GST on Shipping & Ports — Freight 5%, Port Services 18%, Export Zero-Rated

LANDMARK CHANGE: Supreme Court in Union of India vs Mohit Minerals (May 2022) declared that imposing IGST on ocean freight for CIF imports is UNCONSTITUTIONAL. WHY: When importer buys on CIF basis, the customs value ALREADY includes freight. IGST is charged at customs on full CIF value (which includes freight component). Separately charging 5% IGST on freight = DOUBLE TAXATION on same freight element. SC held: this violates Article 265 (no tax without authority of law) and is ultra vires the IGST Act. CURRENT POSITION (post-ruling): (1) CIF imports: NO GST on ocean freight — already taxed within customs IGST on CIF value. (2) FOB imports (importer arranges own freight): 5% IGST under RCM still applies — importer pays. (3) Export freight: ZERO-RATED (always was — no change). (4) Domestic coastal freight: 5% (no change). Government issued Notification 02/2023 (Jan 2023) formally exempting ocean freight on CIF imports. REFUND: importers who paid 5% RCM on CIF freight between July 2017 and January 2023 can claim refund (within limitation period). Many companies filed refund claims — estimated ₹5,000-7,000 crore industry-wide refund exposure.

This distinction changes GST rate from 5% to 18%: TIME CHARTER: Ship owner provides vessel + crew + maintenance for agreed period. Charterer directs where ship goes. Ship owner retains operational control (crew management, insurance, maintenance). GST classification: 'Transportation of goods by vessel' — SAC 9965 — 5% GST. Logic: charterer is essentially buying transport capacity, not renting an asset. VOYAGE CHARTER: Ship for specific voyage (Port A to Port B). Same as time charter for GST — 5% (it's transport service). BAREBOAT CHARTER: Ship owner provides ONLY the vessel (empty hull). NO crew, NO insurance, NO maintenance. Charterer provides everything — crew, fuel, insurance, maintenance. Charterer has full operational control. GST classification: 'Rental/leasing of transport equipment' — SAC 9973 — 18% GST. Logic: this is pure asset rental, not transport service. Charterer IS the transporter. SLOT CHARTER: Buying cargo space on vessel (common in container shipping). Classification: transport service — 5%. PRACTICAL IMPACT: 18% vs 5% = massive difference. On ₹1 crore monthly charter: 5% = ₹5L GST vs 18% = ₹18L GST. Many disputes arise over classification — department tries to classify time charters as bareboat (for higher revenue). Documentation is KEY — charter party agreement must clearly show crew provision.

CRITICAL DISTINCTION that determines GST treatment: FREIGHT FORWARDER AS PRINCIPAL: (a) Buys freight capacity from shipping line in own name. (b) Issues own Bill of Lading (House BL). (c) Bears commercial risk (if shipper cancels, forwarder still liable to shipping line). (d) Sets own price to customer (may be higher or lower than cost). GST treatment: CHARGES 5% on freight component (re-supply of transport). Issues tax invoice showing: freight at 5% + origin charges at 18% + documentation at 18%. Can claim ITC on freight purchased from shipping line. FREIGHT FORWARDER AS AGENT: (a) Simply arranges transport on behalf of shipper. (b) Does NOT issue own BL — shipping line BL goes directly to shipper. (c) Earns commission/fee for arrangement. (d) No commercial risk on transport. GST treatment: 18% ONLY on commission/agency fee. Freight amount shown as 'reimbursement' — no GST (pure agent Rule 33). Must satisfy ALL conditions of Rule 33: (i) acts as pure agent, (ii) payment received as reimbursement, (iii) services procured from third party in recipient's name. IN PRACTICE: most forwarders are PRINCIPALS (issue House BL, set own rates). Pure agent status is rare and heavily scrutinized by department. Mixed model: freight at 5% (principal) + services at 18% (own services) — split invoice.

YES — shipbuilding attracts 5% GST (concessional rate under Notification 01/2017). Covers: construction of new vessels — cargo ships, tankers, bulk carriers, container ships, offshore supply vessels, tugboats, dredgers, fishing trawlers, passenger vessels, research vessels. WHY 5%: Government's Sagarmala initiative + Make in India for shipbuilding. India's shipbuilding market share is <1% globally — concessional GST incentivizes domestic construction vs buying foreign-built ships (import at 5% IGST too — no disadvantage). ITC REFUND MECHANISM: Shipyards buy inputs at 18%: (a) Steel plates/sections: 18% (₹300-500 crore per ship), (b) Marine engines: 18% (₹50-100 crore), (c) Navigation/communication equipment: 18%, (d) Electrical systems: 18%, (e) Welding consumables: 18%, (f) Labour/contract workers: 18%. Output: ship delivered at 5%. INVERTED DUTY: massive ITC accumulation (18% input vs 5% output). Refund: Section 54(3)(ii) — refund of unutilized ITC due to inverted tax structure. Major shipyards (Cochin Shipyard, Mazagon Dock, GRSE, L&T Shipbuilding, Reliance Naval) file quarterly refunds of ₹50-200 crore. Processing: 60-day statutory timeline, but practically 3-6 months. Cash flow challenge: shipbuilding takes 2-4 years per vessel — ITC accumulates for years before refund processed.