The Indian Government Ministry of Finance has recently notified further amendments to its
Service Tax Rules 1994 – referring to amendments initially announced with notification No.
30/2012 – Service Tax.
These amendments are referred to as the “Service Tax (Amendment) Rules, 2017” and came
into force on 22 January 2017 – only 10 days after publication and with too little time for the
trade to react and deal with any changes.
The Service Tax under this rule is an indirect tax levied on services as specified by the Finance
Act. The current amount of the Service Tax is 4,5%. Import freight charges have been subject
to Service Tax for all collect shipments since June 2016, with freight prepaid shipments being
With the current “Service Tax (Amendment) Rules 2017”, the exemption for freight prepaid
shipments is withdrawn making them also subject to Service Tax. Whilst the rule says that the
provider of the service is responsible for paying the Service Tax, the rule also allows the
recipient of the service to pay for the Service Tax.
Most Shipping Lines have announced that they would start charging the 4,5% Service Tax on
freight to India at origin from the shipper for freight prepaid shipments.
The FIATA Working Group Sea has studied the situation at some length and reached the
The mentioned amendments have been announced on 12 January 2017 and came
into force as of 22 January 2017. This short notice is unreasonable as it does not allow
the trade to prepare or comment.
2. The logic of indirect tax
The Service Tax is supposed to be collected by the service provider who is recovering
the amount from the service recipient. In the context of international freight, both the
shipper as well as the consignee can be considered as recipient of the services.
However, a taxable person who is part of the tax regime, pays Service Tax and can
use it as tax credit in the form of CENVAT credit. The trader who is established in the
territory can recover the taxes paid. This is not possible for a person outside of the tax
3. Legal Jurisdiction
The Service Tax is imposed by the Indian Government and should be collected from
persons that are part of the Indian tax regime. It is unreasonable to use foreign entities
that are not part of the tax system to collect taxes at a place that is not part of the tax
regime territory. There is legitimate question on the fact that such procedure is
compatible with international accounting standards and practice.
4. Service Tax must be collected from the consignee
Having concluded the above and due to the fact that the rule allows for the consignee
to pay for the taxes, FIATA Working Group Sea believes it is unreasonable to collect
a tax from a foreign person who is not part of the Indian tax regime. Instead it is
recommended that the Service Tax be collected at destination, in India and from the
consignee who is party to the Indian tax regime and could offset the same as per local
regulations available to him/her.
FIATA recommends its members to lobby their Government and relevant authorities along the
above mentioned lines and refuse to pay the Service Tax to shipping lines. In fact, there are
shipping lines that have already agreed to collect the Service Freight on prepaid shipment to
India at destination. Rather than simply trying to collect the taxes from the shipper, shipping
lines should communicate with the Indian Government in order to seek clarification.
The FIATA Secretariat.