Export of Service by freight forwarder, Goods and Services Tax - GST

[Kaustubh Karandikar]

Exporter in India had issued a Purchase Order to a nominated Agent viz. PQR situated outside India, for transportation of goods by Air for export. PQR in turn had entrusted this work to XYZ for which XYZ had charged to PQR in foreign currency. Is it an export of service and therefore XYZ not liable to pay GST on the amount recovered from PQR?

Posts / Replies

[Shilpi Jain]

Yes. this would be an export of service since the supplier in this case is PQR (Assumed he is in India), recipient would be XYZ (outside India), PoS is destination of goods being outside India.

The recipient in this case for transaction between XYZ and PQR will not be the exporter.

[Kaustubh Karandikar]

Respected Shilpi ji

PQR is situated outside India and XYZ is in India. In my view, This is more of Intermediary services and though the bill is made on PQR it will not be regarded as Export since based on destination/consumption based tax, the consumption is in India. The charge is though paid by PQR, for practical purpose the services is rendered in India and based on the rules for charge of GST on Intermediary services, this will fall in charge and GST will have to be applied. Your kind views please

[Shilpi Jain]

sorry.. i have written it vice versa in my reply. Correct, PQR outside India and XYZ in India

[Shilpi Jain]

What you have mentioned sir somewhere links to the latest circular issued by the department on intermediary.

If that view is adopted then all kinds of sub-contract arrangements will become intermediary arrangements and liable to GST. This is not the intention of the Government and this kind of meaning should not be attached to the phrase 'on own account'.

I still think it is an export of service since XYZ provides services to PQR on its on account by serving PQR's customer. XYZ cannot be an intermediary nor can tax be levied on this transaction mentioning that its benefit is received in India.

We need to follow the PoS provisions.

[KASTURI SETHI]

Dear Sir,

I am also of the same view as opined by Madam Shilpi Jain. XYZ is not intermediary in terms of Board's circular no.159/15/2021-GST dated 20.9.21. It is export of service.

My reasoning is inherent in Board's circular no.197/7/2016-ST dated 12.6.16 (pertaining to Service Tax era.) This circular also helps in understanding the concept of 'intermediary', How freight forwarder can be intermediary and how cannot be intermediary has been well explained circular no.197/7/2016-ST dated 12.8.16.

[Shilpi Jain]

Thank you Kasturi sir for bringing the circular to our notice. Does also throw light on when a person actually provides service 'on his own account'.

[KASTURI SETHI]

Madam Shilpi Jain,

Para no.2.2 of above circular talks of the phrase,'on his account' .Actually it is on his own account.

However, reply to your query is explained in CBEC's Education Guide published in 2012. .Relevant extract of Para No.5.9.6 is appended below :

When the freight forwarder acts on his own account (say, for an export shipment)

A freight forwarder provides domestic transportation within taxable territory (say, from the exporter’s factory located in Pune to Mumbai port) as well as international freight service (say, from Mumbai port to the international destination), under a single contract, on his own account (i.e. he buys-in and sells fright transport as a principal), and charges a consolidated amount to the exporter. This is a service of transportation of goods for which the place of supply is the destination of goods. Since the destination of goods is outside taxable territory, this service will not attract service tax. Here, it is presumed that ancillary freight services (i.e. services ancillary to transportation-loading, unloading, handling etc) are “bundled” with the principal service owing to a single contract or a single price (consideration).

On an import shipment with similar conditions, the place of supply will be in the taxable territory, and so the service tax will be attracted.

When the freight forwarder acts as an intermediary

Where the freight forwarder acts as an intermediary, the place of provision will be his location. Service tax will be payable on the services provided by him. However, when he provides a service to an exporter of goods, the exporter can claim refund of service tax paid under notification for this purpose.

Similarly, persons such as call centres, who provide services to their clients by dealing with the customers of the client on the client’s behalf, but actually provided these services on their own account, will not be categorized as intermediaries.

[Kaustubh Karandikar]

Thanks Kasturi ji and Shilpi ji for your kind advice and very correct interpretation

[Shilpi Jain]

Thank you Kasturi sir.

[Nadeem Faridi]

Dear Mr.Kasturi Ji,

as per your reply that if freight forwarders acts on his own account, what is definition of own account? suppose we purchase Freight from Maersk Line for Holland @usd1000 and bill it exporter @ usd1200 (MAERS BILLED USD1000 in our company name & we billed usd1200 from our company) than what will be role, Intermidiary or Principal?

Kindly confirm

thank you

[KASTURI SETHI]

Sh. Nadeem Faridi Ji,

Intermediary accounts for only commission (you may call whatever by name i.e. profit etc.) in his books of accounts whereas the principal (owner) accounts for whole proceeds in his books of accounts.

In the given scenario, you are principal.

[Nadeem Faridi]

Dear Mr.Kasturi Ji

Many thanks for your very quick and clear advise, actually many forwarders are getting SCN from GST dept for Freight margin, please let us know how can we get your legal assistance by paying your consultancy fee,

Thank you

[KASTURI SETHI]

Post major contents of SCN here. You will get advice free of cost.

[Nadeem Faridi]

Dear Mr.Kasturi Ji

as per SCN received from GST dept, they have imposed GST on whole billing amount of Ocean Freight charges(i.e. we purchsed usd1000 from carrier and billed usd 1500 to our customer) dept imposed GST on entire amount usd1500 stating that we have no such infrastucture or facility to provdie services on our own account thus we can not bill our customer under SAC code 996521 (however carrier billed us freight in SAC code 996521) and as per GST dept we can bill to exporter under SAC code 998599 and liable to pay gst on all ocean freight amount?

Can you please help us on this issue?

thanks

[Nadeem Faridi]

Dear Mr.Kasturi Ji

awaiting your comment on above subject,

thanks for your cooperation in advance

Best Regards

[KASTURI SETHI]

Dear Sir,

There are so many issues involved. I cannot opine without going through the SCN. If I opine without perusing SCN, my reply will be half-baked. So if you want my opinion, you can email copy of SCN after getting permission from Chief Editor, TMI.

[Nadeem Faridi]

Dear Sir,

thanks for your reply, Sorry it was typo error, actually SCN not issued yet, we got F.A.R and DRC-01A which is to be replied, please confirm if we can email these two documents to you,

as confirmed you earlier that we are ready to pay your consultancy charges or if any subscription fee of TMI, please advise amount so that we can make your payment.

thank you

[KASTURI SETHI]

My email ID is klalsethi@gmail.com