IGST exemption on export transportation charges ends; rate of 5% and 18% to be applied

Transportation service by vessel/aircraft for export of goods will be taxable with effect from October 1 as the government has decided not to extend exemption beyond September 30. Experts advise exporters to rework their strategy in terms of seeking refunds and pricing of products.

Now, service charges for transportation by a vessel of the export consignment will attract IGST (Integrated Goods & Services Tax) at 5 per cent with some restrictions on the input tax credit (ITC). In the case of transportation by aircraft, the rate of IGST will be 18 per cent but with ITC.

However, there will not be IGST on the transportation of import consignment.

GST is levied on the date of invoice. So, even if goods has been transported on or before September 30, 2022, but the invoice has been issued on or after October 1, 2022, then IGST will be levied. Transporter will issue the invoice to the exporter, who is sending the consignment.

Exemptions due to delays

A senior official of the Central Board of Indirect Taxes and Custom (CBIC) confirmed the end of exemption. The exemption was warranted when the export refund mechanism was manual and had not stabilised resulting in delays. “Now the process is not only fully automated but also working smoothly. That is the justification for not continuing with the exemption,” he said.

However, with the maturity in the processes of smooth and faster processing of GST refunds, the further extension has not been given as it will not lead to blockage of working capital of exporters unlike at the advent of GST regime.

Accordingly, “necessary tweaks will be required by transporters in terms of charging GST as well as while claiming ITC. Besides, exporters do need to timely apply for refunds and if such refunds get disbursed timely, then it is a successful uplifting of exemption which the government aims at rationalising the tax structure by reducing exemptions”.

“Further, it may be straight hit to the exporters exporting goods on which exports duty is levied for whom refunds is not available, leaving them to think about the pricing of their products,” Singhania said.

IGST Act

Transportation of goods by vessel/air in relation to export consignments was exempted from the levy of GST from January 25, 2018.

An amendment in IGST Act says where the transportation of goods is to a place outside India, the place of supply shall be a place of destination of goods. Since the POS is outside India, as per law it shall be treated as interstate supply, and hence, IGST is to be levied.