GST

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Greetings,

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The hon’ble supreme court on may 19, 2022 gave a very important judgement relating to payment of IGST on ocean freight on the basis of reverse charge mechanism. The court while dealing with an appeal, upheld the judgment pronounced by the high court of Gujrat in matter UNION OF INDIA & ANR. VS M/S MOHIT MINERALS PVT.LTD. The supreme court also reiterated that the recommendations of the GST Council are not binding in nature and that it is on the discretion of the union and states to use the recommendation while making laws on the concerned subject-matter (GST Laws).

Mohit minerals Pvt.Ltd was engaged in import of non-coking coal from Indonesia, south Africa and the US by ocean transport on CIF contract basis. The issue in the present matter was whether the respondent can be subject to levy of IGST on ocean freight which is paid by foreign exporter to foreign shipping line, on RCM basis?

The supreme court made the following observations:

1.?????The import of goods by the respondent under a CIF contract is a ‘Composite supply’ under section 2(30) read with section 8 of CGST act.

2.?????In the composite supply of goods when goods reach for clearance at the customs duty department the value of Goods already have the value of cost, insurance and freight added to it on which custom duty is paid and further IGST is also paid.

3.?????No Separate levy of IGST can be made under RCM on importer of goods as it would be violative of section 8 of CGST Act which puts tax liability on composite supply of goods. The idea of introducing 'composite supply' was to ensure that various elements of a transaction are not dissected and the levy is imposed on the bundle of supplies together.

4.?????The agreement between the foreign exporter and foreign shipping company for transporting goods to India includes the amount of Ocean freight which is to be paid by the foreign exporter. As both parties are in a non-taxable territory the tax liability cannot be imposed on them. Also, the CIF contract between the Indian importer and foreign exporter already mentions that any cost in furtherance of transportation of goods shall be added to the total value of goods. This total value of goods already includes the value of ocean freight on which the importer pays the custom duty and IGST as soon as it reaches India. Separating the ocean freight from value of goods which is already included in the composite supply under section 2(30) of CGST and putting levy under RCM on it under ‘supply of service’ head will be violate of section 8 of the CGST act.

5.?????The recommendations of the GST Council to only have a persuasive value. Neither does Article 279A begin with a non-obstante clause nor does Article 246A state that it is subject to the provisions of Article 279A i.e No binding power is mentioned in any of these provisions regarding the role of GST Council. The ‘recommendations’ of the GST Council are the product of a collaborative dialogue involving the Union and States. They are recommendatory in nature. To regard them as binding edicts would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST.

6.?????Also the notification no. 10/2017- Integrated tax rate dated June 28,2017 which specifies the recipient ( in this case the importer) is only clarificatory and is ultra-vires.

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Thank you.