Leviability of GST under Reverse Charge Mechanism (RCM) on ocean freight is one of the issues which has been seriously debated on in the GST regime since the beginning. The controversy relating to the taxation of ocean freight under RCM finds its roots from service tax regime wherein such levy was first introduced, by way of RCM, with effect from January 22, 2017 vide Government of India notification 03/2017-Service Tax dated January 12, 2017.

In terms of the said notification, services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India were notified to be charged with tax under RCM provisions. In respect of such services, a person who complied with provisions of section 29, section 30 or section 38 read with section 148 of the Customs Act, 1962 with respect to such goods, was made liable to pay service tax in respect of such services.

However, vide Government of India notification 16/2017-Service Tax dated April 13, 2017, Rule 2 of Service Tax Rules, 1994, was amended to provide that in respect of services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, the importer in India shall be the person liable to pay tax. Hence, liability to pay tax in respect of such services was shifted to importer, importing such goods. In addition to the leviability, an alternative mechanism for determining the value of service for tax purposes was also provided wherein importer was given an option to pay tax at 1.4 percent of the sum of cost, insurance and freight (CIF) value of such imported goods.

The petition filed against the imposition of service tax on ocean freight was upheld by Hon’ble Mumbai Tribunal in the case of M/s United Shippers Limited v. Commissioner of Central Excise, wherein it was observed by the Tribunal that where a transaction involves a customs transaction and a service transaction, it is necessary to decide where customs transaction ends and service transaction begins – Question of rendering any service in respect of such goods by way of cargo handling or otherwise can take place only after customs transaction is completed – Therefore, if an activity is part of import transaction leviable to import duty or some charges are includible in customs value, it cannot be charged to service tax. Further, in the matter of Commissioner v. United Shippers Limited, the Hon’ble Supreme Court also confirmed the view taken by Hon’ble Mumbai Tribunal.

The levy of tax in this respect has also been carried to GST Regime w.e.f. July 01, 2017 vide Notification 10/2017-Integrated Tax (Rate) dated June 28, 2017. Entry no. 10 of the said notification provides that tax, in respect of services supplied by a person located in non- taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, shall be payable by importer, as defined in clause (26) of section 2 of the Customs Act, 1962(52 of 1962), located in the taxable territory.

It is important to mention that services in respect of transportation of goods by a vessel from customs station of clearance in India to a place outside India is exempt from GST up to September 2020. Hence, ocean freight in respect of exports is not leviable to tax under GST till September 2020.

Through this article, an attempt has been made to understand the issues involved in the present scheme of taxation of ocean freight, judicial pronouncements in respect of such issues and few of the landmark rulings in respect of the same.


The GST law, in terms of notification 10/2017-Integrated Tax (Rate) dated June 28, 2017, specifically provides that the importer is required to pay tax in respect of services of transportation of goods by vessel from a place outside India up to the customs station of clearance in India, where such services are supplied by a person located in non-taxable territory to a person located in non-taxable territory.

Further, in terms of notification 08/2017-Integrated Tax (Rate) dated June 28, 2017, such services shall be chargeable to tax at the rate of 5 percent. In terms of corrigendum dated June 30, 2017 issued in respect of this notification, where the value of taxable services provided is not available with importer, the same shall be deemed to be 10 percent of the CIF value (sum of cost, insurance, and freight) of the imported goods. Hence, where the actual value of services is not available with the importer, such value shall be computed at the rate of 10 percent of the CIF value and tax shall be payable at the rate of 5 percent (in terms of Notification 8/2017- Integrated Tax (Rate) dated June 28, 2017) on such 10 percent value treated as value of service.


The GST law provides for the leviability of tax on ocean freight and such tax has to be paid by the importer under mechanism of reverse charge. There are two controversies involved;

1. Customs duty (including IGST) is levied on the assessable value of imported goods at the time of import into India. The assessable value comprises the value of goods, plus an amount in respect of freight and insurance. IGST was separately levied on ocean freight on imported goods, while the assessable value (including the cost of freight) was subject to IGST. This led to double taxation in the hands of the importer.

2. Services of foreign shipping lines are procured by foreign exporter and importer is not a party to the transaction. Hence, such importer cannot be treated as recipient of services and accordingly, cannot be made liable to tax in respect of such services.

The matter relating to leviability of tax on ocean freight has been examined by different Authorities for Advance Ruling. In the case of M/s E-DP Marketing Private Limited (Madhya Pradesh AAR), it was contended by the applicant that at the time of import of goods into India, the applicant is required to pay aggregate custom duties on CIF value of the imported goods, which is considered as an assessable value for the purpose of levying the import duties on such goods, which includes the IGST component also. Since the CIF value of the imported goods includes the component of ocean freight and the applicant is required to pay IGST on this ocean freight component also along with other duties of customs, it leads to the amount of ocean freight being taxed twice. The Hon’ble Authority, in this case, held that ocean freight is collected by the seller being located in non-taxable territory from importer being located in the taxable territory. As the services supplied by a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India’ has been put under RCM and importer being the recipient of service, such services shall be taxed under RCM and tax in respect of the same shall be payable by the importer. Further, the appellant contention regarding double taxation of ocean freight amount was also rejected by the Authority.

In the case of M/s Bahl Paper Mills Limited (Uttarakhand AAR), it was held by the Hon’ble Authority that in terms of notification no. 08/2017-Integrated Tax (Rate) and 10/2017-Integrated Tax (Rate) both dated June 28, 2017 an importer is required to pay IGST on ocean freight. Therefore, even if the importer has already paid IGST on the CIF value of imported goods, he is still required to pay IGST on such ocean freight under RCM.

Similarly, in the case of M/s M. K. Agro Tech Private Limited (Karnataka AAR), it was contended by the Applicant that the amount of freight is already included in the value of imported goods for the purposes of assessment and computation of duty, in terms of valuation rules provided under Customs. Taxing the freight amount again as supply of services, even when the same has been included in the value of goods and taxed as the supply of goods, would amount to double taxation which, legally, is not correct. It was further contended by the Applicant that the definition of ‘recipient’ is an inclusive definition but there is no provision provided under the law to expand its meaning either. Where consideration is payable, in terms of the definition of ‘recipient’, the person who is liable to pay such consideration shall be treated as recipient which in this case shall be the foreign exporter, as he is liable to pay for the services of foreign shipping line. However, notification 10/2017-Integrated Tax (Rate) dated June 28, 2017 has specified the importer as the recipient of services which is not in line with the legal provisions of the law and hence, should be treated as ultra vires the GST law. It was also submitted by the Applicant that GST was introduced with a main focus of eliminating double taxation, however in such transactions, unavoidably IGST is being charged twice on the same amount, thereby defeating the very intention of the legislature.

It was held by the Authority that the importer in India is liable to pay the tax under RCM as they are deemed to be the recipient of service liable to tax under RCM and the applicant has no dispute on the leviability of tax under these notifications. It is pertinent to note that this is the tax liable to be paid on the supply of services related to the transportation of goods and is not on the supply of goods. The valuation of the supply of goods involved in the imports is inclusive of the value of transportation service. The consideration relating to transportation of goods in case of import of goods is a part of the value of goods as per Rule 10(2) of the Customs Valuation (Determination of Value of Import of Goods) Rules, 2007. However, the taxable event is the import of goods into the territory of India and the valuation of the turnover of import of goods on which such tax shall be levied is as per the provisions of the Customs Act. Therefore, it is clear from the above that this tax is on the import of goods and not on the services. Hence there is no double taxation involved in the above transactions as these are two distinct taxable transactions, one relating to supply of goods and other relating to the supply of services. Hence, IGST shall be payable by the Applicant in respect of ocean freight.

The constitutional validity of levy of IGST on ocean freight was challenged in various petitions being filed with different high courts. Recently, in a landmark judgement, in the case of M/s Mohit Minerals, while deciding on multiple petitions on the same issue, the Hon’ble Gujarat High Court held the levy of IGST on ocean freight as illegal and unconstitutional. Accordingly, notifications requiring the payment of IGST on such ocean freight by the importer were held to be unconstitutional and illegal.

In Mohit Minerals case, it was contended by the Appellant that imposing IGST on ocean freight results in double taxation, as IGST has already been accounted for on the value of import of goods, and such freight already forms a part of the value of such goods levied to IGST. Also, it was contended that the services of the foreign shipping lines were procured by the foreign exporter, the Appellant was not a party to the transaction and, therefore, cannot be said to be the ‘recipient’ of the services for the purpose of payment of IGST.

It was also contended by the Appellant that the entire transaction occurred outside India. The supply of goods transportation services by a person in one non-taxable territory to a person in another non-taxable territory, from a place outside India up to the customs station of clearance in India, is neither an inter-state supply nor an intra-state supply. In such circumstances, no IGST can be levied and collected from the Appellant. It was further submitted that the services also cannot be treated as imported services, since the location of the supplier of the service (i.e., the foreign shipping line) and the recipient of the services (i.e., the foreign exporter) are both outside India and, hence, outside the scope of GST.

Tax Authorities contended that IGST is levied on ocean freight following representations from the Indian shipping industry that imposing the tax is necessary to provide a level playing field for Indian shipping lines.

The IGST paid under the reverse charge mechanism is available as an input tax credit to the importer, resulting in no additional cost.    

In the present case, Hon’ble Gujarat High Court observed that;

1. Taxing statutes must be interpreted strictly. The importer cannot be deemed to fall within the scope of the term ‘recipient’ as defined in GST legislation for the purposes of levying IGST on ocean freight services.

2. The tax authorities had erred in treating the importers as the recipients of the services, since the services actually were received by the foreign exporter. The Indian importers were not liable to pay consideration to the foreign shipping lines and, therefore, cannot be treated as ‘recipient’ of services in terms of the definition of the term ‘recipient’ given under GST laws. Accordingly, the importer can not be held liable to pay tax on such services.

3. The notifications mentioned above, being subordinate legislation, which act as to deem the importer to be liable to pay tax under reverse charge, are ultra-vires the provisions of the IGST Act. Consequently, the imposition of IGST on ocean freight and deeming the importer as the person liable to pay tax are unconstitutional, given that there is no statutory sanction for levy and collection of such tax.

4. The entire supply has taken place outside India, as both service provider and service recipient are outside India. The IGST Act does not give extra territorial jurisdiction, and merely the fact that transportation of goods terminates in India does not mean that the supply of services of transportation of goods takes place in India.

5. IGST cannot be imposed on the same freight amount by treating it as the supply of services since freight also suffers IGST as a part of the assessable value of imported goods. This is necessary to avoid the vice of double taxation.

Following the decision in the case of Mohit Minerals, the Hon’ble Calcutta High Court, in case of M/s Adani Wilmar Limited, held that challenge in this petition is covered by the judgment of Division Bench of High Court of Gujarat in Mohit Minerals case, wherein view taken was that no tax is leviable, under IGST Act 2017, on ocean freight for services provided by a person located in a non-taxable territory by way of transportation of goods on a vessel from a place outside India upto Customs station of clearance in India. Notification impugned in this writ petition has been declared unconstitutional by the judgment. A point of law stands decided by a Division Bench of High Court of Gujarat and the challenge appears to be covered thereby.


The decision provides useful guidance on the contentious issue of the levy of IGST on ocean freight services and is indeed a positive development. It should come as a relief to importers at large, who had been subjected to double taxation. However, although the decision of the Gujarat High Court provides guidance to high courts in other states considering pending petitions against the notifications, those courts are not obliged to follow the ruling. The tax authorities also may appeal against the decision to the Supreme Court. 


Views expressed in this article are personal views of the author and are for guidance purposes only. Although care has been taken in compiling and checking the information contained herein, however, we make no representations or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability or completeness of any information. It is further advised that the information above should not be treated as legal advice and should not be acted upon in business scenarios. An appropriate legal/professional advice should be taken prior to acting upon the above while undertaking business transactions.


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