Date: 10 th April 2017. Mr. J.M. Kennedy, ADG DGRI Working Group - PDF document

Date: 10 th April 2017. Mr. J.M. Kennedy, ADG DGRI Working Group – Transport and Logistics – GST. Sir, Sub .: GST – Air / Sea Cargo – Freight Forwarding – Customs Broking – Multimodal Transportation 1. Background 1.1 Federation of Freight Forwarders’ Associations in India (FFFAI) is the Apex Body and the sole representative of 27 member associations from all over India representing 5000 customs brokers and directly connected with freight forwarding shipping and commerce. 1.2 Air Cargo Agents Association of India (ACAAI) comprising of 600 members and engaged in the business of facilitating air cargo and also on a principal to principal basis engaged in the business of freight forwarding and issue of air transport documents. 1.3 Association of Multimodal Transport Operators of India (AMTOI) comprising of 250 members, who are issued a license by the Director General of Shipping under the Multimodal Transportation of Goods Act, 1993 and engaged in the business of multimodal transport of goods. 1.4 Consolidators Association of India (CAI) is the Association of Consolidators on all India basis who are Multimodal Transport Operators (MTOs) primarily specializing as a principal carrier in the carriage of freight on Less Container Load (LCL) basis. 1.5 Currently, in respect of freight forwarding in the air / sea cargo segment there is no service tax based on Rule 10 of the Place of Provision of Service Rules, 2012 which provides that the place of provision of service in respect of transportation of goods other than by way of mail or courier to be the place of destination of the goods. 1.6 In the freight forwarding segment involving air / sea cargo pertaining to export of goods from India, the place of destination is outside India and Page 1 of 14

consequently service tax is not payable. This view is also confirmed by Para No.5.9.6 of the CBEC, Education Guide; vide Circular No.197/7/2016 dated 12.08.2016 and by a number of decisions. 2. GST 2.1 ACAAI, FFFAI and AMTOI would like to first congratulate the Government of India for implementing the historic tax reform of GST and all our association fully support the Government in its endeavour to rationalize and harmonize the indirect tax landscape in the country. We are also very glad that the Government has constituted working groups to address issues for specific sectors. 2.2 We in the logistic sector have some serious issues identified based on the CGST / IGST law passed by the Lok Sabha which can affect our operations, business, exporters, export and the country in general. 2.3 In freight forwarding and international transportation of exim cargo and related services, we are worried to note that the GST Law contemplate levy of GST on international transportation as well as freight forwarding which is at variance with the GST provisions in other countries. 3. IGST – Place of Supply 3.1 Section 12 of the IGST Act is applicable for place of supply of services when the location of supplier and location of recipient of services is in India. 3.2 Section 12(8) of the IGST Act reads as under:- “ The place of supply of service by way of transportation of goods, including by mail or courier to, (a) a registered person, shall be the location of such person; (b) a person other than a registered person, shall be the location at which such goods are handed over for their transportation. 3.3 These provisions are at variance to the provisions in the Place of Provision of Service Rules, 2012 and in effect would completely paralyze Page 2 of 14

exports and would result in export of tax along with the goods which goes completely against the concept of not taxing exports. Currently there is no service tax on air freight or sea freight in the export segment and imposition of GST would completely cripple the entire logistic sector. 3.4 In the air segment, all airlines have registration in India and when a freight forwarder purchases an air freight slot from the airline, the tax would move from zero to the GST rate on services. 3.5 The GST provisions have the following limitations and can completely defeat and negate international transportation of cargo as evident:- S. T RANSACTION E XISTING GST L AW C OMMENTS N O . 1. Air / Sea / Land Rule 10 of the Place of Section 12(8) of the (i) GST becomes transport – Provision of Service IGST Law in the applicable on freight Freight Rules provides that the context of place of forwarding even forwarding – place of provision of supply of services by though currently Export Cargo service of transportation way of transportation of there is no service of goods other than by goods including by mail tax. way of mail or courier or courier shall be the (ii) GST may become shall be the destination location of the applicable on of the goods. registered person when airlines / liners even provided to a registered though currently person and location there is no service where the goods are tax. handed over for their (iii) The GST will only transportation, when be passed on to the provided to a person exporter and would other than a registered make the exporter person. even more uncompetitive thereby defeating the objective of GST itself. 2. Air / Sea / Land Originally Section Section 12(8) of the (i) GST becomes Transport – 66D(p) specified service IGST Law in the applicable on Freight by way of transportation context of place of freight forwarding Page 3 of 14

Forwarding – of goods by an air craft supply of services by even though Import Cargo from a place outside way of transportation of currently there is no India upto the customs goods including by mail service tax on this station of clearance in or courier shall be the segment except in India in the Negative location of the respect of import by List. Subsequently from registered person when sea. 01.06.2016, the provided to a registered (ii) GST becomes provision was deleted person and location applicable on the but exemption was where the goods are importer when granted through Entry handed over for their payment is made 53, Notification transportation, when directly to the No.25/2012 which provided to a person airline / liner as the exempts services other than a registered transaction would person. provided by way of be an import of transportation of goods service by an aircraft from a (iii) GST would result place outside India upto in additional burden the customs station of and increase in cost clearance in India. for the importer since the freight already forms part of value and attracts customs duty. 3.6 International Freight whether ocean or air or land is considered as part and parcel of the value of goods and attracts custom duties. The Customs Valuation Rules, 2007 are based on WTO Valuation Rules and in terms of Rule 10(2), value shall include cost of transport of the imported goods to the place of importation . Further, the cost of transport of imported goods also includes ship demurrage charges on chartered vessels, lighterage or barge charges. Therefore, levy of GST on the import cargo segment would also result in double taxation since on the entire freight; customs duties are being levied under Section 14 of the Customs Act read with the Customs Valuation Rules. 3.7 There is another issue that affects the Indian freight forwarding community. When a foreign buyer engages an airline / liner registered in India, for export of goods from India directly, by virtue of Section 13, GST is not applicable. Where a foreign freight forwarder engages an airline / liner, registered in India for export of goods, by virtue of Section Page 4 of 14

13, GST is not applicable. This would mean loss of business to Indian freight forwarders and to the Country. 4. International practice 4.1 India is implementing GST on the ground that nearly 200 countries of the world have GST in one form of other. It has been reiterated by the Government from time to time that GST would only bring down the cost; benefit logistics; make the supply chain efficient and create a huge market and over all contribute to the GDP growth in the country. However, the Model Law indicates a levy of GST on international transportation that does not exist in other countries which have implemented GST. 4.2 In India logistics cost is much higher than developed countries as a ratio of GDP and GST will only further blunt our competitive edge globally. (In developed countries logistics cost is around 5% – 8% while in India it is about 13%). 4.3 Internationally there is no levy of VAT or GST on international transportation of goods by air or sea or land or on freight forwarding or on related services. 4.4 Singapore GST provides for the following:- Services provided for transporting or arranging transport of goods are international services and are zero rated where the transport by air/land/sea. � From outside Singapore to another place outside Singapore. � From a place in Singapore to a place outside Singapore. � From a place outside Singapore to a place in Singapore. 4.5 A freight forwarder who ships goods for a customer from Singapore to overseas and also transport the goods from the customer warehouse to Singapore port for export can zero rate the entire transportation services. Page 5 of 14