The Goods and Services Tax (GST) is in. One of the sectors affected by it is the shipping industry. In fact, freight and logistics and shipping are the center of the law. GST contains extensive provisions for State Goods and Service Tax (SGST); Central Goods and Service Tax (CGST); Integrated Goods and Service Tax (IGST) and other factors connected with supply of goods and services, time and place of supply, input tax credit, valuation, and provisions of transition. Exports are zero-rated supply while imports are charged at the same rates as those on domestic goods and services, sticking to the destination principle.

Understanding GST provisions for shipping industry of India

Currently, if goods are transported as cargo through ships, outbound shipment is considered exports, whereas inbound shipments attract service tax. If transportation is through air, inbound and outbound shipments are not subject to service tax. Tax liability, connected with ancillary items like warehousing, cargo handling, and terminal charges are determined based on taxability of principal service.

Since GST does not specify exclusion for air compared to ocean freight, transactions, when place of supply is inside taxable territory, would be levied with air and ocean freight charges with respect to GST.

“Thus converting logistics and freight forwarding into a supply of services, which includes movement of goods by sea, inland waterways, air, rail, or road. GST on freight depends on whether transportation is national or international,” says Shashank Dixit, CEO, Deskera, a cloud-based business software provider

Moreover, while considering domestic freight, transportation needs to happen from a place in India to another place in the country. Basically, both points of origin and destination have to be in India. On the contrary, International freight rules are applied when transportation takes place and when either place of origin or place of destination or both are outside India.

So, impact is in provisions of ‘Place of Supply’ to determine taxability of cross-border and within-state transactions. According to GST provisions, Place of Supply for transportation is defined as follows: (a) location of recipient if recipient is GST-registered entity; and (b) if recipient is unregistered entity, place of supply deemed as place where goods are given over for transportation.

It remains to be seen how the shipping and logistics sector adapts to the new changes brought about by the GST. Although there are concerns that the sector might be adversely affected.