GST Caselaw

#GSTCase-61-Gist of Cases: Levy of IGST on Ocean Freight in case of CIF Import -An Unresolved Riddle in GST

#GSTCase-61-Gist of Cases: Levy of IGST on Ocean Freight in case of CIF Import -An Unresolved Riddle in GST

 

Case-1:Mohit Minerals Pvt Ltd vs Union Of India & on 9 February, 2018 (Gujarat High Court)

Case-2: Bahl Paper Mills Ltd [2018] 94 taxmann.com 70 (AAR- UTTARAKHAND)

Case-3:Chambal Fertilisers & Chemicals Ltd. [2018] 97 taxmann.com 457 (AAR- RAJASTHAN)

 

  1. Mohit Minerals Pvt Ltd vs Union Of India & on 9 February, 2018 (Gujarat High Court)

The matter is pending before the Hon’ble High Court. However, levy in Gujarat High Court has been challenged on three principal elements:

[a] Having paid the tax under IGST Act on the entire value of imports; inclusive of the ocean freight, the petitioner cannot be asked to pay tax on the ocean freight all over again under a different notification;

[b] In case of CIF contracts, the service provider and service recipient both are outside the territory of India. No tax on such service can be collected even on reverse charge mechanism, and

[c] In case of High Sea sales, the burden is cast on the petitioner as an importer whereas, the petitioner is not the recipient of the service at all. It is the petitioner’s seller of goods on high sea basis who has received the services from the exporter/ transporter.

 

  1. Bahl Paper Mills Ltd [2018] 94 taxmann.com 70 (AAR- UTTARAKHAND)

Query: Whether under Reverse Charge Mechanism, IGST should be paid by the importer on ocean freight in case of CIF basis contract, when service provider and service recipient both are outside the territory of India?

Held: If the importer has already paid IGST on CIF value imported goods, he is still required to pay IGST on ocean fright. Applicant also submitted a copy of Special Civil Application No. 726 of 2018 filed by Mohit Minerals (P.) Ltd. before Hon’ble High Court of Gujarat in this regard. AAR observed that mere filing of an application before the Hon’ble High Court does not render a notification issued by the Central Government ultra vires until or unless the same is turned down by the competent court.

 

  1. Chambal Fertilisers & Chemicals Ltd. [2018] 97 taxmann.com 457 (AAR- RAJASTHAN)

 

Query: The applicant has sought an Advance Ruling on the applicability of Ocean freight Charges and System of double taxation with respect to import of raw materials of fertilizers.

Held: In the case of import of goods on CIF (COST, INSURANCE AND FREIGHT) basis, the Applicant (Importer) is liable to pay GST on the component of Ocean freight paid by the foreign supplier to the shipping company. However, with regard to exclusion of any component of expenditure upon imported goods (Ocean freight) while determining their value at the time of import, the same falls beyond the purview of Section 97 of CGST/RGST Act, 2017 since valuation of imported goods is to be done by the Customs Authority under the Customs Act, 1962 and AAR is not empowered to decide on the issue of valuation of imported goods.

 

Comment: Levy of GST on Ocean Freight has been a bone of contention since inception of GST and under Service Tax Regime as well. The controversy stems from following issues:

The first is the fact of double taxation. Double Taxation because importer would be paying IGST on CIF value of goods and again paying RCM on Ocean Freight would amount to double tax on same component of cost.

Another issue is regarding levy of tax on services supplied by a non-taxable person to another non-taxable person whereby vide a deeming fiction value has been determined and importer has been asked to pay tax on such services treating him as a service recipient. Here in fact original contract to transport the goods is between two non-taxable persons and importer is no where party to the contract. Importer is the recipient of goods but the actual recipient of service is in non-taxable territory.

Whether tax can be levied under IGST Act on contracts wherein service provider and service recipient both are outside the territory of India and whether a person other than a recipient of service can be asked to pay tax under reverse charge mechanism is an issue which may have an impact over the taxability of ocean freight under Imports on CIF Basis.

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