Applicability of GST on Ocean Freight

Moving goods across oceans involves complex logistics and equally important tax rules. Under Indian law, GST on ocean freight is levied to ensure fair taxation in international trade. For imports, the importer bears GST under the reverse charge mechanism, while for exports, freight attracts GST with an option to claim input tax credit if applicable. This article will provide you with detailed information on the GST on ocean freight of export and import.

What is Ocean Freight Under GST?

Ocean freight refers to the cost of transporting goods by sea from one country to another. Under GST, it is treated as a service and the responsibility to pay tax lies with the importer through the reverse charge mechanism. For exports, freight is also taxable, but exporters can claim input tax credit if applicable. These provisions ensure fair taxation, maintain transparency in international trade, and prevent any revenue leakage while keeping shipping services aligned with India’s GST framework.

Which are the Sections of the GST Laws Governing Ocean Freight?

Let us discuss the key GST provisions for ocean freight in India:

1. Ocean Freight as a ‘Supply’ (Section?7, CGST Act)

Under GST, ocean freight counts as a service, as it involves transporting goods across borders. This makes it eligible for tax when the transaction involves the supply of transport services, even between countries

2. Reverse Charge Mechanism & Recipient Rules (Section?5(3), IGST Act)

When the importer pays the freight (like in FOB contracts), GST must be paid by the recipient (importer) under the reverse-charge mechanism

3. Place of Supply Rules: Destination-Based (Sections?12 &?13, IGST Act)

GST on freight depends on where the service is used:

• Section?12(8): For registered importers, the place of supply is their location.
• Section?13(9): For other shipments, it’s the destination port

4. RCM Notification for Imported Services (Notification?10/2017–IGST Rate)

The government’s notification said that goods freight from overseas to India falls under reverse-charge GST, making importers responsible

5. Value Determination for Unpriced Freight (Notification?8/2017–IT Rate)

If the importer doesn’t have a freight invoice, GST value is treated as 10% of the CIF (cost, insurance, freight) value, ensuring tax is applied even without separate billing

6. Supreme Court Ruling in Mohit Minerals Case (Department vs Mohit Minerals, 2022)

The Supreme Court decided that when the freight is part of a CIF contract already taxed under customs duty, imposing extra GST is double taxation. Hence, freight charges under CIF imports have been exempt from GST since October 2023.

Import of Goods on CIF Value Vs Import of Goods on FOB Value

The following details include the import of goods on CIF value vs the import of goods on FOB value:

CIF (Cost, Insurance, Freight) Imports

• No separate freight charge: When goods are imported under CIF terms, the seller (exporter) pays for shipping and includes this cost in the invoice.
• Importer is not the freight recipient: Since the supplier arranges and pays for shipment, the importer doesn’t directly receive freight service as per Section?2(93) of the CGST Act, so no GST under reverse charge is due.
• IGST paid once at customs: Customs duty (including IGST) is assessed on the total CIF value, which already covers freight. Charging separate GST again would mean double taxation, ruled unconstitutional by the Supreme Court in Mohit Minerals (May 2022)
• Practical outcome: Importers on CIF need not pay additional GST on freight under RCM, protecting them from extra tax burden

FOB (Free on Board) Imports

• Importer pays freight separately: With FOB terms, the buyer (importer) arranges shipment and directly contracts and pays the shipping line.
• Importer is the service recipient: GST is due under reverse charge, since the importer receives and pays for the service.
• Tax treatment: If the shipping line is non-Indian, the importer pays IGST under reverse charge. If the service provider is located in India, GST is charged normally (forward-charge) by the supplier.

Gujarat High Court Judgement Explained

Mohit Minerals imported coal into India on CIF terms, meaning the exporter arranged and paid for ocean freight. Indian customs duty included freight. Later, authorities insisted Mohit Minerals must also pay IGST on freight under reverse charge, leading to possible double tax.

High Court Verdict

• Notification Invalid: The court ruled the government’s list making importers responsible for freight tax (Notification?10/2017 entry 10) was not valid under Section?5(3) of the IGST Act, as the importer was not the freight service recipient.
• No Double Tax: Since customs duty already includes freight, GST on it again would be double taxation, which is unconstitutional.
• Territory Rule: Both supplier and importer were overseas, so the service took place outside Indian territory and fell outside IGST law.
• Service Recipient: Freight service was from the exporter to the foreign shipper, not the importer. The importer had no contract or payment with the shipping line, and thus not liable.

Supreme Court Confirmation

In May 2022, the Supreme Court upheld the High Court’s decision: no IGST on ocean freight under CIF terms. It recognised freight as part of the composite supply of goods and therefore covered by the customs IGST already paid.

It reinforced that taxing the single freight element separately violates Section?8 of the CGST Act's “composite supply” rule.

GST on Ocean Freight of Export and Import

Let us discuss the GST applicability on the ocean:

• Ocean Freight as a Taxable Service: Ocean freight is treated under GST as a service for both imports and exports. This aligns shipping costs with India’s broader tax framework for services.
• Export Freight GST Rules: Previously, exports of freight were exempt?until mid?2022. Now, exported ocean freight is subject to IGST, typically at 5%, unless structured to allow input tax credit.
• Import Freight & Reverse Charge Mechanism: On imports, the importer usually pays GST under Reverse Charge, especially if the freight provider is overseas. In this case, the importer is responsible for tax, not the shipper.
• Zero GST on CIF Contracts: Thanks to the Mohit Minerals case (Supreme Court, May 2022), GST is not charged twice on freight included in the CIF value. Customs duty already covers that freight, making additional GST illegal.
• FOB Freight Remains Taxable: For FOB imports, where the importer pays or arranges freight, GST applies, either via reverse charge if the service is from abroad, or via forward charge if an Indian supplier is involved.
• Place of Supply Rules Updated: Since October 2023, the place of supply for freight aligns with the recipient’s location, not just the destination port, keeping IGST or CGST/SGST consistent with the recipient territory.
• Refunds on Erroneous GST Payments: Importers who wrongly paid GST under RCM on CIF freight can claim a refund. Courts confirmed that refunds can be claimed beyond normal time limits, citing constitutional and statutory grounds.

The rules on GST for ocean freight strike a balance between fair taxation and avoiding double charges. By differentiating CIF and FOB imports, clarifying reverse charge mechanisms, and ensuring refunds for wrongful payments, these laws simplify compliance for businesses and protect importers from unnecessary tax burdens. With the Supreme Court’s Mohit Minerals ruling, transparency in global trade has improved, making India’s GST system more business-friendly and aligned with international practices. In this blog, you learned about the GST on ocean freight of export and import. To get assistance in filing a GST registration from professional experts, contact Online Legal India.

FAQ

1. Is GST applicable on ocean freight for imports?

Yes, GST applies on ocean freight for imports under FOB terms via reverse charge. For CIF imports, no GST is payable due to the Mohit Minerals Supreme Court ruling.

2. Does GST apply on ocean freight for exports?

Yes, ocean freight for exports attracts IGST. Freight providers can charge 5% without input credit or 18% with credit eligibility.

3. What is the difference between CIF and FOB for GST on ocean freight?

In CIF, the exporter pays freight, so the importer isn’t liable for GST. In FOB, the importer arranges freight and must pay GST.

4. What is the reverse charge mechanism for ocean freight?

Under reverse charge, the importer pays GST directly for freight services provided by overseas shipping lines instead of the supplier collecting it.

5. Can importers claim refunds on wrongly paid GST for CIF freight?

Yes, importers who mistakenly paid GST on CIF freight can claim refunds, as charging GST twice is unconstitutional.