Shipping Lines in Deep Water

This year’s Budget has brought many small changes in Service Tax, some of them are so small that it travels under the radar. One such change is with respect to the services by way of transportation of goods by an aircraft or a vessel. Presently services by way of transportation of goods by an aircraft or a vessel from a place outside India up to the customs station of clearance in India is in negative list. Thus, when goods are brought in India upto the Customs Station the same are not burdened with Service Tax.

Now, vide Budget 2016, such entry is proposed to be removed from Negative List w.e.f. 01.06.2016. Further, an anomaly is created, as the Services by way of transportation of goods by an aircraft from a place outside India upto the customs station of clearance in India is proposed to be exempted. But, no exemption is provided when the goods are brought to India via vessel. Thus, in case of imports, when the shipping line is Indian Service Provider it will have to charge and pay the Service Tax as a service provider. It is clarified that service tax levied on such services shall not be part of value for custom duty purposes.

If shipping line is a foreign entity, as per the Place of Provision of Service, the service will be said to be provided in India. As per Rule 10 of Place of Provision of Services Rules 2012, the place of provision of services of transportation of goods shall be the place of destination of the goods. Thus, when the goods are imported and foreign shipping line is agent the importer-service receiver becomes liable to pay service tax under reverse charge. The service tax so paid will be available as credit with the Indian manufacturer or service provider availing such services.

It must be understood that only import of goods via vessel will become costly. Import of goods via aircraft is proposed to be exempted. Further, this change will not affect the exporters as in case of exports, the destination of goods will be outside taxable territory and thus no Service Tax will be applicable.

 

Ultimately, because of the changes proposed by the Budget 2016 will make the imports dearer for many importers who utilise services of shipping lines.

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