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SERVICE TAX ON IMPORT SHIPMENTS

Several notifications by the Ministry of Finance, Govt. of India have been released with regard to the Service Tax to be collected in India, the implication of which are as follows:

  1. From the 22nd January to the 23rd April, 2017 agents were responsible to pay the service tax. Effective 23rd April, 2017 the importer is responsible to pay the Service tax.
  2. The effective rate of tax is either 4.5% of import freight or 1.5% (1.4% service tax plus 0.05% Swach Bharat Cess and 0.05% Krishi Kalyan Cess) of CIF value of the cargo. This is an option given by the Government.
  3. The effective date is the date of Bills of Lading. Hence for vessels loaded prior to 22nd January, 2017 the tax is not applicable at all.

This means that all shipments which have come in from 22nd January 2017  until 22nd April 2017, the service tax is required to be collected by the agent from the freight beneficiary and deposited with the Government. A writ petition was filed in the  Madras High Court challenging the stipulation that the Agents are responsible and liable to collect and pay the Service Tax and a Representation made to the Ministry of Finance to give a further clarificatory notification. The next hearing is posted for 6th June, 2017.

The Government of India has also issued a circular denying the benefit of abatement of 70% to foreign shipping lines. Representations have been sent to Ministry of Finance, Central Board of Excise, Customs & Service Tax as the circular is contrary to the law granting abatement of 70% laid down in an earlier notification. A response from them is awaited. In the event the abatement is granted the rate of tax applicable is 4.5% of the import freight and in the event the abatement is denied the rate of tax applicable is 15% of the import freight.

Informatively, a writ is presently being prepared to be filed in the Madras High Court by The Chennai & Ennore Ports Steamer Agents Association (Association of Vessel Agents) challenging the denial of benefit of abatement to foreign shipping lines. The agents have taken this on themselves for the benefit of the trade.

At this juncture we would need to wait and see what the Ministry of Finance have to say on the representation made to them on the above issues and also wait till 6th June 2017 when the matter is scheduled to come up before the Madras High Court to see how the Court would intervene.