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SC Strikes Down IGST On Ocean Freight – Tax Authorities

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Supreme Court strikes down levy of IGST on Ocean Freight

UOI vs Mohit Minerals Pvt. Ltd.


  • The Supreme Court in its landmark ruling in the case of
    UOI vs. Mohit Minerals Pvt. Ltd. [C.A. No. 1390 of
    has struck down the levy of IGST on importers in
    respect of ocean freight services- which are provided by foreign
    shipping lines to foreign suppliers in a CIF contract for import of
    goods into India.

  • This decision has been passed on the ground that that a CIF
    contract for import of goods forms a composite supply, comprising
    of supply of goods and supply of services of transportation,
    insurance, etc., on which the Indian importer discharges IGST.
    Thus, a separate levy of IGST on the service aspect of the
    transaction would violate the principle of composite supply under
    Section 8 of Central Goods and Services Tax Act, 2017 (CGST Act).
    While dealing with the argument of the Union that recommendations
    of GST Council are binding on Union and States, the Supreme Court
    held that the recommendations of the GST Council would only have a
    persuasive value.


  • Notification No. 8/2017-Integrated tax (Rate) [dated 28.06.2017
    (‘Notification 8/2017’)] vide Entry No. 9, notifies IGST
    rate of 5% on ocean freight services provided or agreed to be
    provided by a person located in a non-taxable territory to another
    person located in a non-taxable territory by way of transportation
    of goods by a vessel from a place outside India upto the customs
    stations of clearance in India.

  • By virtue of the power conferred under Section 5(3) of
    Integrated Goods and Services Tax Act, 2017 (IGST Act),
    Notification No. 10/2017 – Integrated Tax (Rate) [dated
    28.06.2017 (‘Notification 10/2017’)] notifies that for the
    said category of service, IGST would be payable under reverse
    charge mechanism by the importer, located in the taxable territory,
    as defined in clause 2(26) of the Customs Act, 1962.

  • The constitutional validity of the Notifications,- seeking IGST
    under reverse charge from an Indian importer on ocean freight
    services between persons located in a non-taxable territory with
    respect to import of goods in India on a CIF basis – was challenged
    before the Gujarat High Court.

  • The Gujarat High Court in Mohit Minerals Pvt. Ltd. vs.
    UOI [SCA No. 726/2018]
    struck down such a levy of IGST as
    unconstitutional and ultra vires the IGST Act. It was
    struck inter alia on the ground that (a) the notifications
    amount to extraterritorial law, (b) the reverse charge payment of
    IGST amounts to double taxation of the same transaction inasmuch as
    IGST paid on import of goods and (c) the importer is not a
    “recipient of service” to be made liable to tax on a
    reverse charge basis.

  • A batch of Special Leave Petitions (SLPs) were filed before the
    Supreme Court by the Department against the decision of the Gujarat
    High Court.

Key Findings

  • The ‘recommendations’ of the GST Council are a product
    of a collaborative dialogue involving the Union and States and are
    recommendatory in nature. Under Article 246A of the Constitution of
    India, both the Union and the States are conferred equal power to
    legislate on GST. Thus, to regard recommendations of GST Council as
    binding would disrupt fiscal federalism.

  • Notification 10/2017 does not specify a taxable entity
    different from that which is prescribed in Section 5(3) of the IGST
    Act for the purposes of reverse charge. Hence, the said
    Notification does not suffer from excessive delegation.

  • Notification 8/2017 cannot be struck down for excessive
    delegation when it prescribes ten percent of the CIF value as the
    mechanism for imposing tax on a reverse charge basis.

  • Section 2(31) of the CGST Act defines ‘consideration’
    to include payment made by the recipient or by any other person.
    Thus, in the case of goods imported on CIF basis, the fact that
    consideration is paid by the foreign exporter to the foreign
    shipping line would not stand in the way of it being considered as
    a “supply of service” under Section 7(4) of the IGST

  • The services by foreign shipping lines to foreign exporters for
    import of goods into India has a nexus with the territory of India
    inasmuch as the destination of the goods is India and the services
    are rendered for the benefit of the Indian importer.

  • When the place of supply of ocean freight services is deemed to
    be the destination of goods under Section 13(9) of the IGST Act,
    the supply of services would necessarily be “made” to the
    Indian importer, who would then be considered as a
    “recipient” under the definition of Section 2(93)(c) of
    the CGST Act.

  • The supply of services of transportation by the foreign shipper
    forms a part of the “composite supply” between the
    foreign exporter and the Indian importer, on which the IGST is
    already payable under Section 5(1) of the IGST Act read with
    Section 20 of the IGST Act, Section 8 and Section 2(30) of the CGST

  • While the notifications are validly issued under Sections 5(3)
    and 5(4) of the IGST Act, it would be in violation of the principle
    of ‘composite supply’ enshrined under Section 8 of the CGST
    Act and the overall scheme of the GST legislation.

ELP Comments

Broader issue – Legislation of GST

  • The Supreme Court has held that Article 246A of the
    Constitution of India confers equal power to the Centre and States
    to legislate on aspects of GST. States are not sub-servient to the
    Centre or the GST Council and are free to engage in co-operative as
    well as competitive federalism.

  • In terms of the finding of the Supreme Court on the non-binding
    nature of recommendations of GST Council, the State has independent
    power to legislate various provisions of State GST law.

Issue on Ocean Freight

  • This ruling brings in a huge respite for the importers who are
    not eligible to claim Input tax credit or face accumulation of
    credit. The importers who have paid IGST on ocean freight services
    and have not claimed Input tax credit or claimed but not utilized
    the Input tax credit of such IGST can claim refund claim under
    Section 54 of the CGST Act.

  • Section 54 of the CGST Act provides a limitation period of two
    years for refund. However, one may argue that the tax collected
    without the authority of law by the Government is violative of
    Article 265 of Constitution of India and hence, the bar of
    limitation should not apply.

  • While the ruling goes in the favour of importers, the finding
    that importers may be deemed to be the ‘recipient’ may set
    a wrong precedent giving liberty to the Government to shift the
    onus of payment on persons other than the actual recipient of goods
    or services in any other similar situations.

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