IGST on Ocean Freight cannot be Levied on FOB Transactions also: Gujarat HC Draws on Mohit Mineral's Precedent in Ruling [Read Order]
The High Court’s decision reaffirmed that since IGST had already been paid on the entire value of the imports, including freight, imposing an additional tax for FOB transactions was unjustified.
Gujarat High Court – IGST – Ocean Freight – IGST on Ocean Freight – Taxscan
Gujarat High Court – IGST – Ocean Freight – IGST on Ocean Freight – Taxscan
The Gujarat High Court has held that Integrated Goods and Services Tax ( IGST ) on ocean freight cannot be levied on Free on Board ( FOB ) transactions also, drawing on decision with the precedent set in the Mohit Minerals Pvt. Ltd. case by the Supreme Court.
The case revolved around a Private Limited Company engaged in the manufacturing and sale of hard coke, which imports coking coal both on CIF ( Cost, Insurance, and Freight ) and FOB bases.
The petitioner argued that while CIF transactions included freight costs in the consolidated invoice raised by the foreign exporter, in FOB transactions, the freight was paid directly by the petitioner to the shipping line. Importantly, IGST was paid on the total value of imports, inclusive of freight, at the time of customs clearance.
The petitioner claimed that despite fulfilling the tax obligations on both CIF and FOB transactions, the GST department issued a show cause notice rejecting their refund claim for IGST already paid on ocean freight. The petitioner contended that the ruling in Mohit Minerals, which struck down a similar notification regarding the levy of IGST on ocean freight, applied equally to FOB contracts.
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The High Court’s decision reaffirmed that since IGST had already been paid on the entire value of the imports, including freight, imposing an additional tax for FOB transactions was unjustified.
Drawing on the Supreme Court's ruling in the Mohit Minerals case, the Gujarat HC clarified that the distinction between CIF and FOB contracts does not warrant separate IGST treatment since both involve costs associated with the import of goods.
The court noted that IGST, under the proviso to section 5(1) of the IGST Act, is applicable to the value of goods determined by section 3 of the Customs Tariff Act, 1975, at the time customs duties are levied under section 12 of the Customs Act, 1962. This value encompasses the cost, freight, and insurance at the point of importation.
Therefore, once IGST is paid on the total value—including freight and insurance—it is irrelevant whether the transactions are conducted on a CIF or FOB basis; in both cases, IGST is due on the goods' value as outlined in the relevant provisions of the Customs Act, noted the bench.
Justices Bhargav D Karia and Niral R Mehta ruled that “In such circumstances, as held by the Hon’ble Apex Court in case of Union of India and another v. Mohit Minerals Private Limited through Director (supra) as well as by Bombay High Court in case of M/s. Agarwal Coal Corporation Pvt. Ltd. (supra), when the notification itself is struck down, the respondent authorities cannot insist for levy of IGST on the amount of ocean freight in case of transaction FOB basis also.”
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Consequently, the Gujarat HC quashed the impugned recovery order from the GST authorities, allowing the petitioner's claim for IGST refund and establishing a clear legal precedent against the levy of IGST on ocean freight for FOB transactions.
Advocate, Mr. Uchit N. Sheth represented the petitioner, and Advocate Ms. Hetvi H. Sancheti appeared for the respondents.
To Read the full text of the Order CLICK HERE
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