The Fitment Committee, comprising of state and centre revenue officials has deferred its decision regarding Goods and Services Tax (GST) compliance issues for Foreign Shipping Lines (FSLs) in India.
The committee has sought more rigorous data collection and a comprehensive examination on the ongoing investigations initiated by the Director General of GST Intelligence (DGGI).
The DGGI claims that such shipping lines are liable to pay GST under the Reverse Charge Mechanism (RCM) for services received from their head offices based outside India, including expenses related to vessel leases, repairs, and other maintenance activities conducted overseas.
FSLs, which operate global shipping businesses across international trade lanes, do not have a physical presence in India. Instead, they appoint agents for compliance purposes in the country. All contracts, including those with Indian customers, are entered into by their overseas entities, and the business is run through their offices, vessels, and personnel located outside India.
These foreign shipping lines have registered under Indian GST laws to discharge taxes and avoid the complications of RCM, ensuring that Indian customers are not required to pay tax on their behalf.
However, FSLs argue that the GST provisions under Explanation 1 and 2 of Section 8 of the IGST Act, 2017, do not apply to them, as they do not have an establishment in India. They contend that their Indian registration does not qualify as a “natural” or “juridical” person for tax purposes. As per the FSLs, since a legal entity cannot contract with itself, there is no supply of goods or services that should attract GST.
The DGGI, however, asserts that under Section 7(1) (c) of the CGST Act and Schedule I, services provided by the foreign head offices to their Indian entities must be considered taxable, even if provided without consideration. The investigation focuses on various costs incurred by the FSLs, such as leasing of vessels and repairs, which are treated as taxable under Indian law.
Despite the ongoing investigations, some relief has been provided by Circular No. 210/4/2024-GST, which states that where full input tax credit is available, the value of such services may be declared as nil. This circular offers foreign shipping lines some relief from immediate tax burdens, but a full-fledged decision will take time, and may have to be waited for until year end.
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