2019 (10) TMI 945 - AAR - GST

Liability of IGST on importer - ocean freight on the case of CIF basis contract - Reverse Charge Mechanism - HELD THAT - This issue is sub-judice as the same issue is pending before the Hon ble High Court of Gujarat and this ruling is subject to the outcome of the decision of the Hon ble Court. Subject to the final decision in the issue by the Hon ble Court, it is ruled that IGST should be paid by the importer on ocean freight in ease of CIF basis contract, under Reverse Charge.

Summary

Issues Involved:
1. Whether under Reverse Charge Mechanism (RCM), IGST should be paid by the importer on ocean freight in the case of CIF basis contract.

Detailed Analysis:

Facts and Submissions:
1. Applicant's Business and Import Details:
- The applicant is engaged in the business of supplying edible oil and imports edible grade Crude Oil on a CIF (Cost, Insurance, and Freight) basis.
- Upon arrival at the Indian port, Basic Customs Duty, applicable Cess, and IGST are paid.

2. Customs Valuation:
- As per Rule 10(2) of the Customs Valuation (Determination of Value of Import Goods) Rules, 2007, the value of imported goods includes the cost of transport to the place of importation.
- Section 7(2) of the IGST Act 2017 deems the import of goods as "inter-State" supplies, thus subject to integrated tax in addition to customs duties.

3. Levy of IGST:
- IGST on imported goods is levied in accordance with Section 3 of the Customs Tariff Act, 1975.
- The valuation for IGST includes the assessable value under Section 14(1) of the Customs Act, which encompasses the cost of transportation.

4. Double Taxation Argument:
- The applicant argues that the freight element included in the CIF value is already subjected to IGST when the goods reach the Customs frontier.
- Notification No. 10/2017 - Integrated Tax (Rate) mandates IGST on ocean freight under RCM, potentially leading to double taxation.

5. Composite Supply:
- The applicant contends that the import of goods on CIF basis constitutes a "composite supply" under Section 2(30) of the CGST Act, 2017, where the principal supply is the import of goods.
- Section 8 of the CGST Act states that the tax liability on a composite supply should be determined based on the principal supply, implying that splitting the supply to tax freight separately is not warranted.

Findings and Discussion:
1. Taxability under Notification No. 10/2017:
- Entry No. 10 of Notification No. 10/2017 - Integrated Tax (Rate) specifies that services supplied by a person in a non-taxable territory for the transportation of goods by a vessel up to the customs station in India are subject to IGST under RCM, with the importer being the recipient of the service.

2. Distinct Taxable Events:
- The valuation of imported goods includes the cost of transportation as per Rule 10(2) of the Customs Valuation Rules.
- The tax on the import of goods is separate from the tax on the supply of transportation services.
- Thus, there is no double taxation as the transactions are distinct: one for the supply of goods and the other for the supply of services.

3. Pending Judicial Review:
- The issue is currently sub-judice as it is pending before the Hon'ble High Court of Gujarat, and the ruling is subject to the outcome of the court's decision.

Ruling:
Subject to the final decision by the Hon’ble Court, it is ruled that IGST should be paid by the importer on ocean freight in the case of CIF basis contract, under Reverse Charge Mechanism.