2024 (10) TMI 492 - HC - GST

Rejection of Refund claim on multiple grounds - Constitutional validity of Entry No. 10 of Notification No. 10/2017- Integrated Tax (Rate) dated 28.6.2017 - ultra-vires the provisions of the IGST Act and Article 14 and 265 of the Constitution of India even qua imports made on FOB basis or not - levy of tax under the IGST Act on payment of ocean freight on reverse charge basis - HELD THAT - It is not in dispute that IGST as per proviso to section 5(1) is leviable on the on the value as determined in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 (51 of 1975) at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962 (52 of 1962)and value of goods includes the cost, freight and insurance at the place of importation and therefore, once the IGST is paid on value of goods including the freight, cost and insurance, it would not make any difference between the transactions is on CIF basis or FOB basis, as in both the cases IGST would be payable as per provision of section 5(1) of the IGST Act, 2017 on the value of goods as per the provisions of the Customs Act. As held by the Hon ble Apex Court in case of Union of India and another v. Mohit Minerals Private Limited through Director 2022 (5) TMI 968 - SUPREME COURT as well as by Bombay High Court in case of M/s. Agarwal Coal Corporation Pvt. Ltd. 2024 (3) TMI 1265 - BOMBAY HIGH COURT , when the notification itself is struck down, the respondent authorities cannot insist for levy of IGST on the amount of ocean freight in case of transaction FOB basis also. The impugned order is hereby quashed and set aside - petition allowed.

Summary

Issues Involved:

1. Validity of Entry No. 10 of Notification No. 10/2017-Integrated Tax (Rate) dated 28.6.2017.
2. Levy of IGST on ocean freight under FOB contracts.
3. Withdrawal of IGST refund on ocean freight for CIF imports.
4. Application of the Supreme Court's judgment in Mohit Minerals Pvt. Ltd. to FOB contracts.

Issue-wise Detailed Analysis:

1. Validity of Entry No. 10 of Notification No. 10/2017:

The petitioner challenged Entry No. 10 of Notification No. 10/2017-Integrated Tax (Rate) dated 28.6.2017, claiming it was ultra-vires the provisions of the IGST Act and unconstitutional under Articles 14 and 265 of the Constitution of India. The petitioner argued that the levy of tax on ocean freight in FOB contracts was contrary to the Supreme Court's judgment in Mohit Minerals Pvt. Ltd., which struck down a similar levy as unconstitutional. The court agreed with the petitioner, referencing the Mohit Minerals case, where the notification was declared ultra-vires, and upheld by the Supreme Court, rendering the notification inapplicable.

2. Levy of IGST on Ocean Freight under FOB Contracts:

The petitioner contended that IGST was already paid on the total value of imports, including freight, at the time of importation, rendering further levy on ocean freight under FOB contracts invalid. The court noted that the Supreme Court's decision in Mohit Minerals applied to both CIF and FOB contracts, as IGST was levied on the total value, including freight, under the Customs Act. The court concluded that the respondent authorities could not levy IGST on ocean freight for FOB contracts, as the notification was struck down.

3. Withdrawal of IGST Refund on Ocean Freight for CIF Imports:

The petitioner sought to quash the order withdrawing the refund of IGST paid on ocean freight for CIF imports. The court found that the refund was initially sanctioned based on the Supreme Court's judgment, which invalidated the notification. The appellate authority's ex-parte order withdrawing the refund was deemed unjustified, as the petitioner had complied with the necessary requirements, including reversing the input tax credit to prevent double benefits.

4. Application of the Supreme Court's Judgment in Mohit Minerals Pvt. Ltd. to FOB Contracts:

The petitioner argued that the Supreme Court's judgment in Mohit Minerals Pvt. Ltd. applied to FOB contracts, as the court had considered both CIF and FOB transactions. The court agreed, citing the Bombay High Court's decision in M/s. Agarwal Coal Corporation Pvt. Ltd., which confirmed that the Mohit Minerals judgment applied to both contract types. The court emphasized that once the notification was declared ultra-vires, it could not be applied to FOB contracts, and any levy based on it was invalid.

Conclusion:

The court allowed the petition, quashing the impugned order and ruling that the respondent authorities could not levy IGST on ocean freight for FOB contracts, as the notification was struck down. The court reinforced that IGST paid on the total value, including freight, covered both CIF and FOB imports, aligning with the Supreme Court's judgment in Mohit Minerals Pvt. Ltd. The petition succeeded, and the rule was made absolute, with no order as to costs.