Business: The Fitment Committee comprising state and central revenue officials has deferred its decision regarding goods and services tax (GST) compliance issues for overseas shipping lines (FSLs) in India. The committee has sought more rigorous data collection and comprehensive investigation on the ongoing probe initiated by the Director General of GST Intelligence (DGGI). The DGGI claims that such shipping lines are liable to pay GST under the reverse charge mechanism (RCM) for services received from their head offices located outside India, including expenditure related to vessel leasing, repairs and other maintenance activities carried out overseas.
FSLs, which operate global shipping businesses in international trade routes, do not have a physical presence in India. Instead, they appoint agents in the country for compliance purposes. All contracts made with Indian clients are executed by their overseas entities, and the business is run through their offices, vessels and personnel located outside India. These foreign shipping lines have registered under Indian GST laws to avoid paying taxes and the complexities of RCM, to ensure that Indian customers are not required to pay tax on their behalf.
However, FSL argues that GST provisions under Explanations 1 and 2 of Section 8 of the IGST Act, 2017 do not apply to them, as they do not have any establishment in India. They argue that their Indian registration does not qualify as a “natural” or “juridical” person for tax purposes. According to FSL, since a legal entity cannot enter into contracts with itself, there is no supply of goods or services on which GST should be levied. However, DGGI claims that under Section 7(1)(c) and Schedule I of the CGST Act, services provided by foreign headquarters to their Indian entities should be treated as taxable even if they are provided without any consideration. The investigation focuses on various costs incurred by FSL, such as leasing and repairs of ships, which are considered taxable under Indian law.
