Clarification needed in clarificatory circular

Importers will now be required to pay service tax on inward ocean freight. They can take Cenvat credit on the basis of a challan evidencing payment of the tax. On import through shipping lines located outside India, they also have an option to pay tax at 1.4 per cent of the goods’ CIF value. The point of taxation will be the date of the bill of lading.

These changes to various rules through three notifications dated April 13 clear many earlier doubts. However, the Central Board of Excise and Customs’ circular of the same date, explaining these changes, has raised new confusion. Services of transportation of goods by a vessel from a place outside India up to the Customs station of clearance in India became taxable since June 1, 2016. However, the legal provisions required Indian shipping lines to pay the tax but not foreign ones lines. This anomaly was addressed on January 22, when the Indian agents of shipping lines were made liable to pay the tax. However, once again, the actual wording of the notifications created some more confusion. The latest changes make importers pay the tax with effect from  April 23 and give the option of 1.4 per cent payment from January 22 onwards.  

The CBEC circular says in case of services of transportation of goods by sea, provided by a foreign shipping line to a foreign charterer with reference to goods destined for India, an option has been provided in the Service Tax Rules to pay service tax at the rate of 1.4 per cent of value of the imported goods as determined under Section 14 of the Customs Act and the rules made thereunder. This is not consistent with the newly inserted Rule 7CA of the Service Tax Rules, which talks of the option to pay an amount calculated at the rate of 1.4 per cent of the sum of cost, insurance and freight (CIF) value of such imported goods. Thus, CBEC talks of collecting tax on higher value than what the law allows, as assessable value is different from and invariably higher than the CIF value. Also, how can the assessable value be known on the date of bill of lading, which is the point of taxation?

The next issue relates to abatement of 70 per cent of the value of services of transportation of goods in a vessel, subject to the condition that Cenvat credit on inputs and capital goods used for providing the taxable service has not been taken under the provisions of the Cenvat Credit Rules. CBEC says this condition cannot be fulfiled by foreign shipping lines; so, the abatement will not be available for services of transportation of goods in a vessel provided by them.

This view is not consistent with the Supreme Court judgement in the case of SRF Ltd. [2015 (318) E.L.T. 607 (SC)] relating to Countervailing Duty (CVD) exemption, wherein it was held that the benefit of excise duty exemption, subject to the condition of non-availment of Cenvat credit, will also be available to the importers of such final products for the purposes of CVD.   The review petition filed by the government against this judgement was dismissed by the apex court. CBEC should review its circular and clarify the correct position.

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