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.