MoF issues Notifications and Circular for services relating to transportation of goods by vessel

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1 19 April EY Tax Alert MoF issues Notifications and Circular for services relating to transportation of goods by vessel Executive summary Tax Alerts cover significant tax news, developments and changes in legislation that affect Indian businesses. They act as technical summaries to keep you on top of the latest tax issues. For more information, please contact your EY advisor. This Tax Alert summarizes three ST Notifications No 13-15/, CE(NT) Notification No 10/ and Circular No 206/4/-ST all dated 13 April issued by Ministry of Finance in relation to services provided by one person to another, both located in non-taxable territory, by way of ocean transport from a place outside India to the customs station in India. Amendments have been made under various provisions as follows: Service Tax Rules, 1994 (ST Notification 13/) Point of Taxation Rules, 2011 (ST Notification 14/) Reverse charge mechanism (ST Notification 15/) CENVAT Credit Rules, 2004 (CE Notification 10/) Key changes notified in relation to aforesaid services are as under: With effect from 23 April, person liable to pay service tax shall be the importer as defined under section 2(26) of Customs Act, 1962 instead of the person in charge of the vessel. An alternate mechanism has been provided for paying Service tax at 1.4%, Swachh Bharat Cess at 0.05% and Krishi Kalyan Cess at 0.05% of CIF value of imported goods (total effective rate of 1.5% of CIF value). Such option can be exercised retrospectively from 22 January. With effect from 22 January, the point of taxation shall be the date of bill of lading of such goods in the vessel at the port of export. Importer of goods shall be allowed to avail CENVAT credit on the basis of service tax payment challan.

2 Background Exemption to services provided by a person located in non-taxable territory to another person also located in nontaxable territory by way of transportation of goods by a vessel from a place outside India to the customs station in India was withdrawn w.e.f 22 January 1. Vide ST Notification No. 2-3/-ST both dated 12 January, the person in India who complies with sections 29, 30 or 38 read with section 148 of the Customs Act, 1962 i.e. person in charge of the vessel was notified as the person liable to pay service tax. Several representations were made seeking clarification on levy of service tax on such service. Consequently, certain amendments have been made w.r.t said service vide Notification No 13-15/ ST, Notification No 10/-CE (N.T.) and Circular No 206/4/-ST all dated 13 April. Amendment in ST Rules (ST Notification No 13/) Importer as defined under section 2(26) of Customs Act, shall be the person liable to pay service tax w.r.t service of transportation of goods by sea provided by a foreign shipping line to a foreign charterer for goods destined to India. The above amendment is effective from 23 April. aforementioned service has also been prescribed. Importer can pay service 1.4% of the sum of cost, insurance and freight (CIF) value of imported goods. Additionally, Swachh Bharat Cess ad Krishi Kalyan cess will be calculated and paid accordingly i.e. each at the rate of 0.05% of CIF value of imported goods. Thus, effective rate of service tax shall be 1.5% of CIF value of imported goods. The optional method of discharging service tax can be exercised retrospectively from 22 January. It is clarified 3 that the condition for availing exemption under Sl No 10 of ST Notification No 26/2012 dated 20 June is not fulfilled by the foreign shipping lines. Accordingly, benefit of conditional exemption will not be available to them and service tax will be paid on full value of services. Thus, the amount of service tax payable under the option provided has been prescribed accordingly. Amendment in PoT Rules (ST Notification No 14/) With effect from 22 January, point of taxation w.r.t service of ocean transportation provided by a foreign shipping line to a foreign charterer for goods destined to India shall be the date of bill of lading of such goods in the vessel at the port of export. Further, an alternate mechanism for calculating and paying service tax for the 1 Vide ST Notification No 1/ dated 12 January 2 "Importer", in relation to any goods at any time between their importation and the time when they are cleared for home consumption, include any owner, beneficial owner or any person holding himself out to be the Importer 3 Vide Circular No 206/4/-ST dated 13 April 4 Abatement of 70% of value of services of transportation of goods in a vessel is available subject to non availment of CENVAT credit on inputs and capital goods used for providing the taxable service.

3 It is clarified 5 that where the bill of lading is of date prior to 22 January, service tax shall not be leviable. Amendment in Notification relating to reverse charge mechanism (ST Notification No 15/) Consequent changes have been made in Reverse charge Notification No 30/2012 dated 20 June 2012 to provide that importer as defined under section 2 (26) of Customs Act, shall be the person liable to pay service tax with respect to such service. The above amendment is effective from 23 April. Thus, only for the period during 22 January to 22 April, person in charge of the vessel will be liable to pay service tax. Amendment in CENVAT Credit Rules (CE Notification No 10/) Comments Amendments to service of inward ocean freight shall relieve the person in charge of the vessel from service tax burden, which was becoming a cost. Shifting the liability on the importer will facilitate credit availment, resulting in cost reduction. Retrospective amendment to point of taxation rules may result in additional interest liability where service tax is not paid as per the date of bill of lading. In cases where bill of lading is prior to 22 January but service tax is paid, the possibility of claiming refund may have to be examined. Definition of Input service under section 2(l) is amended. Input service inter alia means services provided and received by a person located in non-taxable territory by way of ocean transportation from a place outside India upto the customs station of clearance in India where service tax is paid by the manufacturer or output service provider being importer of goods and the imported goods are his inputs or capital goods. Further, importer of the goods has been allowed to avail CENVAT credit after service tax on such service is paid on the basis of payment challan. The above amendments are effective from 23 April. 5 Vide Circular No 206/4/-ST dated 13 April 6 "Importer", in relation to any goods at any time between their importation and the time when they are cleared for home consumption, include any owner, beneficial owner or any person holding himself out to be the Importer

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