Transportation service by vessel/aircraft for export of goods taxable w.e.f. 1-10-2022.

In section 12(8) of IGST Act, 2017, a proviso has been inserted w.e.f. 1-2-2019 vide amendment in IGST Amendment Act, 2018 (NN:1/2019-ITR) which states that where the transportation of goods is to a place outside India, the POS shall be place of destination of goods. Since the POS is outside India, as per section 7(5)(a) shall be treated as interstate supply and hence, IGST is to be levied.

GST in case of transportation of goods in a vessel is taxable @5% subject to the certain conditions restricting ITC. Likewise, on transportation from aircraft, GST is 18% with ITC.

However, exemptions from GST have been given from time to time on transportation service by aircraft/vessel from India to outside India, vide NNs

*2/2018 dated 25-1-2018 - exempt till 30-9-18

*14/2018 dated 26-7-2018 - exempt till 30-9-19

*21/2019 dated 30-9-2019 - exempt till 30-9-20

*4/2020 dated 30-9-2020 - exempt till 30-9-21

*7/2021 dated 30-9-2021 - exempt till 30-9-22

Accordingly, as POS vis a vis exemptions are in different lanes, and hence, exemption sunsets on 30-9-2022, making the service taxable.

It can be observed that even though the amendment in POS provisions was made vide 1/2019 ITR dated 29-1-2019 w.e.f. 1-2-2019, but still exemptions notifications continued to be issued even after 2019, in 2020 and 2021 giving exemptions till 30-9-2022. Hence, it appears, service becomes taxable w.e.f. 1-10-2022.

Considering section 171 of the CGST Act dealing with anti-profiteering provisions with the sunset of exemptions, the service providers can now avail the ITC which couldn’t be claimed earlier, accordingly, necessary tweaks in the rates charged by transporters will be required besides charging GST @5% on ocean freight by adhering to the certain restrictions on ITC and 18% on air freight. Further, the exporters need to timely apply for refunds and if such refunds get disbursed timely then then alone would the lifting of exemption serve its purpose which is to rationalize the tax structure and avoid cascading of taxes by reducing exemptions.

However, the dilemma which arises is that the place of supply in the instant case would have to be selected as “other territory” (code 97) whereas the recipient’s location would not be “other territory”. Though there is no explicit bar on the recipient availing credits of IGST paid under the provisions of the GST laws if the place of supply is not shown as the recipient’s State yet challenges may arise in taking refunds from the State as the POS in such cases is not the recipient’s State. This anomaly may require a revisit to the provisions of proviso to section 12(8) of the IGST Act, 2017 restoring the POS as the location of the registered recipient to iron out the issue that may arise in claiming refunds and to avoid working capital blockage of exporters.

Needless to say, exporters exporting goods on which exports duty is levied for whom refunds is not available needs to think about the pricing rejig. The move would bring transport service providers at par with the courier service providers providing outbound international freight services w.e.f. 1st October, 2022.

Though the exemptions sunsets, yet it is important to note that idea of inserting proviso to section 12(8) was to provide a level field playing to the domestic transportation companies and promote export of goods with the intention to levy no GST but inherently IGST gets levied as the same cannot be classified as export of service since the service recipient is located in India itself. It was therefore that exemptions were given from time to time.