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06 May 2020

Levy of IGST on Ocean Freight under RCM is Unconstitutional

Levy of GST on Ocean Freight charged for 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 the customs station of clearance in India is one of the most argumentative matter of discussion.

Taxability - NN 8/2017-IT (Rate) dated 28.06.2017-IGST is leviable @5% under the clause (ii) of heading 9965 for the services described as under:

"Transport of goods in a vessel including services provided or agreed to be provided by a person located in a non-taxable territory to a 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."

NN 10/2017- IT (rate) dated 28.06.2017 prescribes that Importer, as defined in clause (26) of section 2 of the Customs Act, 1962, located in taxable territory is liable to pay integrated tax as recipient of service under reverse charge for the services specified therein as under:

Nature of Service Supplier of Service
Services supplied by a 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. A person located in non-taxable territory

In respect of valuation, the Government has provided by way of corrigendum (dt. 30.06.2017) to NN 8/2017-IT(R) dt. 28.6.2017 that where value of ocean freight is not available, the same shall be deemed to be 10% of the CIF value (sum of cost, insurance, and freight) of imported goods.

Recently, in the landmark judgment announced by Honable High Court of Gujarat in the case of Mohit Minerals (P.) Ltd. vs. High Court of Gujarat cited in (2020) 113 taxmann.com 436 (Gujarat) it was held that no tax is leviable under IGST Act, 2017, on ocean freight for 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 levy and collection of tax of such ocean freight is not permissible in law. Hence, NN 8/2017-IT(R) dt. 28.6.2017 and Entry 10 of NN 10/2017-IT (R) dated 28.6.2017 are unconstitutional.

Consequently, the Hon'ble High Court of Gujarat in the case of Gokul Agro Resources Ltd. vs. Union of India cited in (2020) 116 taxmann.com 1 (Gujarat), has further announced the decision in favour of the applicant by upholding the decision of the case Mohit Minerals (P.) Ltd. vs. High Court of Gujarat, prayed for issuance of directions to Competent Authority to grant refund of amount of IGST already paid pursuant to said Entry, Entry No. 10 was to be declared as ultra vires of section 5(3) of the IGST Act and further, assessee was directed to prefer application for refund of amount before Competent Authority.

By way of series of judgment announced by Hon'ble Gujarat High Court, it can be interpreted that IGST should not be levied and collected on Ocean Freight under RCM and tax paid, if any, should be claimed as refund.