New Delhi, January 27, 2017

The Finance Ministry order levying 4.5 per cent service tax on ocean freight has come as a "bolt from the blue" for the importers and exporters and will adversely impact the domestic trade, Engineering Export Promotion Council (EEPC) has said.

The industry body said the latest order of Finance Ministry levying 4.5 per cent service tax on ocean freight has come as a bolt from the blue for both importers and exporters,

"As a result of the January 12 notification by the Revenue Department, import ocean freight and ancillary charges would be subject to a service tax at the rate of 4.5 per cent. Previously, service provider and receiver who were located outside taxable territory of India were exempted from this tax," EEPC India Chairman T S Bhasin said.

"The order has created 'serious problems", he added.

Explaining the reasons Bhasin said, besides the additional tax burden, it is difficult for the Indian importers to know what the foreign exporters' ocean freight is.

Moreover, in case of imports from China, given that they are in holiday mode due to the Chinese New Year, the importers are finding it difficult to even contact their sellers. As a result, importers in India will now have to pay demurrage charges, Bhasin observed.

"While the domestic traders importing shipments are affected, the new Revenue Department notification has also hit the exporters since they need to import raw material and then export after a lot of value addition," EEPC India said.

Besides impressing upon the Finance Ministry to revoke the order, the engineering exporters' body said, it will also reach out to the Commerce Ministry seeking its immediate intervention, the body said.

It said the move has created considerable hardship for exporters.

The move is also ill-timed in the backdrop of a recent revival in the country's exports in the competitive and tough global markets, marked by headwinds from the Brexit and uncertainties regarding polices under US President Donald Trump, Bhasin added.

[The Economic Times]