2020 (7) TMI 793 - AAR - GST

Levy of GST - freight in the case of indigenous supplies - reverse charge mechanism - inclusion of ocean freight in the case of imports on the CIF value - Double taxation - revenue neutrality - Section 9(3) of the CGST Act 2017 - HELD THAT - The applicant is a limited company incorporated under the Companies Act and engaged in the manufacturing and supply of the paper. Hence the Notification No. 13/2017-CT (Rate) dated 28.06.2017 (as amended) is squarely applicable on them and they are liable to pay the GST on the freight paid under the reverse charge mechanism. Revenue neutrality - HELD THAT - Having no additional financial impact on the applicant. It is observed that as per the mandate provide to the Advance Ruling Authority under Section 97 of the CGST Act 2017 the Authority has to decide specific issues as specified under Section 97(2) of the CGST Act 2017 on the basis of existing Law/Rules/Notifications/Circulars. The Authority cannot venture outside its purview and give rulings on the issue which are not under its mandate - the matter of double taxation is outside the purview of the Authority. When the GST has been paid on the ocean freight in the case of imports on the CIF value and the value of the ocean freight is included in the value of the imported goods whether any further GST liability is there under RCM? - 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 IGST 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 - in terms of the Notification No. 10/2017- Integrated Tax (Rate) dated 28.06.2017 (as amended) in the case of import of goods on CIF basis the applicant is liable to pay GST on the component of Ocean freight paid by the foreign supplier to the shipping company. In term of Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017 (as amended) the applicant is liable to pay GST under reverse charge mechanism on the freight paid - The applicant is liable to pay IGST on transportation of goods by vessels under Reverse Charge Mechanism (RCM) under Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017 as amended.

Summary

Issues Involved:
1. Liability to pay GST on freight under Reverse Charge Mechanism (RCM) for indigenous supplies.
2. Liability to pay GST on ocean freight under RCM when GST is already paid on the CIF value of imported goods.

Issue-wise Detailed Analysis:

1. Liability to pay GST on freight under Reverse Charge Mechanism (RCM) for indigenous supplies:

The applicant, a limited company engaged in manufacturing paper, sought an advance ruling on whether GST needs to be paid again on freight under RCM when GST has already been paid on the freight for indigenous supplies. The applicant contended that paying GST again would result in double taxation.

The Authority examined the provisions of Section 5(3) of the IGST Act, 2017, and Section 9(3) of the CGST Act, 2017, which allow the government to specify categories of supplies where the tax is to be paid on a reverse charge basis by the recipient. Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017 specifies that the tax liability on goods transport agency (GTA) services is to be discharged under the reverse charge mechanism if the service recipient falls under a specified category, which includes any body corporate established under any law.

Since the applicant is a limited company, the notification applies to them, making them liable to pay GST on the freight paid under RCM. The Authority noted that the issue of double taxation is outside its purview as per Section 97 of the CGST Act, 2017, and thus cannot provide a ruling on that matter.

2. Liability to pay GST on ocean freight under RCM when GST is already paid on the CIF value of imported goods:

The applicant also sought clarity on whether any further GST liability exists under RCM when GST has already been paid on the ocean freight included in the CIF value of imported goods. The applicant referenced the judgment of the Hon’ble High Court of Gujarat in the case of M/s Mohit Minerals Pvt. Ltd. Vs Union Of India, arguing that ocean freight should not be liable to GST.

The Authority referred to Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017, which specifies that IGST is payable on services supplied by a person located in a non-taxable territory for the transportation of goods by a vessel from a place outside India to the customs station in India. This notification mandates that the importer, defined under Section 2(26) of the Customs Act, 1962, is liable to pay GST on ocean freight under RCM.

The Authority observed similar rulings by the Authority for Advance Ruling for Uttarakhand in the case of M/s Bhal Paper Mills Ltd. and by the Rajasthan Authority for Advance Ruling in the case of M/s Chambal Fertilizers and Chemical Limited, which upheld the requirement to pay IGST on ocean freight under RCM even when GST has been paid on the CIF value of imported goods.

Ruling:

1. The applicant is liable to pay GST on freight under RCM as per Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017.
2. The applicant is liable to pay IGST on ocean freight under RCM as per Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017.

Validity:

This ruling is valid within the jurisdiction of the Authority for Advance Ruling Uttar Pradesh and subject to the provisions under Section 103(2) of the CGST Act, 2017, until declared void under Section 104(1) of the Act.