This follows a recommendation of the GST Council that the place of supply of transportation of goods must be determined on the location of the service receiver, rather than on the basis of destination of goods.
Government officials said the move aims to provide tax parity between foreign and Indian shipping lines with regard to integrated GST on transportation of goods by vessels from India to outside India and vice-versa.
Currently, the export freight rate charged by Indian shipping lines to Indian exporters is taxable while freight charged by foreign shipping lines to Indian exporters for transport of goods to a place outside India is not taxable as it is neither an inter-state nor an intra-state supply.
Experts said while the GST paid would be available as a credit to most of the exporters as they can claim a refund, this may impact their cash flow.
India’s exports contracted in January on the back of declining demand in advanced economies.
“The recent change in the place of supply of transportation of goods will remove last mile connectivity costs of overseas exporters and importers for whom this GST was in any case not creditable,” said Bipin Sapra, partner, indirect tax, EY India. A specific clarification that the default rule is operating rule for POS (place of supply) in case of not only transportation of goods but also for courier and mail services will help the industry benefit from this change, Sapra said. Some experts said it will increase tax burden on certain exporter like those dealing in alcohol, which is outside ambit of GST.
“While the desired principle will provide consistency between services of transportation of goods and courier services, the proposal will lead to applicability of tax for export of goods,” said Abhishek A Rastogi, founder of law firm Rastogi Chambers.