TAXABILTY OF EXPORT FREIGHT UNDER GST ANALYTICAL PERSPECTIVE

Let us consider a transaction where an Indian exporter (hereinafter referred to as Mr. A) needs to export his goods to Germany on CIF basis. He has an option to either ship through say, Essar Shipping Ltd (Indian Shipping Line) (hereinafter referred to as Option I) or to ship through say, Arnold Bernstein (German Shipping Line) (hereinafter referred to as Option II)

Option I- Export through Indian Shipping Line on CIF

Option II- Export through Foreign Shipping Line on CIF

TIMELINES RELATING TO THE SAID TRANSACTION

1/7/17- GST Law came into force

Section 12(8), Section 13(9) of the IGST Act and Notification No.9/2017-IT(R) came into force

25/1/18-Notification No.2/2018-IT(R)

Insertion of Serial No. 20A and Sr. No. 20B to Notification No.9/2017-IT(R)

1/2/19-Integrated Goods and Service Tax (Amendment) Act, 2018

Insertion of Proviso to Section 12(8) of the IGST Act

30/9/21-Notification No.07/2021-IT(Rate)

Withdrawal of exemption w.e.f. 30/9/22

FA 2023 w.e.f. 01/10/2023

Removal of Section 13(9) andproviso to Section 12(8) of the IGST Act

Prior to 1/2/2019,

• Option I-If Mr. A considers shipping through Option I, the place of supply (hereinafter referred to as PoS) will be determined as per the provisions of Section 12 as both the location of supplier and recipient is in India. As per Section 12(8)(a) of the IGST Act (hereinafter referred to as the ‘Act’) place of supply will be the location of the recipient i.e., India and CGST and SGST or IGST is payable.

• Option II-If Mr. A considers shipping through Option II, the PoS will be determined as per the provisions of Section 13 as the supplier is outside India and the PoS will be the destination of goods i.e., outside India as per Section 13(9) of the Actand as both the location of the supplier and PoS is outside India, no GST is payable (The transaction will neither fall under Section 7-Inter state supply and Section 8-Intra state supply)

Note: For the transaction to be Import of Services, the PoS shall be in India as per Section 2(11) of the Act. As the PoS is outside India in this transaction, no GST is payable

To summarise,

Option	Transaction	Freight Taxability	Reference
I	Export through Indian SL on CIF	Taxable	Section 12(8)(a) of the Act
II	Export through Foreign SL on CIF	Not taxable	Section 7, 8 of the Act

Here, there is a disparity between Option I and Option II

INDIAN SHIPPING LINE TAX TREATMENT ≠ FOREIGN SHIPPING LINE TAX TREATMENT

From 1/2/2019 till 30/9/22

Notification No. 2/2018 dt IT (Rate) dated 25/1/2018 inserted Sr No 20A and Sr No 20B to the table in Notification No. 9/2017- IT (Rate) wherein the transportation services by vessel/aircraft from India to a place outside India is exempt. Therefore, irrespective of whether the Indian Shipping line or Foreign Shipping line is hired, the transaction is exempt provided the PoS is outside India. The intention is to provide parity between the services hired from Indian Shipping line and Foreign Shipping Line. However, still the only showstopper is that the services shall be provided to a place outside India for the transaction to be exempt. Therefore, an amendment was passed vide Integrated Goods and Service Tax (Amendment) Act, 2018 w.e.f. 01-02-2019 to insert the proviso to Section 12(8) of the Act to say that if the transportation of goods is to a place outside India, the PoS shall be the place of destination of the goods. Therefore, the Council succeeded in providing parity between Option I and Option II as under

• Option I-If Mr. A considers shipping through Option I, the PoS will be the place of destination of goods i.e., outside India as per newly inserted proviso to Section 12(8) of the Act. If the PoS is outside India, then the transaction will be covered under Sr. No. 20B of the Notification No. 9/2017-IT (Rate) and therefore, it is exempt

• Option II-If Mr. A considers shipping through Option II, the PoS will be the place of destination of goods i.e, outside India and as both the location of the supplier and PoS is outside India, no GST is payable (The transaction will neither fall under Section 7-Inter state supply and Section 8-Intra state supply) For the transaction to be Import of Services, the PoS shall be in India as per Section 2(11) of the Act. As the PoS is outside India in this transaction, no GST is payable. In addition to this, the insertion of Sr. No. 20B of the said notification also adds up to confirm its exemption.

WHAT IFS

If the proviso of Section 12(8) was not inserted, the PoS would had been still in India as per Section 12(8) of the Act, and therefore, the main condition of exemption in Sr. No. 20B of the Notification No. 9/2017-IT(Rate) that the ‘services to a place outside India’ would not had been satisfied and therefore, the exemption would not apply thus resulting in continuing disparity between the taxability treatment between Indian Shipping lines and Foreign Shipping lines. Therefore, the amendment passed is right in my humble opinion contrary to the popular belief.

To summarise,

Option	Transaction	Taxability	Reference
I	Export through Indian SL on CIF	Exempt	Proviso to Section 12(8) of the Act, Sr. No. 20B of the NN.9/2017-IT(R)
II	Export through Foreign SL on CIF	Not taxable	Section 7, 8 of the Act

INDIAN SHIPPING LINE TAX TREATMENT = FOREIGN SHIPPING LINE TAX TREATMENT

From 01/10/2023

After many amendments through various notifications, the GST Council has decided to withdraw the exemption provided for transportation of goods on CIF exports and make it taxable. Therefore, finally Notification No.07/2021-IT(Rate) ceased the time limit for Sr. No. 20A and Sr. No. 20B and withdrew the exemption w.e.f. 30/09/2022. Subsequently the Finance Act, 2023 made amendments by removing proviso to Section 12(8) and Section 13(9) of the Act. Therefore, the Option I and Option II would be reclassified as under:

• Option I-If Mr.A considers shipping through Option I, the PoS will be the location of the recipient i.e., India as per Section 12(8) of the Act. As the exemption in Notification No. 9/2017-IT(Rate) is also removed, CGST and SGST or IGST will be payable.

• Option II-If Mr.A considers shipping through Option II, the PoS will be the location of the recipient i.e., India as per Section 13(2) of the Act [As the specific section 13(9) relating to transportation of goods is removed, general provision of Section 13(2) will apply for this transaction]. As the exemption in Notification No. 9/2017-IT(Rate) is also removed, CGST and SGST or IGST will be payable.

WHAT IFS

After removing the exemption as per Notification No. 9/2017-Integrated Tax (Rate), there is no point in making the PoS to be outside India as the principal reason for shifting the PoS outside India is to make it eligiblefor the exemption as per the said Notification. As the exemption with respect to transportation of goods from India to outside India is no longer available, the irrelevant law in Section 13(9) and proviso to Section 12(8) is rightly removed. If the Section 13(9) is not removed, the PoS will continue to be the place of destination of goods i.e, outside India and as both the location of the supplier and PoS is outside India, no GST is payable (The transaction will neither fall under Section 7-Inter state supply and Section 8-Intra state supply). It would have reintroduced disparity between Option I and Option II.

To summarise,

Option	Transaction	Taxability	Reference
I	Export through Indian SL on CIF	Taxable	Section 12(8) of the Act
II	Export through Foreign SL on CIF	Taxable	Section 13(2) of the Act

INDIAN SHIPPING LINE TAX TREATMENT = FOREIGN SHIPPING LINE TAX TREATMENT

This article is a part of Article Writing Competition 2025.