2018 (9) TMI 1257 - AAR - GST

Levy of GST on goods/services/both - applicability of Ocean freight Charges and System of double taxation with respect to import of raw materials of fertilizers - exclusion of any component of expenditure upon imported goods (Ocean freight) - scope of Section 97 of CGST/RGST Act, 2017. Whether 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, as consideration for availing the service of transportation of goods by sea provided by the foreign shipping entity? Whether in the case of import of goods on FOB (Free on board) basis the Applicant (Importer), for the purpose of determination of value of goods for the payment of IGST on import of goods is required to exclude the value of the component of Ocean freight paid by the Applicant (importer) to the foreign shipping entity, on which already GST is paid by the applicant (importer) being the service recipient in order to avoid double taxation? Held that - The services supplied by the foreign shipping entity of transportation of goods in a vessel to a port in India is an inter-state supply in terms of section 7 of the Integrated Goods and Services Tax Act, 2017. Hence, IGST is leviable on the same under Section 5 of the IGST Act. As per the charging section i.e. Section 5, IGST has to be paid by the taxable person - Thus, as per the Notification No. 10/2017- Integrated Tax (Rate) dated 28.06.2017, 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. Valuation of imported goods is to be done by the Customs Authority under the Customs Act, 1962 and this authority is not empowered to decide on the issue of valuation of imported goods. Therefore, this authority cannot give any findings regarding exclusion of any component of expenditure upon imported goods (Ocean freight) while determining the value of imported goods at the time of import - The question raised by the applicant is regarding the determination of valuation of imported goods at the port. The issue regarding determination of value as sought by the applicant does not fall under the purview of CGST/RGST Act, 2017 as this issue should be correctly dealt as per the relevant provisions of the Customs Act, 1962. Ruling - The applicant is liable to pay IGST on transportation of goods by vessel under Reverse Charge Mechanism (RCM) under Notification No. 10/2017- Integrated Tax (Rate) dated 28.06.2017 - Regarding 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.

Summary

Issues Involved:
1. Liability to pay GST on ocean freight charges for goods imported on CIF basis.
2. Determination of value for IGST on goods imported on FOB basis, considering ocean freight charges.

Issue-wise Detailed Analysis:

1. Liability to pay GST on ocean freight charges for goods imported on CIF basis:

The applicant sought an Advance Ruling on the applicability of GST on ocean freight charges in the context of importing raw materials for fertilizers. The goods are imported on CIF (Cost, Insurance, and Freight) basis, where the foreign supplier bears the transportation cost. The service provided by the foreign shipping entity is considered an 'inter-state supply' under Section 7 of the IGST Act, 2017, making it liable for IGST under Section 5 of the IGST Act.

According to Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017, specifically Entry No. 10, the recipient of the service (the importer) is liable to pay GST on ocean freight under the Reverse Charge Mechanism (RCM). The relevant entry reads:
"Services supplied by a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India."

Thus, the ruling concluded that the applicant (importer) is liable to pay GST on the ocean freight component paid by the foreign supplier to the shipping company.

2. Determination of value for IGST on goods imported on FOB basis, considering ocean freight charges:

The applicant also sought clarification on whether, for goods imported on FOB (Free on Board) basis, the ocean freight component should be excluded from the value of goods for IGST purposes to avoid double taxation. The applicant argued that they already pay GST on the ocean freight as the service recipient.

The ruling referred to Section 5(1) of the IGST Act, 2017, which states that IGST on imported goods should be levied and collected as per Section 3 of the Customs Tariff Act, 1975. The valuation of imported goods, including ocean freight, is governed by Section 14 of the Customs Act, 1962, and Rule 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. These provisions include the cost of transportation up to the place of importation in the transaction value of the goods.

The ruling concluded that the valuation of imported goods is under the jurisdiction of the Customs Authority, not the Advance Ruling Authority under the CGST/RGST Act, 2017. Therefore, the authority could not provide a ruling on excluding the ocean freight component from the value of imported goods for IGST purposes.

Ruling:

a. The applicant is liable to pay IGST on the transportation of goods by vessel under the Reverse Charge Mechanism (RCM) as per Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017.

b. The issue of excluding any component of expenditure (ocean freight) from the value of imported goods for IGST purposes falls beyond the purview of Section 97 of the CGST/RGST Act, 2017, and should be addressed under the relevant provisions of the Customs Act, 1962.