India – Service tax on Freight

Shipowners and Charterers may be aware that as of 1 June 2016, a service tax on freight was imposed by the Indian Government for FOB cargoes on ships chartered by importers domiciled in India. This tax has, to date, been paid by the Indian importer. There was an express exemption for goods shipped by a party that was not domiciled in India i.e. goods shipped on a CFR basis. 

However, the Correspondent, James Mackintosh & Company, has warned that from 22 January 2017 the exemption has been revoked. They advise that the service tax will now be payable on the full value of freight irrespective of where the freight is earned/collected at the rate of 4.5%. Since a vessel’s local agent (i.e. in India) is jointly liable for payment of this tax, the Correspondent warns that the agent may require funds to be in place before a vessel arrives. For a more detailed discussion of the position click here for an article from Hellenic Shipping News. 

It is recommended that, in order to prevent delays to a vessel and/or to avoid disputes, shipowners and charterers deal with this issue by way of express contractual provision to create certainty as to responsibility and payment.