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Gujarat High Court holds IGST on ocean freight ‘ultra vires’

The High Court of Gujarat has declared the imposition of integrated goods and services tax (IGST) on ocean freight as ultra vires and held that such a levy was not permissible under the law.

The landmark judgment has brought about major relief to the importing community as this tax was mired in controversies leading to its challenge before the high court.

The court has junked two notifications levying the tax on the ground that they lacked “legislative competence” and held that no tax was leviable under the law.

“We have reached the conclusion that no tax is leviable under the integrated goods and services tax (IGST) Act 2017 on ocean freight for the services provided by a person located in a non-taxable territory by way of transportation of goods by a vessel from a place outside India up to customs station of clearance in India and the levy and collection of tax of such ocean freight under the impugned notification is not permissible in law,” stated the bench headed by Justice J.B. Pardiwala.

The petition, challenging the Centre’s notification, was moved by coal importers who submitted IGST can be levied either on the service provider or service recipient, not on the importers who pay customs duty.

Double taxation

They also submitted that IGST on ocean freight amounted to double taxation and hence, unconstitutional.

Welcoming the High Court’s verdict, Abhishek Jain, tax partner, EY said: “This ruling fortifies the no-tax position adopted by various businesses, especially those engaged in supplies of GST- excluded and exempt goods, to whom the credit of GST paid on the said ocean freight is clearly not available. This ruling has been a matter of consideration for the GST Council as well and an explicit clarification on this aspect from the government should help end the ongoing litigation in various States on this aspect.”

Explaining the judgment, G. Natarajan, advocate and senior partner of Swamy Associates, stated that in case of CIF (cost, insurance and freight) imports, the ocean freight is not paid by the Indian importer, but by the foreign exporter. The service is also provided by a foreign shipping line. In such a case, demanding service tax/GST for such transportation from the Indian importer is held to be extra-territorial and impermissible. Though this levy was introduced to create a level-playing field to the Indian shipping lines, the levy has been drafted so poorly, that it cannot withstand the judicial scrutiny.

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