DGGI Turns Attention to Foreign Shipping Operators for GST Violations

In a bid to bolster GST collections, the Directorate General of GST Intelligence (DGGI) has initiated investigations into the operations of 18 foreign shipping lines with offices in India.

According to informed sources, the DGGI has issued summons to the Indian branches of several prominent foreign shipping companies, including Maersk, Orient Overseas Container Line Ltd, Hapag Lloyd Mediterranean Shipping, CMA CGM SA, and others.

The investigation revolves around allegations of GST evasion stemming from the import of services by Indian branch offices from their overseas headquarters. It is claimed that these shipping lines have failed to pay the requisite taxes on services such as rental, aircraft maintenance, and crew salaries, which were invoiced abroad but used domestically.

DGGI, acting as the investigative arm under the GST regime, argues that under the GST law, transactions between the head office and branch offices, even if provided without charge, are considered supplies liable for GST. The agency alleges that these shipping lines have not fulfilled their GST obligations under the reverse charge mechanism.

The investigations, spearheaded by DGGI’s Ahmedabad and Mumbai zones, have been ongoing since October 2023.

In response to these allegations, the shipping companies have engaged with various governmental bodies, including the Finance Ministry, the Central Board of Indirect Taxes and Customs (CBIC), and the DGGI, seeking resolution and clarification.

Experts in the field highlight the complexities surrounding the taxation and valuation of intra-entity transactions under GST. They point out ambiguities regarding the provision of services, potential arguments for nil valuation, and the need for clarity on related party transactions.

Criticism has also been directed at the methods employed by the DGGI, particularly the issuance of summons, which some argue may not align with established legal protocols. Concerns have been raised about the necessity for a more comprehensive adjudication process that considers individual case nuances.

Moreover, the unique nature of cost allocation within the shipping industry adds another layer of complexity to the valuation of imported services. Experts emphasize the need for a thorough examination of cost allocation methods to determine the appropriate GST liability.

Ultimately, as the investigation unfolds, it raises fundamental questions about the taxation of international transactions and the enforcement mechanisms employed by regulatory authorities. The outcome of these investigations will likely have far-reaching implications for both foreign shipping companies and the broader GST framework.