Foreign shipping lines under DGGI scanner

NEW DELHI : In what could be a revenue bumper for the GST collections, the Directorate General of GST Intelligence (DGGI) has issued summons to Indian offices of 18 foreign shipping lines.

According to sources, “DGGI has summoned Indian offices of Maersk, Orient Overseas Container Line Ltd, Hapag Lloyd, MSC – Mediterranean Shipping Company, CMA CGM SA, One Ocean Network Express, Pacific International Line, Regional Container Lines, Samudera Shipping Line Ltd, Korea Marine Transport Co Ltd, Milaha Integrated Maritime & Logistics, Wan Hi Lines Ltd, TS Lines Co Ltd, Sinokor India Pvt Ltd, Xpress Feeders, Yang Ming India Pvt LTD, Zim Container Lines etc.”

ALLEGED GST EVASION?

“All of these foreign shipping lines have been alleged by DGGI for not paying legitimate taxes due, and evasion has been detected on account of import of services from head office by Indian branch offices,” sources said.

Currently a detailed clarifications have been sought by DGGI and the officers are in talks with all these foreign shipping lines, sources added.

Furthermore, the sources said, DGGI – the investigative arm under GST regime – alleges that foreign shipping lines ‘headquartered abroad have a branch offices in India which has been billing services including rental, maintenance of aircrafts, crew salary etc abroad. Thus, these services coming from abroad were liable to GST under reverse charge mechanism, which these shipping lines have not paid.”

The investigations have been carried out by DGGI Ahmedabad and Mumbai zones, sources said.

All these shipping lines have been under scanner since October 2023.

CNBC-TV18, quoting sources had first reported on October 20, last year, that DGGI had conducted detailed probe saying that ‘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.’

However, shipping liners have given detailed representation to the Finance Ministry, Central Board of Indirect Taxes and Customs (CBIC), DGGI and have been seeking a resolution.

Mr. Abhishek Jain, Indirect Tax Head & Partner, KPMG said, “Taxability and valuation of Intra entity cross charges has been a vexed issue under GST with ambiguity continuing on whether there is an actual provision of service/supply to trigger GST, potential arguments on NIL valuation, etc. While the recent Circular on similar related party/ distinct persons did provide clarity, these shipping lines would need to evaluate coverage under the said Circular and other potential legal arguments to justify their position.”

Mr. Rajat Mohan, Executive Director of MOORE Singhi, said, “The Directorate General of GST Intelligence’s (DGGI) heightened scrutiny regarding the GST applicability on salaries paid to expatriate employees is likely to be met with disapproval, particularly from international corporations, who may view this as discriminatory.”

“The method employed by the DGGI, notably the issuance of summons in these scenarios, brings up concerns regarding its alignment with recognized protocols and legal standards. Typically, the adjudication process entails the dispatch of formal notifications, followed by comprehensive information collection and examination, culminating in a justified decision that reflects the unique aspects and strengths of each case. Despite numerous precedents and guidelines on this topic, the DGGI continues to send notices to multinational companies. The guidance provided by the Central Board of Indirect Taxes and Customs has not significantly assisted the industry, leading to the belief that only a verdict from the highest court could resolve this issue definitively.”