2021 (1) TMI 1285 - AAR - GST

Levy of IGST under Reverse Charge Mechanism - deemed Ocean Freight on import of goods (raw material) on CIF basis - inter-state supply or not - HELD THAT - An importer of goods is liable to pay 5% IGST under reverse charge on services by way of transportation of goods by a vessel from a place outside India up to the Customs station of clearance in India, provided by a person located in non-taxable territory to a person located in non-taxable territory and in case actual value of service (actual value of freight) is not known to importer, the same shall be deemed to be 10% of the CIF value of imported goods - Import of goods has been defined in the IGST Act, 2017 as bringing goods into India from a place outside India. All imports shall be deemed as inter-State supplies and accordingly Integrated tax shall be levied in addition to the applicable Custom duties. The IGST Act, 2017 provides that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under the Customs Act, 1962. The integrated tax on goods shall be in addition to the applicable Basic Customs Duty (BCD) which is levied as per the Customs Tariff Act. In addition, GST compensation cess, may also be leviable on certain luxury and demerit goods under the Goods and Services Tax (Compensation to States) Cess Act, 2017. Under the GST regime, Article 269 A constitutionally mandates that the supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-State trade or commerce for levy of integrated tax. So, import of goods or services will be treated as deemed inter-State supplies and would be subject to Integrated tax - While IGST on import of services would be leviable under the IGST Act on reverse charge basis, the levy of the IGST on import of goods would be levied under the Customs Act, 1962 read with the Custom Tariff Act, 1975. Accordingly, the concept of double taxation propounded by the applicant in their application is thus found to be unsubstantiated, bereft of merit. In the instant case, the applicant appears to be questioning the veracity and validity of levy of IGST on ocean freight under reverse charge mechanism, as stipulated under the aforesaid Notifications issued by the Central Government, on the recommendations of the GST council deriving powers as envisaged under section 5, subsection (1) of section 6 and clause (iii) and clause (iv) of section 20 of the Integrated Goods and Services Tax Act, 2017 (13 of 2016) road with sub-section (5) of section 15 and sub-section (1) of section 16 of the Central Goods and Services fax Act, 2017 (12 of 2017) and under sub-section (3) of section 5 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017). In terms of prevailing provisions of the IGST Act, 2017 and the Rules made there under, the applicant in addition to IGST on import of goods levied under the Customs Act, 1962 read with the Custom Tariff Act, 1975 would also be liable to pay IGST on deemed ocean freight under reverse charge mechanism as stipulated under Notification No. 10/2017-I.T.(Rate) read with Notification No. 8/2017-I.T.(Rate).

Summary

Issues Involved:
1. Liability to pay IGST under Reverse Charge Mechanism (RCM) on deemed Ocean Freight on import of goods on CIF basis.
2. Double taxation on Ocean Freight.

Detailed Analysis:

1. Liability to pay IGST under Reverse Charge Mechanism (RCM) on deemed Ocean Freight on import of goods on CIF basis:

The applicant, a company engaged in manufacturing fertilizers, imports raw materials on a CIF (Cost, Insurance, and Freight) basis. The company contends that it already pays IGST on the total CIF value, which includes the value of ocean freight. However, as per Notification No. 10/2017-Integrated Tax (Rate), IGST on services provided by a person in a non-taxable territory by way of transportation of goods by a vessel up to the customs station in India must be paid on a reverse charge basis by the importer. The value of such services, if not known, is deemed to be 10% of the CIF value as per Notification No. 8/2017-Integrated Tax (Rate).

The legal provisions under Section 5 of the IGST Act, 2017, and the related notifications mandate that IGST on ocean freight must be paid under the reverse charge mechanism. This is irrespective of whether the importer has already paid IGST on the CIF value, which includes the ocean freight component.

2. Double taxation on Ocean Freight:

The applicant argues that paying IGST on both the CIF value (which includes ocean freight) and again on the deemed value of ocean freight under reverse charge mechanism amounts to double taxation. They cite the Gujarat High Court's decision in the case of Mohit Minerals Pvt. Ltd. vs Union of India, where it was held that IGST on ocean freight, already included in the assessable value of imported goods, leads to double taxation and is thus not permissible.

The Authority for Advance Ruling (AAR) analyzed the provisions of the IGST Act, 2017, and the Customs Act, 1962, concluding that the integrated tax on goods imported into India is levied and collected according to the Customs Tariff Act, 1975. The AAR found that the applicant's contention of double taxation is unsubstantiated because the levy of IGST on import of goods and services (including ocean freight) is governed by different provisions and mechanisms.

Conclusion:

The AAR ruled that the applicant is liable to pay IGST on deemed ocean freight under the reverse charge mechanism, in addition to the IGST paid on the CIF value of imported goods. The ruling is based on the prevailing provisions of the IGST Act, 2017, and the related notifications. The AAR also noted that the issue of double taxation raised by the applicant, referencing the Gujarat High Court's decision, has not attained finality as the department has filed an SLP against the said order before the Supreme Court.