Foreign shipping lines under DGGI scanner

Currently a detailed clarifications have been sought by DGGI and the officers are in talks with all these foreign shipping lines, sources added.

Furthermore, the sources said, DGGI – the investigative arm under GST regime – alleges that foreign shipping lines “headquartered abroad have a branch offices in India which has been billing services including rental, maintenance of aircrafts, crew salary etc abroad. Thus, these services coming from abroad were liable to GST under reverse charge mechanism, which these shipping lines have not paid."

The investigations have been carried out by DGGI Ahmedabad and Mumbai zones, sources said.

All these shipping lines have been under scanner since October 2023.

CNBC-TV18, quoting sources had first reported on October 20, last year, that DGGI had conducted detailed probe saying that “Under the GST law, an establishment of a company in India and outside India are treated as distinct persons and any service provided by the head office to the branch office is deemed as a supply, even when it is without any consideration.”

However, shipping liners have given detailed representation to the Finance Ministry, Central Board of Indirect Taxes and Customs (CBIC), DGGI and have been seeking a resolution.

Abhishek Jain, Indirect Tax Head & Partner, KPMG said, "Taxability and valuation of Intra entity cross charges has been a vexed issue under GST with ambiguity continuing on whether there is an actual provision of service/supply to trigger GST, potential arguments on NIL valuation, etc. While the recent Circular on similar related party/ distinct persons did provide clarity, these shipping lines would need to evaluate coverage under the said Circular and other potential legal arguments to justify their position."

Rajat Mohan, Executive Director of MOORE Singhi, said, "The Directorate General of GST Intelligence's (DGGI) heightened scrutiny regarding the GST applicability on salaries paid to expatriate employees is likely to be met with disapproval, particularly from international corporations, who may view this as discriminatory."

"The method employed by the DGGI, notably the issuance of summons in these scenarios, brings up concerns regarding its alignment with recognized protocols and legal standards. Typically, the adjudication process entails the dispatch of formal notifications, followed by comprehensive information collection and examination, culminating in a justified decision that reflects the unique aspects and strengths of each case. Despite numerous precedents and guidelines on this topic, the DGGI continues to send notices to multinational companies. The guidance provided by the Central Board of Indirect Taxes and Customs has not significantly assisted the industry, leading to the belief that only a verdict from the highest court could resolve this issue definitively."

“Cost allocation for shipping industry is unique and hence it is sometimes difficult to analyse the cost which would be relevant for the value of imported services such as vessel maintenance and vessel leasing. In some cases, only apportionment basis total revenue generated could be used as a factor for determining the value for the import of services when the place of provision is in India” explained Abhishek A Rastogi, founder of Rastogi Chambers, who is arguing on import of supplies and cost allocations for different sectors.

“Interestingly, this business works through an agent in India and the apprehension of GST authorities revolve around the fact that when tax is paid on the freight element in India, there must be corresponding element of procurement, specially with respect to freight and other related charges. Accordingly, the moot point remains whether the import of such services between the related parties have escaped taxation”, added Rastogi.