Relief for importers as Gujarat HC Stays IGST levy on Ocean Freight

[Praveen Nair]

Dear All,

Importer can breathe easy as the Gujarat High Court has stayed the levy of IGST (Integrated Goods & Service Tax) on Ocean Freight. IGST is levied on all Inter-State supplies of goods and / or services. It is also applicable on any supply of goods and/or services in cases of import into and export from the country.

Under GST, there is specific provision with respect of taxability on the component of Ocean Freight. The law specifically provides that the importers are required to discharge IGST at the rate of 5% on Ocean Freight services under RCM (Reverse Charge Mechanism). Under RCM, it is the duty of importer to pay IGST on behalf of foreign buyer. However at the same time, customs duty on the CIF value (which includes the component of freight as well) of the goods imported into India is also paid by the importer. As a result, there is double taxation on the component of Ocean freight under GST law which is an impediment and has bloated the cost of imports.

Keeping this in mind, a petition was filed with the Gujarat High Court by MOHIT MINERALS PVT LTD VERSUS UNION OF INDIA [ 2018 (2) TMI 770 - GUJARAT HIGH COURT ] challenging vires of IGST related notification. The petition has principally 3 elements;

1. having paid the tax under IGST Act on the entire value of imports (inclusive of the Ocean Freight), the petitioner cannot be asked to pay tax on the Ocean freight all over again under different notification;
2. in the case of CIF (Cost, Insurance & Freight) contracts, the service provider and service recipient both are outside the territory of India. No tax on such service can be collected even on reverse charge mechanism.
3. in case of High Seas Sales, the burden is cast on the petitioner as an importer whereas, the petitioner is not the recipient of service at all. It is the petitioner's seller of goods on high seas basis who has received the services from the exporter/transporter. The matter is pending.

A similar petition was filed by Ghanshyamlal and Co. The court took notice of order passed in the previous matter and granted stay. Now notice has been issued to the Central Government and both the matter will be heard on June 19.

While the present order grants stay on levy of IGST on Ocean freight, it would be interesting to know the judgment and a great relief to the importers with the long pending double taxation issues, if settled.

Discussions to this article

[AJAY KUMAR]

There is nothing remarkable in the said stay order. Similar stay orders had been given before in some other cases, where the cause of action exists like in the case of M/s. Sal steel ltd v. UOI reported in 2019 (1) TMI 327 and in the case of M/s. Asahi Songwon Colors Ltd. v. UOI reported in 2019 (2) TMI 960, though these cases are not tagged with Mohit Minerals. Since these cases were not tagged with MOHIT MINERALS case, the same was not highighted before. The arguments advanced in those cases were also wide ranging and different in the sense it questioned the levy of service tax on services provided outside taxable territory and the methodology of fixing the value at 10% of CIF value etc. It is to be seen whether the Hon'ble High Court addresses these crucial issues as well. We have also filed a similar petition in the Gujarat High Court. It is a clear case of double taxation and even more so in the GST regime. The Courts should strike down such invalid and illegal levies through back door methods without considering the aspect of revenue involvement and this should be done retrospectively even for service tax regime. Till then, we have wait and watch.