Nepal has urged India to remove the service tax on ocean freight, saying it goes against the bilateral transit treaty.

Nepal has made a formal request to India to scrap a 4.5 per cent service tax on ocean freight costs which was imposed in accordance with a notice issued by the Revenue Department of India on January 12, the Kathmandu Post reported on Friday.

Officials at the Nepal Embassy in New Delhi said they have asked the Indian government to remove the tax as soon as possible because it goes against the spirit of the transit treaty signed between the two countries.

Although the tax had been introduced for Indian importers, Nepali traders are having to pay it too as they fully rely on Indian clearing agents to handle shipments from third countries unloaded at Indian ports, the report said. 

These agents have been passing on the additional charge to Nepali importers, making third-country imports shipped through Indian ports costlier.

Ocean freight costs vary depending on the distance of the port where the shipment originates. Ocean freight costs from China to Kolkata for a 20-foot container ranges from $600 to $1,600, according to Nepali importers. 

Charges range from $3,700 to $4,500 for a 20-foot container originating in the US.

Since taxes are imposed on the freight costs, Nepal-bound goods unloaded at Indian ports have become costlier. 

"We have made a formal request to India, and they have assured us that they will address the issue as soon as possible," said Krishna Hari Pushkar, economic minister at the Nepal Embassy in Delhi. He added that efforts were being made at multiple levels to resolve the problem. 

Commerce Minister Romi Gauchan Thakali had also raised the issue with the Indian side during his visit to Delhi last week. This tax issue had emerged in 2005 too, and it was resolved after bilateral talks, the Post said. 

On January 16, the Container Corporation of India Limited (CONCOR), an Indian government undertaking that handles Nepal's railway freight from Kolkata port, had informed Nepal about the decision and had been levying the 4.5 percent service tax since then. 

Nepal has also requested India to remove the anti-dumping duty imposed on Nepali jute and jute products. 

India started levying an anti-dumping duty of $6.30 to $351.72 per tonne on jute and jute products imported from Nepal in the first week of January. The duty is valid for five years, the report said.

The import-restrictive levy has been imposed on jute yarn and twine, Hessian fabric and jute sacking bags in ‘all forms and specifications'. 

Foreign Minister Prakash Sharan Mahat had asked India's Minister of State for External Affairs VK Singh and Finance Minister Arun Jaitly to resolve the problem when he was in Delhi two weeks ago.