5 May 2017
The information available now emphasises that for cargoes shipped under bills of lading dated between 22 January and 23 April and where foreign shipowners are liable for the service tax, these shipowners will not be able to take advantage of the 70 percent exemption which would bring the tax to the previously indicated 4.5 percent. Effectively this means that during this period, foreign shipowners will be required to pay a service tax of 15 percent on gross earnings instead.
BIMCO has today contacted the Tax Research Unit of the Indian Ministry of Finance’s Department of Revenue, seeking clarification of the matter and commenting on the problematic aspect of retroactively imposing a much higher tax than what was indicated when the first amendment took place in January this year.
While it is positive that the responsibility for paying the service tax will revert to what it was before 22 January, it is a serious complication – for foreign shipowners as well as for Indian agents – that this short period of 3 months will create such uncertainty not to mention a steep increase in the tax payable.
We will continue to seek information about the matter and update this website accordingly.
Any information members may find relevant to report to BIMCO regarding this tax will be highly appreciated.
The amendments to the payment of Indian service tax ,which were imposed on 12 January this year with effect from 22 January, was a major blow to foreign (non-Indian) shipowners transporting cargoes to India under a contract with foreign charterers. The Indian government-with a very short notice period- notified that the responsibility for paying the service tax of 4.5 per cent on the gross earnings was to be imposed on the shipping agent on behalf of the shipowner. Until these amendments, the “importer” of the cargo had been responsible in such situations.
BIMCO believed this tax was still cargo-related rather than ship-related and this change caused a lot of concern to owners and agents alike. Many stakeholders challenged this change in legislation in the Indian High Court seeking for a review or at least for more time before it took effect.
BIMCO has now been informed that a change is to take place. The Indian Government has issued three new notifications (No. 13, 14 and 15/2017) related to this matter.
The main point to take note of is that with effect of 23 April, it will now again be the importer who is responsible for paying the service tax when a foreign ship transports cargo to India for a foreign charterer. It is the date of the bill of lading which is relevant in this context and the liability to pay the tax still rests with the agent- on behalf of the shipowner- for cargoes shipped under bills of lading dated prior to 23 April. The liability will shift to the importer for bills of lading dated 23 April or later.
What is further important to note is that the percentage for the tax (ie 4.5) was arrived at due to the general service tax being 15 per cent , but with an exemption on 70 per cent of the value of services of “transportation of goods in a vessel” being applied as per Notification No. 26/2012 ST dated 20 June 2012. Now the Tax Research Unit (TRU) of the Indian Ministry of Finance has issued a Circular No. 206/4/2017 – Service Tax, dated 13 April 2017. In this circular, it has been clarified in point 4.1 that the condition for availing exemption under Notification No. 26/2012, is not fulfilled by the foreign shipping lines. This means that the benefit of conditional exemption applied, based on the notification from 2012, may not be available to foreign owners. We are yet to receive information with regards to whether the correct tax rate for the period between 22 January and 23 April will be 4.5 per cent or 15 per cent of the gross earnings. If the latter is the case, we foresee this will create serious uproar amongst foreign shipowners. Even with the positive prospect that they will not be liable for the service tax after 23 April, such a steep increase in the tax charged since January will hit extremely hard. We will continue to seek news about this particular matter.
As a last amendment, it is also worth mentioning that Notification No. 13/2017 provides an option to pay service tax at 1.4 per cent of the sum of the cost, insurance and freight (CIF) value of the imported goods. To this, should be added, according to Circular No. 206/4/2017 – Service Tax, so-called Swachh Bharat Cess and Krishi Kalyan Cess - each corresponding to 0.05% of the customs value of the goods. In total, the rate of tax will be 1.5% of CIF value. According to the circular, this option was effective from 22 January 2017.
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