Goods and Services Tax, which was touted as a single tax reform, has completed two years in the country. It is needless to say that GST was never a perfect taxation system. There were a number of shortcomings with respect to the GST provisions and on the administration front. In order to highlight these shortcomings, there were several representations made by industry, time and again. Resultantly, CBIC amended various provisions of Central Goods and Services Tax Act, 2017 and Integrated Goods and Services Tax Act, 2017 through Central Goods and Services Tax (Amendment) Act, 2018 and Integrated Goods and Services Tax (Amendment) Act, 2018 respectively.The purpose of this article is to analyse the proviso inserted in Section 12(8) of IGST Act, 2017 through the IGST (Amendment) Act 2018.
Position before amendment
Section 12 of IGST Act, 2017 provides for determination of place of supply in case both the service provider and service receiver are located in India.As per sub-section (8) of Section 12, place of supply of services by way of transportation of goods shall be the location of recipient, if registered. Accordingly, when a registered person used to export goods by procuring transportation services from an Indian shipping line then the Indian shipping line used to charge GST from the exporter.
On the other hand, Section 13(9) of IGST Act, 2017 prescribes that in case either the service provider or service recipient is located outside India, then the place of supply of services by way of transportation of goods shall be the destination of such goods. Therefore, when a registered person located in India used to export goods by procuring transportation services from a foreign shipping line then such transaction was not leviable to GST. This inconsistency in taxability lead to proclivity of exporters towards foreign shipping lines.
After representation made by aggrieved exporters, the Government vide Notification No. 2/2018-IT (Rate) dated 25.01.2018 inserted Sr No. 20B to the table in Notification No. 9/2017-IT (Rate) as a result of which the rate of tax for ‘Services by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India’, was reduced to ‘Nil’, up to 30.09.2018. This rate was further made effective till 30.09.2019 by Notification No. 15/2018-IT (Rate) dated 26.07.2018.
Simultaneously, an amendment was also made in Rule 43 of CGST Rules, 2017 vide Notification No. 03/2018-CT dated 23.01.2018, to exclude the value of supply of services by way of transportation of goods by a vessel from the customs station of clearance in India to a place outside India from the value of exempted services to be considered for reversal under Rule 42 and Rule 43. As a result, ITC was not required to be reversed in respect of such transportation service. These amendments proved to be a prominent relief for Indian shipping lines.
Position after amendment
Integrated Goods and Services Tax (Amendment) Act, 2018 was made effective from 01.02.2019 by Notification No. 01/2019-IT dated 29.01.2019.Among other amendments, a proviso was inserted in Section 12(8) of the IGST Act. The relevant provision is extracted as under:
"Provided that where the transportation of goods is to a place outside India, the place of supply shall be the place of destination of such goods."
Before the insertion of the proviso, the place of supply for transportation services was dependent on the location of the service recipient. If the service recipient was in the same state as that of service provider, then the supply was treated as intra-state supply and if the service recipient was in a different state, then the supply was considered as inter-state supply.Due to insertion of the proviso, the place of supply for exports shall always be outside India and thus supply shall always be inter-state supply, irrespective of the location of recipient.
The GST Council also published a draft proposal for amendments in GST law on 15.07.2018 inviting comments from the public at large. The said proposal was published with rationale for the amendments proposed. As per the rationale, the government intended to bring the taxability of transportation services of export goods by a transporter located in India at par with a transporter located outside India.
However, while inserting the proviso and providing the above rationale, the government did not envisage that the location of recipient and location of supplier still continues to remain in India. Therefore, such supply of service does not fulfil the criteria of export of service and accordingly, the intention of government does not get fulfilled.Further, as the place of supply of transportation services and the location of recipient are different, the department may dispute the availability of input tax credit.
It is needless to say that, by inserting the above proviso taxability has been made more ambiguous and the purpose of bringing the Indian shipping line with that of foreign shipping line at par, has been defeated.
[The authors are Senior Associate and Joint Partner, respectively in Tax Practice, Lakshmikumaran and Sridharan, Mumbai]