Indian coastal shipping operators are hopeful that this mode of transportation will come on an even keel with road and rail movement in terms of the benefits of abatement from service tax.

This follows a promise from the Finance Ministry that the issue will be reviewed by this month end, following a plea from the coastal operators for revision in abatement from service tax on par with road and rail transportation.

In the recent Union Budget, it was proposed to grant goods transportation through coastal shipping a 25 per cent service tax abatement from freight value.

However, transportation of goods by road and railways enjoy 75 per cent and 70 per cent service tax abatement respectively.

Difference

In other words, a road operator has to pay service tax on only 25 per cent of the total freight value, while a coastal operator has to shell out the tax (at the rate of 10 per cent) on 75 per cent of the freight value.

“Coastal shipping has huge potential for transportation in India. For example, we have worked out that the cost of ferrying cars between Chennai and Mumbai through the coastal route is 20-25 per cent cheaper than moving by road or railways. This inequity (on abatement from service tax) between coastal shipping and road/rail transportation will hurt the industry,” Mr S.K. Shahi, Chairman and Managing Director of SKS Logistics Ltd, told Business line .

Rider

Another setback for coastal operators has been the rider that availing this abatement from service tax would require that the service providers cannot take any input credit of taxes.

“We feel this restriction will only add to the increasing input cost of coastal shipping service providers. A mere 25 per cent abatement, with no input credits, could also lead to valuation disputes with service receivers,” the Indian National Shipowners Association (INSA) feels.

Connectivity

Despite the significant potential involved in coastal transportation, this mode of goods movement does not have a seamless circuit due to factors such as poor connectivity between ports and the hinterland and lack of dedicated berths for coastal vessels at ports.

This has been resulting in delayed delivery and higher operational costs

“We have suggested that every major port have a dedicated berth for coastal cargo so that coastal vessels can load and unload without any customs examination,” Mr Shahi says.

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