Levy of IGST on Ocean Freight under CIF Contracts Invalid after Mohit Minerals Ruling: Madras HC [Read Order]

The petitioner, L S Mills Limited, a Theni-based textile company, challenged the validity of Sl.No.10 of Notification No.10/2017-Integrated Tax (Rate) and Sl.No.9(ii) of Notification No.8/2017-Integrated Tax (Rate), both dated June 28, 2017, and the consequential Show Cause Notice No.04/2021-GST dated 15.12.2021 issued by the Assistant Commissioner of Central GST and Central Excise, Dindigul-II Division.

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The petitioner contended that the impugned notifications imposing IGST on ocean freight services under reverse charge mechanism (RCM) were unconstitutional and ultra vires Sections 1, 5(3), and 7(4) of the IGST Act, 2017, and violative of Articles 245 and 269A of the Constitution.

The petitioner relied heavily on the Supreme Court’s decision in Mohit Minerals Pvt. Ltd. which held that a separate levy of IGST on the “service” component of CIF imports, where IGST is already paid on the composite supply of goods (including freight and insurance), is impermissible under the GST framework.

The Court extracted and relied upon extensive passages from the Apex Court’s judgment emphasizing that GST law recognizes composite supply, meaning the entire bundle of goods and related services is taxed together, and not separately dissected. The Supreme Court had held that the levy of IGST on ocean freight constituted double taxation and violated the principle enshrined under Section 8 of the Central GST Act, 2017.

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The Bench agreed with the petitioner’s submissions, observing that the issue was squarely covered by the Mohit Minerals judgment. It reiterated that the Central Government cannot impose a separate IGST liability on ocean freight where the importer has already discharged IGST on the CIF value of imported goods.

Referring to the Supreme Court’s conclusions in Mohit Minerals, the Bench reiterated that the recommendations of the GST Council are not binding on the Union and States.

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It was further noted that CIF imports constitute a composite supply of goods, transportation, and insurance, the impugned notifications imposing IGST on ocean freight under reverse charge mechanism contravene Section 8 of the CGST Act and it was also clarified that Double taxation on the same transaction violates the GST scheme.

The Division Bench of Dr. JusticeAnita Sumanth and Justice C. Kumarappan, allowing the writ petition, declared the impugned notifications and consequent show cause notice as null and void.

Accordingly, the Madras High Court quashed the show cause notice dated December 15, 2021, and allowed the writ petition, holding the impugned notifications as unsustainable. No costs were awarded, and connected miscellaneous petitions were closed.

The High Court reaffirmed that the issue of IGST levy on ocean freight stands was settled by the Supreme Court, ensuring consistency in interpretation of the GST law and protecting importers from unlawful double taxation.

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