No gst exemption on outbound ocean freight

The exemption for outbound ocean and air freight, which was previously available, expired on September 30, 2022. Since October 1, 2022, these services have become taxable under GST.

Impact on Merchandising Trade

In your scenario, where both the load and discharge ports are outside India and the cargo does not touch Indian customs territory, the taxability depends on the Place of Supply (POS) and the location of the supplier and recipient:

• Place of Supply (POS): Under Section 13(9) of the IGST Act, the place of supply for the transportation of goods (other than by mail or courier) is the destination of the goods. If the destination is outside India, the place of supply is outside India.

• Export of Services: For a service to be treated as an "Export of Service" (and thus zero-rated), the supplier must be in India, the recipient must be outside India, and the place of supply must be outside India.

• Transaction Scenarios:

  • If the service provider is Indian and the recipient is a foreign entity: If all conditions of Section 2(6) of the IGST Act are met (e.g., payment is received in convertible foreign exchange, and they are not mere establishments of a distinct person), the service may qualify as an "Export of Service," which is zero-rated.

  • If you engage an Indian service provider and the recipient (your office) is in India: If the Indian office is the recipient, the place of supply being outside India means the transaction might not meet the "Export of Service" criteria, potentially making it a taxable supply in India.

Recommendations for Merchandising Trade

1. Evaluate Contracts: Determine who is the "recipient" of the service. If your foreign office is the direct recipient of the freight services and makes the payment, it may be easier to substantiate that the service is not subject to Indian GST.

2. Analyze Place of Supply (POS): Since the goods are moving from one foreign port to another, the place of supply will generally be outside India. You should consult with a tax professional to determine if your specific arrangement qualifies as an export of service under Section 16 of the IGST Act.

3. Review Documentation: Ensure that agreements, invoices, and payment flows clearly define the parties involved, particularly if you are using intermediaries. Proper documentation is critical to prove that the services are not subject to GST in India if you intend to claim they are outside the scope of the tax.

Summary: The GST exemption for outbound ocean/air freight expired on September 30, 2022. For merchandising trade involving ports outside India, the taxability hinges on whether the transaction qualifies as an "Export of Service" under the IGST Act. You should review your specific freight contracts and payment structures to determine if your operations meet the criteria for zero-rated supplies or if they fall under the scope of taxable services in India.