The post is only the summary of relevant extract of Agenda to 39th GST Council Meeting in Part A and the relevant extract of Minutes of GST Council Meeting Part-B.
Part A-The relevant Extract of the Agenda to 39th GST Council Meeting is as follows:
Agenda Item 4(ii): Agenda for GST Council Meeting on 14th March, 2020- in relation to supply of services Recommendations made by the Fitment Committee in the meeting held on 6th March, 2020 in relations to services.
3. Judgment of High Court of Gujarat in the case of M/s. of Mohit Minerals Pvt. Ltd
In the order dated 23.1.2020 of the High Court of Gujarat in the case of M/s. of Mohit Minerals Pvt. Ltd. it has been held that Notification No. 8/2017 – Integrated Tax (Rate) dated 28th June 2017 and the Entry 10 of the Notification No.10/2017 – Integrated Tax (Rate) dated 28th June 2017 which require the importer to pay IGST on ocean freight in respect to CIF consignment under RCM are ultra vires the law. The High Court has given the judgment on the following grounds:
a) The charging section provides for payment of GST by person who is making supplies and in certain notified cases, by the recipient of supply. Thus, GST is not payable by a person who is neither a supplier nor a recipient. The provisions of section 5(3) of IGST Act does not provide for fixing the liability on any person other than the recipient.
b) Importer has neither availed the ocean freight service nor is he liable to pay the consideration. Hence, he is not the recipient. If the importer is held to be recipient of supply of ocean freight service, then he shall also be the recipient of various other inward supply of goods and services received by the exporter of goods with regard to said imported goods. Importer can’t be made to pay tax on the supposed theory that he is directly or indirectly recipient of the service. Such interpretation is unwarranted.
c) Tax can be levied only on intra-State supplies and inter-State supplies. Provision of ocean freight service by a non-resident person to another non-resident person is neither an intraState supply nor an inter-State supply. Therefore, notification entries taxing the said service are beyond the scope of the Act.
4. Analysis of the judgment:
4.1 The judgment is based on sound legal reasoning. It will be difficult to succeed in appeal against the same in Hon‟ble Supreme Court and succeed in appeal.
4.2 The immediate consequence of this judgment is that the level playing field, which was given to Indian Shipping Lines by making importer liable to pay GST on ocean freight charged by foreign shipping lines from foreign exporter under RCM, is no longer available to Indian Shipping lines. Therefore, there is a need to find out a way to continue to provide level playing field to Indian Shipping lines despite the judgment. The issue has been examined with this view in the following paragraphs.
The objective of providing level playing field to Indian Shipping Lines can be achieved by changing the place of supply of goods transport service from the place of destination of goods to the location of recipient. This would ensure that both Indian Shipping Lines and Foreign Shipping Lines have identical liability to pay or not pay IGST on transportation of goods by vessel (inward, outward or coastal) in both CIF and FOB contracts.
Part B-Relevant Extract of 39th GST Council Meeting
12. For Agenda Item 4, the Council recommended the following: –
(iv) To defer the decision with respect to levy of IGST on Ocean freight payable by importer under reverse charge mechanism.
Conclusion-The significant thing coming from the above agenda is that subsequent to analysing the decision of Hon’ble Gujarat High Court in the case of Mohit Minerals Limited; Para 4 of the Agenda provides that “It will be difficult to succeed in appeal against the same in Hon’ble Supreme Court and succeed in appeal” and further an amendment in the provision was suggested looking to best International Practice and OECD Guidelines. However, GST Council deferred the decision.
Although the decision on the proposal is yet to be made but the observation of succeeding in appeal before the Hon’ble Supreme Court against the decision of Hon’ble Gujarat High Court and proposed amendment in the provision depicts that it would be tough road ahead for the revenue in the case of challenge against the levy of tax on Ocean Freight under Reverse Charge Mechanism.