Relief From Double Taxation

The main objective of any economy is developing, and trade plays an important role in achieving that objective of development. To stay competitive on a global scale, meet the customer demands and make available the quality goods, imports are done. Considering the significance of Imports, lawmakers had placed their specific sights on Imports and various provisions of GST have been drafted in a way that would connect the path of development of a country.

BASICUNDERSTANDING

• As per the definition of Section 2(26) of Customs Act, 1962, “Imports?with its grammatical variations and cognate expressions, means bringing into India from a place outside India.”

Import can be of goods or services or both or in any combination thereof, either as composite supply or mixed supply.

It is observed in many cases of imports in the past,IGST is charged in two ways:

• On?composite supply,which comprises of supply of goods and services of transportation, insurance etc. in a single CIF value, and
• RCM?charged on ocean freight services.

Let’s understand this with the help of an illustration

As per?serial no. 10 of notification no. 10/2017 IGST (Rate), dated 26.08.2017?the recipient of goods (Mr X) shall pay IGST?under RCM?on transportation services provided by the person located in the non-taxable territory through a vessel?(Point A)?up to the customs clearance station in India (Point B).

Also, the importer (Mr X) is required to pay customs duty on the cost, insurance, and freight (CIF) value of the goods being imported via the ocean.

This leads to double taxation on the amount of?ocean freight.

To resolve the above matter, a petition was filed by the applicant M/s Mohit Minerals Pvt. Ltd. in Gujarat High Court in 2018 on which judgement in favour of the applicant was passed on January 23, 2020.

BACKGROUND OF THE CASE

• The applicant company imports coal and pays IGST on the entire consignment value at the time of importation. (Consignment value being CIF value which includes ocean freight)
• Under GST law, as per?serial no. 10 of notification no. 10/2017 IGST (Rate), dated 26.08.2017?the recipient of goods shall pay IGST?under?Reckon transportation services provided by the person located in the non-taxable territory through a vessel up to the customs clearance station in India.
• As the applicant has already paid IGST at the time of importation, again paying IGST under RCM as per the above-mentioned notification would lead to double taxation.

GUJARAT HIGH COURT JUDGEMENT

The applicant M/s Mohit Minerals Pvt. Ltd. is challenging the legality and validity of the impugned Notification No.8/2017-Integrated Tax (Rate), dated 28.6.2017 and Entry 10 of the Notification No.10/2017-Integrated Tax (Rate), dated 28.6.2017 as the same is lacking legislative competency and are ultra vires to the Integrated Goods and Services Tax Act, 2017.

The GST council has levied again the integrated tax on a reverse charge basis under the impugned Notification on the Ocean Freight, for which the applicant is already paying the integrated tax at the time of import with the value of imported coal, which is not permissible under the law.

After all the hearings, it was held that the transaction of supply of services by a person located in non-taxable territory to another person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India is not leviable to the Goods and Services Tax.

Also, the impugned notification levying the tax on the supply of ocean freight service and making the importer of goods the person liable for paying the tax washeld unconstitutional as there is no statutory sanction for levy and collection of such tax.

Feeling aggrieved with the above decision of the Gujarat High Court,the Union of India filed the petition with the Hon’ble Supreme Court on which the decision was delivered on May 19, 2022.

The Hon’ble Supreme court held that-

“The recommendations of the GST Council are not binding on the Union and States”, because the recommendations of the GST Council are the product of a collaborative effort ofthe Union and States. They are only recommendatory. To regard them as a binding decree, would disrupt fiscal federalism. So, the Government while exercising its rule-making power under the provisions of the CGST Act and IGST Act, it is not bound by the recommendations of the GST Council.

Therefore, since the Indian importer is liable to pay IGST on the?‘composite supply’, comprising of supply of goods and supply of services of transportation, insurance, etc. in a CIF contract, a separate levy on the Indian importer for the ‘supply of services’ by the shipping line would violate Section 8 of the CGSTAct.

Having paid the IGST on the amount of freight which is included in the CIF value of the imported goods, the notification levying tax again as RCM (Reverse Charge Mechanism) on the supply of services is to be struck down.

This content is meant for information only and should not be considered as an advice or legal?opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.

Posted by:

CA Tarun Kapoor

AKGVG & Associates