GST on Ocean Freight under reverse charge mechanism

 

 

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Case of Mohit Minerals Pvt Ltd Vs Union of India reported in 2020-TIOL164-HC-Ahm-GST 

 

As per the analysis of the case,

Taxation of a cross-border transaction is one of the most complex and disputed areas of litigation. Recently, the Gujarat High Court in the case of Mohit Minerals Pvt Ltd v. UOI, struck down the levy of GST under RCM on Ocean Freight transaction and this decision forms the bedrock.

 

Just to have a quick recap, from 22 January 2017, the foreign liner or his agent was required to discharge service tax on the freight paid towards transportation of goods from outside India for all kinds of contracts, be it CIF or FOB. Under the garb of the Rate Notifications issued under the GST Acts, the Government required the importer of goods to discharge GST separately on the value of the freight component, even in case of CIF transactions. After the hullabaloo relating to who would pay the tax, especially for CIF Contracts, the Government was quick to amend the statute with effect from 23 April 2017, and the law deemed that ‘the importer’ as the person liable to discharge service tax on the freight element for all kinds of contracts. Further, in the name of facilitating computation, an option to pay tax at the rate of 5% of the CIF value of goods was provided to the assessees. This position was challenged by few petitioners and the Gujarat High Court struck down the levy of tax for these periods also.

 

Decision:

The High Court held that since the importer is neither supplier nor the recipient of ocean transportation services provided by shipping lines outside India, they are not liable to pay IGST on such transactions. To summarize, the writ petitions of the assessee were allowed on the following independent propositions:

  • Under Section 9(3) of the CGST Act, only a recipient of a service can be vested with the liability to discharge service tax. The term ‘recipient’ has to be interpreted literally. In case of CIF Contracts, importers of goods into India cannot be said to be recipients of ocean freight services. The shipping services have been availed by the exporter (seller outside India) and so the importer does not have any role in the play.

  • The transaction of ocean freight service by foreign shipping line is neither an inter- State nor intra-State supply as per IGST Act.

  • Ocean freight has already suffered IGST as a part of the value of goods imported. Dual levy of IGST cannot be imposed treating it as a supply of service. Double taxation, through delegated legislation, where statute does not provide, is not permissible.

Considering the stakes involved, it is certain that the Department would knock the doors of the Supreme Court. Hence, in case if there is any further retrospective amendment, one needs to follow the same.

 

Further, for the company who is registered in West Bengal, there exists a similar judgement from the Calcutta High Court. In case of M/s. Adani Wilmar Limited Vs Union of India & Ors [W. P. 13330 (W) of 2019] where A point of law stands decided by a Division Bench of the High Court of Gujarat has given recognition.

 

Hence taking the view of the Cal HC, a company can follow the decision upheld by the Guj HC and may not pay the RCM IGST on ocean freight.

However, one thing to be noted, in the current situation if no RCM is paid the GST department may issue a show cause notice asking for non-payment of RCM and hence in that case one need to respond to that show cause notice with appropriate High Court Judgment wherein the authorities may  agree or disagree depending upon the facts and circumstances of the case.

 

 

 

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