IGST should be Paid by the Importer on Ocean Freight in Case of CIF Basis Contract under Reverse Charge: AAR [Read Order]

The Authority of Advance Ruling (AAR) in Karnataka has ruled that, Integrated Goods and Services Tax (IGST) should be paid by the importer on Ocean Freight in case of CIF basis contract under reverse charge.

The applicant M/S M.K Agro Tech. Pvt. ltd has filed an application for advance ruling under section 97 of CGST Act 2017 and section 97 of the KGST Act 2017, before the Authority for Advance Ruling Karnataka seeking a ruling on whether under Reverse Charge Mechanism, IGST should be paid by the importer on ocean freight on the case of CIF basis contract. The authority held that the IGST should be paid by the importer on ocean freight in case of CIF basis Contract, under Reverse Charge.

The brief fact of the case is that the applicant states that they are in the business of supplying edible oil and they import edible grade Crude Oil without any separate charges for transportation from other countries to Indian port on CIF basis. When it enters the Indian Port, Basic Customs Duty and applicable Cess along with IGST are paid.

In the instant case, the applicant states that as per Rule 10(2) Customs Valuation Rules, 2007, for the valuation of basic customs duty, the cost of transportation is to be included. As per Section 3(17) and Section 3(18) of the Customs Tariff Act, 1975, IGST is to be charged on the value of import of goods. For the purpose of valuation of goods for customs and IGST, CIF value is to be considered which is inclusive of the freight element. The freight element of the import of goods has been subjected to IGST when the goods reach the Customs frontier itself. As per the provisions of Notification 10/2017 – Integrated Tax, the importer is liable to pay IGST even if the import is under FOB basis. Even import under FOB, Customs duty including IGST is payable on such imports and again IGST is payable under Notification No. 10/2017 – Integrated Tax leading to payment of IGST twice on the same element.  The applicant is of the view that the GST has been introduced with the main focus to eliminate double taxation, however in such transactions; unavoidably IGST is taxed twice, thereby defeating the intention of the law. Therefore, the applicant is of the view that there is no requirement to pay IGST again under section 5(3) of the IGST Act read with the notification no 10/2017 – Integrated Tax.

The authority comprising of members Harish Dharmia and Dr. Ravi Prasad.M.P held that In the instant case, the importer in India is liable to pay the tax under RCM as they are deemed to be the recipient of service and applicant has no dispute on the leviability of tax under these notifications. The tax liable to be paid on the supply of services related to the transportation of goods and is not on the supply of goods. The consideration relating to the transportation of goods in case of import of goods is a part of the value of goods as per rule 10(2) of the Customs Valuation Rules, 2007. However, the taxable event is the import of goods into the territory of India and the valuation of the turnover of import of goods on which such tax shall be levied is as per the provisions of the Customs Act. Therefore it is clear from the above that this tax is on the import of goods and not on the services, Hence there is no double taxation involved in the above transactions as these are two distinct taxable transactions, one relating to the supply of goods and other relating to the supply of services. The IGST should be paid by the importer on ocean freight in case of CIF basis Contract, under Reverse Charge.