The earlier exemption for GST on air and ocean export freight granted by the CBIC until 30th September 2022 has now lapsed. Back in 2018, the tax authority released a notification to provide GST exemption for goods transportation charges by aircraft/vessels from India to any place outside India.
It was initially available until 30th September 2018 but was relaxed by further extending it up to 30th September 2022. Ocean freight attracts 5% GST whereas air freight attracts an 18% GST.
Hence, from 1st October 2022, exporters must pay GST on the above two services so far exempted.
The proviso to Section 12(8) of the IGST Act deals with the place of supply provisions for services where goods transportation is outside India. Here, the place of supply shall be the destination of goods which happens to be outside India in case of exports.
So, when Indian exporters are availing of freight services, the code for place of supply will be 97 or other territories for reporting purposes. They must pay 18% for air freight services, which adds to their working capital burden, affecting the prices and competition with the international market.
The Former President and member of the advisory board at ACAAI, Mr Krishnan, opined to the LogisticsInssider publication that the withdrawal of exemption also challenges the MSME exporters financially, especially the cottage industry. He added that GST-registered businesses take an input tax credit on such taxes but may increase their compliance cost.
Further, the President of ACAAI has urged the government to reconsider its decision to withdraw exemptions on freight and keep it in line with the international laws for tax levy on air/sea freight that happens to be 0%.
The tax levy on freight will also adversely impact the airlines, shipping and freight forwarding industries. The upcoming GST Council meeting may take up the matter, but until then, the taxpayers must pay GST and cannot claim tax credits on ocean and air freight. It is because the Place of Supply mentioned by the supplier would usually not be the same as the recipient’s state and its classification as “ITC not available” in GSTR-2B.
For any clarifications/feedback on the topic, please contact the writer at annapoorna.m@clear.in
Annapoorna, popularly known as Anna, is an aspiring Chartered Accountant with a flair for GST. She spends most of her day Singing hymns to the tune of jee-es-tee! Well, not most of her day, just now and then.
