The Directorate General of GST Intelligence (DGGI) has issued summonses to the Indian offices of 18 foreign shipping lines – a move anticipated to potentially impact GST collections. The move comes as the investigative arm under the GST regime alleges that these companies, including industry giants like Maersk, Orient Overseas Container Line Ltd, Hapag Lloyd, Mediterranean Shipping, and others, have evaded legitimate taxes due on services imported from their head offices.

The crux of the issue lies in the alleged non-payment of GST under the reverse charge mechanism for services such as rental, maintenance of ships, and crew salary provided abroad. According to the DGGI, despite detailed clarifications being sought and ongoing discussions with the implicated foreign shipping lines, discrepancies in tax payments have been detected in relation to the import of services from their head offices by Indian branch offices.

The investigations, initiated by DGGI in Ahmedabad and Mumbai zones since October 2023, underscore the complexities surrounding taxability and valuation of intra-entity cross charges under GST. This has led to heightened scrutiny on the GST applicability of salaries paid to expatriate employees, prompting concerns and detailed representations from shipping liners to the Finance Ministry and the Central Board of Indirect Taxes and Customs (CBIC).

Experts in the field highlight the intricate nature of cost allocation for the shipping industry, making it challenging to ascertain the relevant costs for the value of imported services. There are also concerns raised about the DGGI’s approach to issuing summonses, with experts questioning its alignment with recognized protocols and legal standards. The industry anticipates that a definitive resolution may only emerge through judicial intervention, potentially reaching the highest court.

The issue further underscores the broader debate surrounding the taxation of intra-group transactions and the application of GST regulations to international corporations operating in India. While the DGGI’s actions aim to ensure tax compliance and bolster GST collections, they may face criticism from international corporations viewing them as potentially discriminatory or overly stringent.

In response to these developments, stakeholders in the shipping industry are urged to carefully evaluate potential legal arguments and engage in constructive dialogue with tax authorities to seek clarity and resolution. The outcome of these investigations and ensuing legal proceedings is likely to have far-reaching implications for the taxation landscape and regulatory environment governing the shipping sector in India.