Supreme Court Rules Against Levying Integrated Goods and Services Tax on Ocean Freight in Case of CIF Imports


The Supreme Court, in a highly anticipated judgment, has ruled that the Integrated Goods and Services Tax is not levied separately on importers with respect to ocean freight services under Cost Insurance Freight contracts.

Background

On June 28, 2017, the tax authorities published two notices (Notice n° 8/2017 – Integrated tax (rate) (Opinion No. 08/2017) and Notification No. 10/2017 – Integrated tax (rate) (Opinion No. 10/2017)) who considered that an importer of goods was the “recipient‘ freight services provided by the foreign shipper within the framework of the freight insurance cost (CIF) imports. As a result, importers became liable for the integrated goods and services tax (IGST) on sea freight services on a reverse charge basis. As a result, the import cost for importers has increased by half a percent of the CIF value of the import. As a result, importers became liable for the integrated goods and services tax (IGST) on sea freight services on a reverse charge basis. As a result, the import cost for importers has increased by half a percent of the CIF value of the import.

The notifications were challenged in the High Court of Gujarat which ruled them unconstitutional. The High Court held that importers under CIF contracts were not the recipients of ocean freight services which were rendered by the foreign shipper to the foreign exporter. The scope of the word ‘recipient‘ cannot be extended to mean anything that has not been provided by statute in statute. The Court further held that the attempt to tax ocean freight separately despite having levied and collected the integrated tax on the importation of goods (the value of which included the value of ocean freight) was contrary to the concept of supply composite under the Goods and Services Tax (GST) laws and therefore, inadmissible.

The Revenue Department has approached the Supreme Court against the decision of the Gujarat High Court in a batch of petitions.

Supreme Court decision

The Supreme Court concluded that the supply of the transportation service by the foreign shipper was part of the bundle of supplies, i.e. the composite supplies made by the foreign exporter to the Indian importer. The Court held that levying IGST separately on the services provided by the foreign shipper would be contrary to the principle of composite supplies under Section 8 of the Central Goods and Services Tax Act (CGST law) and contrary to the very structure of the CGST law. However, contrary to the decision of the Gujarat High Court, the Supreme Court held that the importers were the “recipients‘ in CIF contracts. It considered that the mention of importers as consignees in notification No 10/2017 was only of a clarifying nature and that the government, by notification, had not specified a taxable person different from the consignee for the purposes of the notification. reverse charge. On the question of the nature of the supply, the Supreme Court held that such an importation constituted a “between states‘ and would therefore be payable to IGST.

Importantly, regarding the nature of the recommendations of the TSG Board, the Court held that the amendments to the 101st Constitutional Amendment Act, 2016 (Amending law) indicate that Parliament intended the GST Council’s recommendation to have only persuasive value. The Court further held that if the GST Council’s recommendations were considered binding, they would disrupt the fiscal federalism enshrined in the Amendment Act, in which the Union and the States are given equal power to legislate. on the GST.

Go forward

The judgment of the Supreme Court settles the question of the liability of the IGST under the reverse charge on maritime freight in the event of imports made on a cif basis. Importers will not have to pay IGST separately on ocean freight services.

The decision is also a welcome relief for importers who did not qualify for the input tax credit (ICC) of IGST paid on ocean freight services subject to reverse charge previously. Sectors specifically falling into this category include electricity, oil and gas, and alcohol.

In addition to the above, importers who were unable to use the ITC will also benefit from the Supreme Court ruling. These importers can request a refund of IGST paid on ocean freight under the reverse charge.

This judgment should also put an end to the litigation on the question of the IGST on sea freight pending before various authorities. Cases where claims against importers were pending due to non-payment of IGST on ocean freight are also expected to end now.

Trilegal represented one of the importers in this case before the Supreme Court.

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