India to levy service tax on freight for imports on delivered basis

January 31, 2017
India to levy service tax on freight for imports on delivered basis 
Excerpt & CIFFA 
Several ocean carriers in North America and Europe have issued notices related to a new tax on “prepaid ocean freight services” to India.
There is considerable confusion on whether or not a carrier could collect an Indian government tax from a foreign origin shipper on prepaid freight. And there is considerable confusion on how this might impact various terms of sale such as the “C” terms, where prepaid ocean freight charges are presumptively in the cost of the goods. 
As per the advisory issued by the Government of India,   prepaid ocean freight and related charges which were earlier exempt from the Service Tax will now be taxable. Ocean carriers are obliged to collect this tax at origin from shippers and credit the amount to the Indian government.
This change is effective as of January 22, 2017 and will be applied to all prepaid freight with port of loading outside India to ports of discharge in India under charge code TAW02.
The tax on inbound prepaid freight charges will be calculated at 30 % of the freight charges with a 70 % abatement, resulting in an effective tax rate of
4.5 %.
Prior to the change, imports in foreign ships hired by the overseas seller – known as on a cost and freight (CFR) basis – have been exempt from this charge.
The difference in tax rates has affected the business of Indian shipping lines such as Shipping Corp of India, Great Eastern Shipping Co Ltd and Mercator Ltd. It is expected that this will provide a level playing field to Indian shipping companies. There will be no major impact on importers as most of the service tax is refunded as credit under a (government) scheme