This Tax Alert summarizes a recent judgment[1] of Bombay High Court (HC). The issue involved was whether Integrated Goods and Services Tax (IGST) is payable on inbound ocean freight services in case of FOB (free on board) imports i.e., where the Indian importer hires the overseas shipping line.
HC observed that:
- In Mohit Minerals case before Gujarat HC[2], the petitioner was importing coal from various countries on FOB and CIF basis, as clearly set out in paragraph 15 of the said decision. The decision has been upheld by the Supreme Court[3].
- Delhi HC[4] in taxpayer’s own case had held that no tax is leviable under the Integrated Goods and Services Tax Act, 2017 on ocean freight for services supplied by a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India. Similar view was taken by the Madhya Pradesh HC[5].
- Once the notification itself has been declared as ultra vires and the same has been upheld by the Supreme Court, the notification in no manner was available to the State Authorities to be applied as it would amount to applying an illegal notification.
Accordingly, HC held that IGST is not leviable on ocean freight services in case of FOB contracts.
Comments
- It is relevant to note that Gujarat HC had struck down the RCM notification on the ground that Indian importer is not the recipient in case of CIF imports and thus, levy cannot be imposed on Indian importer through RCM mechanism.
- SC concluded non-levy of IGST on the basis that tax separately cannot be levied on a component of a composite supply. Further, in the judgment, SC noted that the taxpayer is not disputing the liability of integrated tax on FOB contracts.
- The businesses may need to evaluate the impact of this decision and take necessary actions.
- For the past period, the importers, who are outside the GST credit chain, may consider claiming refund of tax paid under RCM. While doing so, it would be relevant to analyze the applicability of two years limitation period, since it can be argued that the levy of tax per se was not proper..
