However, shipping liners have given detailed representation to the Finance Ministry, Central Board of Indirect Taxes and Customs (CBIC), DGGI and are seeking a resolution, but DGGI alleges that shipping liners are operating via a branch office in India and have evaded taxes on import of services from head office located abroad, sources added.

“Shipping liners get their operational cost, such as lease rental, fuel charges, crew charges etc. to the head office located abroad and don’t charge the cost of these services to their branch office,” sources said.

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. “Under GST law, any import of service is liable to tax, even if the imported services are without consideration," sources said.

On this issue, experts said, “The recent CBIC circular of July 2023 may not come to the rescue of the shipping liners as in some cases there have been exempted services provided by the liners. Further, the argument of revenue neutrality may not suffice in the present case looking into judgments in the service tax era.”

"The import of services will be subject to tax when the place of provision with respect to these expenses will be in India. Further, some of these expenses could be in the nature of pure reimbursements, and the angle of pure agency may come into play”, explains Abhishek A Rastogi, who had argued before Delhi High Court (HC) for the foreign banks with respect to the transactions between the head office and the branch.

"The endeavour of the government and the GST Council is that there must not be any coercive recoveries, and unnecessary issuance of summons to harass the top management. In light of this, various circulars have been issued to protect the industry interest”, said Rastogi.

He further added, “In most cases, the import taxes will be revenue neutral and any value can be fixed for the imports when there is a complete pass through. In such situation, there may be insignificant impact”.

Amit Maheshwari, partner AKM Global, a tax and consulting firm, said, " The ongoing DGGI probe in the case of container and shipping liners is just akin to the case of foreign airlines in India wherein tax evasion has been noticed in import of services from the head offices of the foreign airlines by their branch offices in India wherein the airlines were including records of expenses ranging from HR expenses, management expenses and accounting software expenses borne by the head office, crew charges, fuel charges, etc. in their head office accounts without cross charging these expenses to their Indian offices though the services were used by the Indian branch offices."

"Supply of service by the head office located overseas to a branch office in India even without consideration is not exempted from the GST regime. Since the import of services is subject to tax under reverse charge when there is an actual receipt of service, the investigation could unearth booking of expenses at the head office or branch office for administrative convenience which should have been subject to tax under reverse charge," he added.

Eyes will be on how the government will address this issue and whether shipping liners will get any respite or not.