Monday, February 29, 2016
Shipping: Rs 1,600 crore provisions for shipping & waterways to give tremendous boost to the sector
Budget Provisions
  • 14% service tax on services provided by domestic shipping companies transporting goods from outside India

The service tax on services provided by shipping companies by way of transportation of goods by a vessel from outside India up to the customs station in India will be 14% with effect from 1 June, 2016. Though the move is directed towards discouraging imports, it will mainly impact the logistics sector and largely the end-user division as shipping companies will be simply passing on this cost.

  • Input tax credit

Shipping companies engaged in export assignments will be allowed the input tax credit, a move to encourage export of goods, one of the crucial parts of 'Make In India' initiative kick-started by the government.

DutyExistingProposed
Service tax
Services provided by Indian Shipping lines by way of transportation of goods by a vessel to outside India being zero rated with effect from 1st March, 2016; andNo creditInput tax credit allowed
Service tax on services provided by them by way of transportation of goods by a vessel from outside India up to the customs station in India being imposed, with effect from 1st June, 2016Nil14%
Excise Duty
Excise duty on capital goods and spares thereof, raw materials, parts, material handling equipment and consumable for repairs of ocean-going vessels by a ship repair unit subject to actual user condition being exempted.Applicable excise dutyNil
The procedure for availment of exemption from Basic Customs Duty, CVD and SAD
by ship repair units being simplified based on records and subject to actual user condition.
--

Keeping the heavy balance sheets and drying toplines of domestic shipbuilding companies in mind along with the future prospects for them to attract orders mainly from the navy and defence division, the budget has exempted the shipbuilding company from excise duty on capital goods and spares thereof, raw materials, parts, material handling equipment and consumable for repairs of ocean-going vessels. This move is going to make shipbuilding more competitive and shipping companies will be encouraged to place orders or repairs with domestic repair units.

ABG Shipyard, Reliance Defence Systems and Bharati Shipyard—currently with asset restructuring company Edelweiss has been reeling under huge debt and dimishing toplines since several quarters due to the unfriendly business climate not just in India but across globe.

  • Rs 800 crores for new ports

Govt plans to develop new greenfield ports both in the eastern and western coasts of the country. The work on the National Waterways is also being expedited. Rs 800 crore has been provided for these initiatives. The Budget announced that Sagarmala project has already been rolled out and government has initiated a series of steps to modernise and expand the capacity of its 12 major ports. Under its ambitious Sagarmala project, the government is looking to mobilise at least Rs 10 lakh crore investment, including Rs 4 lakh crore in the infrastructure sector alone.

The Govt has added the highest ever capacity in major ports and has started a series of measures for modernising the ports and increasing their efficiency.

  • Provisions of Rs 1,600 crore for shipping and waterways will give a tremendous boost to the sector

To encourage movement for goods and passengers via waterways, the Cabinet last year had approved the plans for enactment of a legislation for converting 111 river stretches across the country into national waterways. Only five of the river-stretches have been declared as 'national waterways' so far.

Stock to watch

SCI, Mercator and Great Eastern Shipping, ABG Shipyard, Bharati Shipyard

Budget impact

Allowing input tax credit for Indian shipping lines for transportation of goods outside Indian and imposition of service tax of 14% on transportation of goods into india will enable the Indian shipping lines to avail and utilize tax credits. The level player field created thus will facilitate domestic shipping lines on equal footing with foreign vessels. The move of 14% service tax is negative but will not impact shipping companies directly as it will be passed on to the end-user.

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