Importers have moved courts regarding the imposition of integrated goods and services tax (IGST) on the cost incurred through an agreement between two foreign parties to bring goods to India via ocean waters. This cost is termed ocean freight.
Petitions are pending before the high courts at Delhi and Mumbai. The Gujarat high court has concluded hearings on another case, reserving its judgment.
“The taxability of ocean freight for transactions between two non-residents will have to cross the constitutional barrier and the controversy is soon expected to be resolved,” said Abhishek Rastogi, a counsel for the petitioners and partner at Khaitan & Co.
A provision in the Central GST Act allows levying of both the basic customs duty and IGST on the cost, insurance and freight (CIF) value of goods brought into India, and an additional IGST on ocean freight between two foreign parties for movement of these goods.
For instance, assume goods come from Washington to London, before being shipped further to Mumbai port. There is an element of ocean freight between the parties in Washington and Lon-don. This could include steamship costs, broker commissions, duties and tariffs, vessel and port maintenance costs, labour costs, etc.
When the basic customs duty and IGST are already paid on the CIF value, argue the petitioners, why should there be another tax on the ocean freight element. This would, contends Rastogi, give rise to double taxation -- the ocean freight element includes CIF. Besides, how are Indian parties concerned with a transaction between two overseas entities?