGST) on ocean freight.
The government against an earlier Gujarat High Court judgment calling the IGST on ocean freight as unconstitutional had approached the Supreme Court.
following which many companies received notices in the last month or so.
“During the audit, it is observed that you have been importing goods from your parent company… wherein ocean freight has been paid by foreign suppliers. In such conditions, the taxpayer is required to pay the GST at 5% on the ocean freight, ” one such notice to a company read.
The basic issue is that, in most cases, the ocean freight is paid by the seller or companies that are not based in India. So, for instance, if a company based in Europe is exporting goods to India, the company tends to enter into an agreement with shipping companies and pay ocean freight.
In such cases, the tax department is unable to recover GST from the European company. The tax department hopes to recover the IGST from importers or companies that are based in India through a “reverse charge mechanism”.