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GST Law was brought into force w.e.f. 01/07/2017. With the introduction of law, certain services were kept under absolute exemption, some under conditional exemption and some were provided for a given period. However, following transactions were not kept under any exemption category at that time :-

  • Services by way of transportation of goods by an aircraft from customs station of clearance in India to a place outside India.
  • Services by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India.

With the heat from industry, these two services were brought into exemption list w.e.f. 25/01/2018. However, that exemption was given upto 30/09/2018.

Facing issues from industry, the exemption was again extended till 30/09/2019.

Till then, it was further extended every year till 30/09/2022.

After 30/09/2022, it was not extended, and hence, this exemption notification automatically rescind from law.

So, w.e.f. 01/10/2022, both these services are liable to GST.

Now, the big question arises with respect to Input Tax Credits (ITC) to the recipient of said services.

Actually this question becomes big because of proviso to Section 12(8) of IGST Act 2017. In the year of 2019, a proviso was inserted in Section 12(8) of IGST Act, which is reproduced below :-

Place of supply of services where location of supplier and recipient is in India

(8) The place of supply of services by way of transportation of goods, including by mail or courier to,––

(a) a registered person, shall be the location of such person;

(b) a person other than a registered person, shall be the location at which such goods are handed over for their transportation.

Provided that where the transportation of goods is to a place outside India, the place of supply shall be the place of destination of such goods.

In this case, following proposition exists where there is an export freight transaction :-

  • Location of Service Provider : in India
  • Location of Service Recipient : in India
  • Place of Supply : Outside India

So, the applicable tax in this transaction is IGST (POS -Other Territory) even where both the parties in same state.

As a general rule, where a purchase is made with “POS” other than recipient state, no ITC is available (except in case of SEZ transaction). So, in this case also, ITC is not available to recipient of service.

In order to protect the interest of industry, it is proposed to remove the said proviso from law. This proposal is presented in Finance Bill 2023 to be notified at later date.

Now, the question arises for ITC in respect of transactions happened between 01/10/2022 till such proposal being notified.

To protect the interest of industry, CBIC provided a temporary relief through a Circular no. 184/16/2022-GST dated 27/12/2022, wherein it cooked a new story to enable ITC for recipient of services.

Through this circular, it allows the ITC for the recipient of service of transportation of goods and hence, he shall be eligible to avail input tax credit in respect of the IGST charged by the supplier of said service.

CBIC has mentioned that :-

  • Section 16 of the CGST Act lays down the eligibility and conditions for taking input tax credit whereas, section 17 of the CGST Act provides for apportionment of credit and blocked credits under circumstances specified therein.
  • The said provisions of law do not restrict availment of input tax credit by the recipient located in India if the place of supply of the said input service is outside India.
  • Thus, the recipient of service of transportation of goods shall be eligible to avail input tax credit in respect of the IGST so charged by the supplier, subject to the fulfilment of other conditions laid down in section 16 and 17 of the CGST Act.
  • The supplier of service shall report place of supply of such service by selecting State code as ‘96-Foreign Country’ from the list of codes in the drop-down menu available on the portal in FORM GSTR-1.

Interesting thing is that, the law itself is there from Feb 2019. However, CBIC, could not find the requirement of said circular in approx. four years. Further, the suppliers are filing their GST returns taking POS as State Code 97-Other Territory from Feb 2019 itself. What would happen for the transactions happened through Courier/Mail, which were happened in these four years.

Furthermore, it is the new POS code introduced as “96-Foreign Country” for these transactions.

Now the question is whether suppliers should revise their GST Returns for the Place of Supply State Code for all their transactions of said nature.

It is further to note that there must be suppliers with mandatory E-Invoicing. Would not it cause the reason for litigation to suppliers for mismatch of data between  E-Invoice and GST returns.

Another Thought

If the government is allowing ITC in respect of said transaction, it would be deemed that all other such type of transactions should have same treatment.

lets take an example :-

Mr A is a registered person of Delhi. Mr B is also a registered person of Delhi and have a property in the state of Uttar Pradesh. Now, Mr A approached Mr B to take on Rent the property in Uttar Pradesh.

In this case, Place of Supply is Uttar Pradesh. So, Mr. B will charge IGST from Mr. A.

As per circular, Section 16 is not restricting ITC for this transaction. If this is the case, all the logistics management would be so easy for all the companies. They would not require separate GST registration in each state just to protect ITC on said service.


We have taken this circular as a temporary measure/relief till the Finance Bill 2023 being legalized and notified for its implementation. By whatever way, the government protected the ITC on outbound freight transactions.

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