The Central Board of Indirect Taxes and Customs (CBIC) has declared that the GST department will not challenge the Supreme Court decision in Mohit Minerals wherein the Apex Court has quashed the levy of IGST on ocean freights.
A circular issued on 4th November stated that “Please refer to your letter F. No. WHLCIMumCen/WICOF12019 dated 09.09.2022 and subsequent reminders dated 20.09.2022 and 03.10.2022, on the afore-mentioned subject. In this regard, it is informed that the Board has decided not to the a Review Petition in the subject matter. This is for your information for further action at your end, if any.”
A division bench of the Supreme Court comprising Justice Dr Dhananjaya Y Chandrachud, Justice Surya Kant and Justice Vikram Nath was considering a petition filed by Mohit Minerals Pvt Ltd challenged vires of the CBIC notification.
The petition has principally three elements. First, having paid the tax under IGST Act on the entire value of imports (inclusive of the ocean freight), the petitioner cannot be asked to pay tax on the ocean freight all over again under a different notification. Secondly, in case of CIF (Cost, Insurance and Freight) contracts, the service provider and service recipient both are outside the territory of India. No tax on such service can be collected even on reverse charge mechanism. And thirdly, in case of High Sea sales, the burden is cast on the petitioner as an importer whereas, the petitioner is not the recipient of the service at all. It is the petitioner’s seller of goods on high sea basis who has received the services from the exporter/ transporter.
Earlier, the High Court held that the GST law specifically provides that the importers are required to discharge IGST at the rate of 5 percent on ocean freight services under the Reverse Charge Mechanism (RCM) under which, the duty of importer have to pay IGST on behalf of the foreign buyer. However, at the same time, customs duty on the CIF value (which includes the component of freight as well) of the goods imported into India is also paid by the importer. As a result, there is double taxation on the component of ocean freight under GST law which is an impediment and has bloated the cost of imports.
After the Apex Court’s decision, the Gujarat High court has directed the CBIC to grant refund of goods and services tax paid on ocean freight within six weeks with interest, in a relief for importers.
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