GST on Custom House Agents

[CA.VINOD CHAURASIA]

Introduction: This article discusses in detail about the GST taxability on Custom house Agents.

Customs House Agent means a person licensed, temporarily or otherwise, under the regulations made under sub-section (2) of section 146 of the Customs Act,1962 (52 of 1962);

General Rule

The default GST rate for services for which specific rate has not been provided by the GST Council is 18%.

 Hence, 18% GST rate would be applicable for most of the supporting services in transport.

 Specific Rule

• Ocean freight

Transport of goods in a vessel  GST is payable @  5% with ITC of input services

GST on Reverse Charge basis @ 5% to be paid by the importer  in case services supplied by a person located in non- taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India. 

If value of ocean freight is not available with the importer then value shall be deemed to be 10% of CIF value of imported Goods. In other Words, GST shall be 5% of Freight or 0.5% of CIF Value.

• Air freight

Services by way of transportation of goods by an aircraft from a place outside India upto the customs station of clearance in India                                                                       NIL

(As per Notification No. 12/2017- Central Tax (Rate), dated 28th June, 2017)

GST  rates on Ocean Freight Shipments:

Sl no	Description of Service	Charges Covered	Rate of Tax
1	Transport of goods in a vessel	Prepaid ocean freight on exports.	5%
2	Transport of goods in a vessel	Collect ocean freight on Exports.	0%
3	Transport of goods in a vessel	Prepaid ocean freight on imports.	5% on RCM basis
4	Transport of goods in a vessel	Collect ocean freight on Imports.	5%
5	Transport of goods in containers by rail by any person	Inland Haulage (both export/import shipments) by rail	12%
6	Transport of goods by road	Inland Haulage /On carriage (both export/import shipments) by road	18%
7	All other services	Detention, DO fee, BL fee, Container cleaning, Agency Charges, Clearance charges, EXW charges etc.	18%

GST  rates on Air shipments:

Sl no	Description of Service	Charges Covered	Rate of Tax
1	Transport of goods by Air-Export	Prepaid Air Freight on exports and related surcharges and all Origin charges including clearance and billed to entity based in India	18%
2	Transport of goods by Air-Export	Prepaid Air Freight on exports billed to overseas client/ Agent All Origin charges including clearance and billed to overseas client/Agent	0% 18%
3	Transport of goods by Air -Import (Prepaid and collect)	Air Freight on Import Custom Clearance Charges Origin EXW charges	0% 18% 18%

Where’s the Place of Supply of ‘Transportation of goods’ services under the GST law ?

1. When location of both supplier & recipient is India, the place of supply of transportation of good services as per section 12(8) IGST Act shall be:
   1. the location of the recipient, if the recipient is a GST registered person;
   2. if the recipient is an unregistered person, the place of supply shall be the place where the goods are handed over for transportation.

2. When location of any supplier or recipient is outside India, the place of supply of transportation of good services as per section 13(9) IGST Act shall be:

• the destination  of  such goods

Practically, all international freight transportation of goods is carried out in association with the associated overseas agents (‘OA’) of domestic freight forwarder (‘FF’)as a part of a global network.

The OA and FF use each other’s services in order to be able to provide last mile delivery in the respective country of operation.

In consideration for such services, invoice is raised on entity receiving the services by corresponding entity for charges in relation to services rendered and an agreed percentage of profit share.

Considering the aforesaid, it is essential to understand the various legs on transaction involved in providing freight transportation service.

 Basis the origin and destination of the transaction, analysis of each transaction from point of view of GST is encapsulated below:

Inward Shipments – Shipments Coming Into India

INWARD SHIPMENT
Type of Shipment	Legs of Transactions	Scope	Taxability Under GST
Delivered Duty Paid (‘DDP’)  (i.e Entire liability discharged by Consignor/ Seller)	a. Between Consignor and Overseas Agent (‘OA’)	Contract for delivery of goods from outside India to factory/ warehouse of consignee in India	Not taxable since both parties are located outside India
	b. Between OA and Indian Freight Forwarder (‘Indian FF’)	Contract to perform  the Indian leg of shipment, on behalf of OA and not the Consignor or Consignee	Section 12(8)(b) of IGST Act shall apply *refer note below
Ex-Works (‘EXW’) ( i.e Entire liability discharged by Consignee/ Buyer)	a. Between Consignee and Indian FF	Contract for delivery of goods from outside India to factory/ warehouse of consignee in India	Taxable u/s 12(8) of IGST Act
	b. Between Indian FF and OA	Contract to perform the origin leg of transaction in the foreign country on behalf of FF and not the Consignor or Consignee	Taxable u/s 13(9) of IGST Act. Tax liability shall be discharged on RCM basis.
Cost- Insurance- Freight (‘CIF’) (Liability of Consignor to deliver the goods till Indian port i.e. port of importation)	a. Between the Consignor and Foreign Freight Forwarder (‘Foreign FF’)	Contract to deliver goods till the port of importation (India), including respective clearance and freight charges	Not taxable since both parties are located outside India
	b. Between Consignee and Indian FF	Contract for transportation of goods from domestic port to the factory/ warehouse of consignee	Taxable u/s 12(8) of IGST Act
Free-on- Board (‘FOB’)             (Liability of Consignor to deliver the goods till Foreign port i.e. port of exportation)	a. Between Consignor and Foreign FF	Contract to deliver goods till the port of exportation	Not taxable since both parties are located outside India
	b. Between Consignee and Indian FF	Contract for transportation of goods from foreign port to factory/warehouse of consignee, including clearance and freight charges	Taxable u/s 12(8) of IGST Act

Outward Shipments – Shipments going Into India

OUTWARD SHIPMENT
Type of Shipment	Legs of Transactions	Scope	Taxability Under GST
Delivered Duty Paid (‘DDP’)  (i.e Entire liability discharged by Consignor/ Seller)	a. Between Consignor and Indian FF	Contract for delivery of goods from India to factory/warehouse of consignee outside India	Taxable u/s 12(8) of IGST Act
	b. Between Indian FF and OA	Contract to perform the foreign leg of shipment, on behalf of FF and not on the behalf of the Consignor or Consignee	Taxable u/s 13(9) of IGST Act. Tax liability shall be discharged on RCM basis.
Ex-Works (‘EXW’) ( i.e Entire liability  discharged by Consignee/ Buyer)	a. Between Consignee and OA	Contract for delivery of goods from India to factory/warehouse of consignee outside India	Not taxable since both parties are located outside India
	b. Between OA and Indian FF	Contract to perform the origin leg of transaction in India on behalf of OA and not the Consignor or Consignee	Section 12(8)(b) of IGST Act shall apply *refer note below
Cost- Insurance- Freight (‘CIF’) (Liability of Consignor to deliver the goods till foreign port i.e. port of importation)	a. . Between the Consignor and Indian FF	Contract to deliver goods till the foreign port of importation, including respective clearance and freight charges	Taxable u/s 12(8) of IGST Act
	b. Between Consignee and Foreign FF	Contract for transportation of goods from foreign port to the factory/warehouse of consignee	Not taxable since both parties are located outside India
Free-on- Board (‘FOB’)             (Liability of Consignor to deliver the goods till Indian port i.e. port of exportation)	a. Between Consignor andIndian FF	Contract to deliver goods till the port of exportation (India)	Taxable u/s 12(8) of IGST Act
	b.Between Consignee and Foreign FF	Contract for transportation of goods from Indian port to factory/warehouse of consignee, including clearance and freight charges	Not taxable since both parties are located outside India
*Note
In respect of transaction performed by Indian FF on behalf of OA, the services are provided to a non-resident entity which would be considered as a non-registered entity. Accordingly, the place of supply of service for unregistered entity will be location where the goods are handed over for transportation i.e. India, provided the air/ocean freight is paid by the OA.Hence, such transaction would be subject to GST.

Frequently asked questions

1) What is the rate of tax on export freight when freight is prepaid in India?

Ans. 5 %.

2) What is the rate of tax on export freight when it is on collect terms?

Ans. Under Sec 13(9) of IGST, this is export of service. So this kind of a transaction is a zero rated supply as per section 16 of IGST Act.

3) What is the rate of tax on THC (Terminal Handling Charges), IHC (Inland Haulage Charges ), B/L Fee’s, and other origin charges when these charges are prepaid?

Ans.  18%.

4) What is the rate of tax on THC, IHC, B/L Fee’s, and other origin charges when these charges are on collect terms?

Ans. 18%

5) What are the tax rates on any charges that are not specified or where SAC /HSN  codes are not present?

Ans. 18%.

6) If shipping line charges freight with breakup such as basic freight, BAF (Bunker Adjustment Factor) i.e. , CAF (Currency Adjustment Factor), etc. as a forwarder can we charge under a single head as freight?

Ans. Yes, it is preferable to do so to avoid disputes with the department later.

7) Should we merge all origin charges such as THC, IHC, B/L Fee, etc into freight and show a single head as freight or lump sum freight or all in charges?

Ans. Basic freight is taxable @ 5% & other charges are taxable @ 18% .

    It may happen to be a case mixed supply as per 8 of CGST Act, So it is not advisable as that tax rate   will be 18% in such case.

         Therefore, it would be better to show freight and other charges separately.

8) GST is not applicable for export freight collect shipments where freight is collected by my overseas agent at the destination but is GST applicable when I raise my invoice on my overseas agent for freight or for my share of the freight that was due to me? Also, at what rate can it be charged?

Ans.  No, as per section 13(9) of IGST Act, if the place of supply of service lies outside India, GST is not applicable.

9) If I handle ex-works export shipment then are charges such as THC, B/L Fee, Customs clearance done in India? Will transport in India, etc. be taxable? Am I supposed to charge my overseas agent tax along with the charges?

Ans.  In respect of transaction performed by Indian FF on behalf of OA, the services are provided to a non-resident entity which would be considered as a non-registered entity. Accordingly, the place of supply of service for unregistered entity will be location where the goods are handed over for transportation i.e. India, provided the air/ocean freight is paid by the OA. Hence, such transaction would be subject to GST.

The government is concerned with revenue, whether you charge your agent and pay or whether you pay out of your pocket it does not matter. As a freight forwarder we have to sensitise our agents to the new taxes, nevertheless, if your overseas agent is reluctant to pay GST, then you have to pay out of your earnings so it’s better to incorporate the GST component in your ex-works charges that you quote to your agents.

10) If GST is applicable on prepaid freight and not applicable on collect freight does this mean that more and more shipments will become FOB?

Ans. Yes, as forwarders speak to your respective associations to find a workable solution and push them to make representations to the government so that situation is reversed.

11) Is GST applicable on export door delivery shipments if the charges are prepaid in India by the shipper? What is the rate of tax?

Ans. Yes, GST is applicable on export door delivery charges at the rate of 18% if these charges are paid in India.

12) Is GST applicable on export door delivery shipments if the charges are on a collect basis and collected by my agent overseas?

Ans. No, as per IGST rule 13(9), this transaction is not taxable.

13) As a freight forwarder, how should I decide if I should charge IGST or SGST/CGST

Ans. The main criteria to decide the applicability of IGST vs SGST/CGST on my invoices raised for Indian customers is the location of the recipient of service. If the recipient of services is in the same state as you are, you have to charge SGST/CGST if the recipient is in a different state, you have to charge IGST.

14) If I use the services of a GTA, am I supposed to pay GST under reverse charge? At what rate? Can I claim ITC on the tax paid?

Ans. Yes, if you use services of GTA for road transport, GST is payable under reverse charge. You can claim the ITC paid after paying the tax to the government.

15) If I am not a GTA and provide services of road transport to my customer, what GST should I charge my customer?

Ans. 18%

16) If I am not a GTA and provide services of road transport to my customer, can I ask my customer to pay under reverse charge?

Ans. No, under such circumstances you cannot ask your customer to pay under reverse charge, it must be under forward charge only.

17) When tax is payable under reverse charge does my tax invoice have to show that customer/recipient of service must pay tax under reverse charge?

Ans. Yes, your tax invoice must always show whether the tax is payable under reverse charge.

18) If my branch office in Delhi (permanent establishment), services customers in Delhi and North India but shipments are from Mumbai, can I choose to not to raise invoices from my Delhi branch on my Delhi customers and instead centralise my billing at my head office in Mumbai?

Ans. No, you cannot centralise your billing in your head office or branch office, you must have a state wise registration with separate GSTIN numbers for each state. If you have a full-fledged branch office in Delhi that services Delhi customers then invoices must be raised by your Delhi office for your Delhi customers. Your Mumbai office, in turn, has to raise an invoice on your Delhi office for services supplied by the Mumbai office to the Delhi office. Alternatively, your Mumbai office is free to raise once a month,  a consolidated statement for services supplied by the Mumbai office to the Delhi office throughout the month.

Your Mumbai office will get to consume the ITC on invoices raised by service providers in Mumbai for freight, THC, etc.

Your Delhi office will get to use the ITC on invoices raised by its Mumbai office, in other words, every branch office in a different state than yours must be treated as a vendor.

19) If I have only one office in Maharashtra, is it mandatory for me to have an office/branch office to handle shipments from let’s say Chennai?

Ans. If you have an office only in one state, it is not mandatory for you to have a branch office in Tamil Nadu to handle shipments from Chennai. Out of your Maharashtra office, you are free to handle shipments out of any location in India.  If the shipment is from Chennai but your customer is located in the same state as you are, i.e. Maharashtra then you have to charge SGST/CGST. If the shipment is from Chennai and your customer is located in Tamil Nadu and you are located in Maharashtra then you have to charge IGST.

20) For import shipments if CFS (Container freight station ) raises an invoice on the customs broker instead of the importer and the customs broker or importer makes payment to the CFS, can this be treated as pure agent concept? Will the importer be allowed to claim ITC?

Ans. No, the importer will not be allowed to claim ITC in this situation. If the CFS raises an invoice on the customs broker, then the customs broker, in turn, must raise an invoice on the importer for the same service.

21) Is there a concept of pure agent/disbursement under GST regime.

Ans. Yes, there is pure agent concept in GST, in the previous example, customs broker must ask the CFS, shipping line, etc. to make the invoice in the name of the importer. Customs broker can pay on behalf of the importer and importer will be able to use the ITC. Since the invoice of the CFS, shipping line, etc., is in the name of the importer, the customs broker cannot claim ITC on this transaction.

It is advisable that you obtain an authorization letter from your customer (once every year) authorising you to customs clearance, transport, pay shipping lines, etc., on their behalf.

21) Are cash expenses, sundry expenses, operations vouchers, sundries paid to operations staff on per job basis, taxable? Are conveyances paid to operations staff to go from one CFS to another CFS taxable? Are labour charges, carting charges, warai charges, loading/unloading charges paid in cash taxable? Is ITC available on these expenses?

Ans. Yes, every transaction is taxable. Cash expenses, customs sundries, operations sundries, labour charges, loading/unloading expenses, operations conveyance, etc, all such expenses are taxable. If the conveyance you give to your staff is a part of salary (appears as a break-up of salary) then they are not taxable but if they are not part of the salary, then all such expenses are taxable. Every company has to maintain an inward supply register for all transactions with unregistered vendors including for cash expenses, sundries, operations sundries, etc.  GST is payable on such supplies on RCM basis. However ITC can be claimed.

The author is a practising CA based in Delhi and is registered Insolvency Professional. He can be reached at [email protected] , Mob. +91 9953587496.