GST on Ocean Freight of Export and Import
1. Introduction
Ocean freight — movement of goods by sea — is a material element of international trade. Under GST law, freight is a supply of service and its taxability depends on the contractual terms (CIF/FOB), place of supply rules, and whether the supplier/recipient are located in India. Over recent years the law and notifications evolved, and judicial intervention clarified key anomalies (notably on CIF imports). This note summarises the position and practical action points for traders and logistics providers.
2. What is ocean freight — basic concepts
Ocean freight is the transportation service performed by shipping lines and freight carriers. It is typically invoiced under shipping contracts and governed by Incoterms such as CIF (Cost, Insurance & Freight) and FOB (Free on Board). The allocation of payment responsibility under these terms determines who the service recipient is for GST purposes and therefore who is liable to pay GST or face RCM obligations.
3. Legal framework
Relevant statutory touchpoints include definitions of recipient (Section 2(93), CGST Act), taxable supply (Section 7, CGST Act), import/export of services (IGST Act) and the RCM list under Section 5(3) of the IGST Act. Notifications (eg. Notification Nos. 8/2017, 10/2017, 11/2017 and later corrigenda) and subsequent Finance Act amendments shape the precise place-of-supply and rate outcomes for freight services.
4. GST on Export Ocean Freight (Outbound)
Export freight is treated as an export of service when the service provider or recipient meets export conditions. Chronology: a temporary exemption applied up to 30-Sep-2022; from 1-Oct-2022 export freight became taxable. Exporters may now face two choices: pay 5% (without ITC) or pay 18% and claim ITC, subject to export conditions and documentation (LUT, BRC/FIRC etc.). Place of supply rules and the supplier/recipient locations determine whether IGST or CGST+SGST applies.
5. Export Scenarios — practical matrix
The tax outcome depends on shipping line location and recipient location. In summary:
| Shipping Line | Recipient | Place of Supply | Tax Outcome |
|---|---|---|---|
| Indian | Indian exporter | Outside India | IGST / taxable (post-Oct-2022) |
| Foreign | Indian exporter | Outside India | RCM if exporter pays; may be export of service if conditions met |
| Indian | Foreign recipient | Outside India | Zero-rated if export conditions satisfied |
| Foreign | Foreign recipient | Outside GST scope | No GST |
6. GST on Import Ocean Freight (Inbound)
Import GST treatment historically sparked major debate. Two common trade terms matter:
- CIF: Freight paid by foreign exporter. Earlier, notifications treated freight as taxable under RCM and applied IGST @5% on deemed freight (10% of CIF when actual freight unknown). This created double taxation as customs valuation already included freight for IGST on import.
- FOB: Freight arranged/paid by Indian importer — importer is recipient and may be liable to pay GST (forward charge or RCM depending on supplier).
7. CIF vs FOB — who bears GST?
Under CIF terms the foreign seller arranges and pays freight. The Indian importer is not the recipient of the freight service (per Section 2(93), CGST Act) and therefore historically should not have had RCM liability. Under FOB, the importer is clearly the recipient and bears GST responsibilities.
8. Historical notifications & deemed freight value
Notification regimes (eg. 8/2017, 10/2017 IGST) included deemed valuation rules — if freight was not separately known, freight was treated as 10% of CIF for calculation. This created practical difficulties and charges appearing twice (customs IGST on CIF and RCM GST on freight) — a principal cause of litigation and policy correction.
9. Post-judgment & current practical position
Following judicial clarity (Supreme Court rulings) importers under CIF terms are not required to pay separate GST on ocean freight under RCM. The practical result: IGST on CIF at import remains the primary GST event; separate RCM on freight (for CIF) is not chargeable. However, some businesses voluntarily paid GST historically to secure ITC; reconcile your position with counsel if uncertain.
10. Import scenarios matrix (summary)
| Trade Term | Who Pays Freight | Recipient | GST Liability |
|---|---|---|---|
| CIF | Foreign exporter | Foreign exporter | No RCM on importer (per SC); IGST on CIF at customs |
| FOB | Indian importer | Indian importer | GST payable by importer (IGST/RCM or forward charge) |
11. Freight forwarders: principal vs agent
Freight forwarders often re-invoice freight. Tax consequences hinge on whether they act as principal (supply by forwarder — GST on invoice) or as pure agent (reimbursement — not taxable). Clear contractual terms and accurate invoicing are essential to avoid unintended GST charges or disallowance of ITC.
12. Input Tax Credit (ITC) implications
When GST is charged on freight (eg. Indian carrier for FOB imports), the importer or recipient may claim ITC subject to normal availability and blocked credit rules. For CIF imports where RCM on freight is not charged, ITC on freight does not arise. Maintain reconciled invoices, B/L and customs documents to support ITC claims.
13. Practical compliance checklist
- Classify each international sale/purchase as CIF or FOB in contracts.
- Retain Bills of Lading (MBL/HBL), freight invoices, contracts and FIRC/BRC (for exports).
- Document freight forwarder role (principal vs agent) clearly in agreements and invoices.
- Reconcile customs CIF values with GST reporting to avoid duplicate taxation.
- When in doubt, obtain professional advice or pay under protest and claim ITC/refund as appropriate.
14. Sectoral & practical impact
Importers benefit from reduced compliance costs and certainty on CIF imports. Exporters face the choice of 5% (no ITC) or 18% (with ITC) for export freight post-Oct-2022. Freight forwarders and shipping lines must ensure correct invoicing and GST treatment to enable recipients to claim appropriate credits. Indian carriers must account and charge GST correctly when supplying services to domestic importers under FOB.
15. Ongoing caution areas
Watch for edge cases: multimodal transport contracts, transhipment, re-invoicing by forwarders, and scenarios where freight is bundled with other services. Maintain reconciliations between customs, GST returns and accounting records. Monitor notifications or clarifications from CBIC as the law in this area has evolved.
16. Conclusion
GST treatment of ocean freight has matured: CIF imports generally escape separate RCM on freight (judicial clarity), exports are taxable post-Sept-2022 with options on rate/ITC, and FOB imports lead to direct GST obligations on the importer when an Indian carrier or domestic arrangement exists. Careful contract drafting, accurate documentation, and timely reconciliation remain the cornerstone of correct GST compliance for cross-border shipments.