Importers worried over service tax on ocean freight

26.01.2017

The new levy of 4.5 per cent service tax on the pre-paid ocean freight has triggered confusion among the importers of commodities such as pulses and wheat.

The import trade is concerned over the 4.5 per cent service tax levy that came into effect from January 22. The new tax will be applicable on all shipments imported into the country based on ocean freight manifested with the payment method ‘prepaid’.

Trade sources said the majority of the contracts for import of commodities such as pulses, edible oils and wheat, among others, are entered into on a basis of cost and freight (C&F) or cost, insurance and freight (CIF). In such cases, the ocean freight is paid by the exporter.

“Most of the edible oil import contracts are done on a C&F basis and the seller is taking care of freight and other things,” said BV Mehta, Executive Director of the Solvent Extractors Association of India (SEA). India is among the major buyers of edible oils and the imports.

Now that a service tax of 4.5 per cent has been levied on imported ocean freight, the question is who will bear the additional tax burden. “The levy of service tax is still a tricky issue and it is still not clear as to how it would work. There is a lot of confusion,” a Delhi-based trade analyst said.

A section of importers said that they have contracted on C&F or CIF basis, which means it is not for them to bear the additional tax levy, while others felt the additional burden is likely to be marginal and could easily get absorbed.

A commodity trade expert said importers may have to pay the additional tax here and recover it later from their overseas suppliers.

India is the largest buyer of pulses and imports over 50 lakh tonnes to meet the shortfall in domestic supplies. Vegetable oil imports stood at 14.74 million tonnes in oil year ending October 2016, a growth of 45 per cent over the past five years. Similarly, the wheat imports in the current financial year were expected to be over 4 million tonnes.


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