In a landmark judgment, the Gujarat High Court has held that imposition of Integrated Goods and Services Tax (IGST) on ocean freight for services provided by a person in a non-taxable territory was impermissible and quashed two IGST notifications (No.8/2017 and No.10/2017) as ultra vires.
"We have reached the conclusion no tax is leviable under the Integrated Goods and Services Tax Act, 2007, on the ocean freight for the 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 upto the customs station of clearance in India and the levy and collection of tax of such ocean freight under the impugned Notifications is not permissible by law", held a division bench comprising Justices J B Pardiwala and A C Rao.
The Court delivered the ruling in a batch of petitions filed by importers who d from various countries on FOB(Free On Board) and CIF (sum of Cost, Insurance and Freight) basis. The petitioner challenged the legality and validity of the levy submitting that IGST cannot be imposed on the importer who has already suffered customs duty.
The petitioners submitted that they discharged the customs duty on imported coal and the customs duty was paid on the value of the imported coal. The Central Government introduced Notification No.8/2017 Integrated Tax (Rate) wherein the IGST at the rate of 5% was levied on the service of transport of goods in a vessel including the services provided or agreed to be provided by a person located in a non-taxable territory to 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 stations of clearance in India.
Thereafter, the Central Government issued Notification No.10/2017 Integrated Tax (Rate) by which the Central Government has notified that for the said category of service provided at Serial No.10 to the said Notification, the importer as defined in clause 2(26) of the Customs Act located in the taxable territory shall be the recipient of service.
Subsequently, the petitioner was levied again the integrated tax on reverse charge basis under the impugned Notifications on the ocean freight for which the petitioner company had already paid the integrated tax at the time of import with the value of imported coal.
The Court supported the petitioners' argument that in a case of CIF contract, the contract for transportation is entered into by the seller, i.e. the foreign exporter, and not the buyer, i.e. the importer, and the importer is not the recipient of the service of transportation of the goods.
The Court observed :
"Under the IGST Act, the integrated tax is leviable only on inter-state supplies made or agreed to be made. As stated above, the supply of services provided by a person in a non-taxable territory to a person in a non-taxable territory by way of transportation of goods in a vessel from a place outside India to the place of customs station of clearance in India is not an inter-state supply as per the provisions of Section 7 of the IGST Act.
Further, as per Section 5(3) of the IGST Act, the Government is only authorized to specify the categories of supply on which the tax is to paid by the recipient of the supply under the reverse charge basis. The Government cannot further specify the person liable to pay tax as other than the recipient of the supply"
Case Title : Mohit Minerals Pvt. Ltd v. Union of India & Ors.Case No : C/SCA/726/2018Corum : Justices J.B.Pardiwala and A.C. Rao
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