NO IGST ON OCEAN FREIGHT ON IMPORT ON GOODS

[Dr. Sanjiv Agarwal]

Gujarat High Court has recently held that IGST cannot be levied separately on “Ocean Freight” where transaction involves import of goods on FOB value.

In BLA COKE PVT. LTD. VERSUS UNION OF INDIA & ORS. - 2024 (10) TMI 492 - GUJARAT HIGH COURT, petitioner raised a question as to whether transactions involve import of goods on FOB value, petitioner would be liable to pay IGST on amount of ocean freight or not. It prayed to:

1. Declare Entry No. 10 of Notification No. 10/2017-Integrated Tax (Rate) dated 28.6.2017 to be ultra-vires the provisions of the IGST Act, 2017 and Article 14 and 265 of the Constitution of India even qua imports made on FOB basis.
2. Declare that levy of tax under the IGST Act, 2017 on payment of ocean freight on reverse charge basis even qua FOB contracts once such freight element is part of the import value of goods which has been subjected to tax under the IGST Act, 2017 is contrary to the judgement of Hon’ble Supreme Court in the case of Mohit Minerals Pvt. Ltd. and therefore, unconstitutional.
3. Issue a writ of certiorari or writ in the nature of certiorari or any other appropriate writ or order quashing and setting aside order dated 30.8.2023 withdrawing refund already sanctioned to the Petitioner.
4. Declare that at least the refund of IGST paid on ocean freight qua CIF imports ought not to have been withdrawn by the impugned order dated 30.8.2023.
5. Declare Entry No. 1 of Notification No. 10/2017-Integrated Tax (Rate) dated 28.6.2017 in so far as it would permit imposition of tax on freight paid qua FOB contracts post 1.10.2023 i.e. after deletion of Entry No. 10 of the same notification to be ultra-vires the provisions of the IGST Act and Article 14 and 265 of the Constitution of India.

Petitioner contended that in case of CIF contracts, the transportation of goods up to the port in India is arranged for by the exporter of goods and the freight is also paid by such exporter. The foreign exporter raises consolidated invoice for such purchase by the petitioner on CIF basis. In so far as FOB contracts are concerned, the freight is paid by the petitioner directly to the foreign shipping line.

Further, when the goods are imported by the petitioner into the country, bill of entry for home consumption is duly filed by the petitioner. At the time of clearance of goods for home consumption, the petitioner pays customs duty and tax under the Integrated Goods and Service Tax Act, 2017 (IGST Act) on total value of the goods including freight. Such payment of IGST is required to be made by the petitioner irrespective of whether the imports are on CIF or FOB basis.

The Court observed 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 at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 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, 1962.

In such circumstances, as held by the Apex Court in case of UNION OF INDIA & ANR. VERSUS M/S MOHIT MINERALS PVT. LTD. 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. VERSUS THE ASSIST. COMMISSIONER OF STATE TAX. -  2024 (3) TMI 1265 - BOMBAY HIGH COURT, the high court held that 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 petition was hence allowed and impugned order quashed.