• Notification Date: 25-11-2022
• Notification No: N/A

GST Dept to Not file Review Petition Against SC Decision Against IGST Levy on Ocean Freight

The Central Board of Indirect Taxes and Customs (CBIC) has ruled that the GST department will not be filing a case against the Supreme Court decision declining the levy of IGST on ocean freights. The judgment was passed regarding the case of Mohit Minerals wherein the Apex Court quashed the levy of IGST on ocean freights.  

On 4th November, a circular was issued that stated, “Please refer to your letter F. No. WHLCIMumCen/WICOF12019 dated 09.09.2022 and subsequent reminders dated 20.09.2022 and 03.10.2022, on the afore-mentioned subject. In this regard, it is informed that the Board has decided not to Review Petition in the subject matter. This is for your information for further action at your end, if any.” 

A bench of Supreme Court that consisted of Justice Dr Dhananjaya Y Chandrachud, Justice Surya Kant, and Justice Vikram Nath, has been pondering about the petition filed by Mohit Minerals Pvt Ltd that challenged the notification issued by the CBIC.  

The petition consists of three principal elements. The first one is the tax being paid under the IGST Act on the entire value of imports (inclusive of the ocean freight). As per this rule, the petitioner cannot be asked to pay any further tax on the ocean freight for a second time under a different notification. The second element is that in case of CIF (Cost, Insurance and Freight) contracts, the service provider and service recipient both are outside the territory of India. In case of CIF (Cost, Insurance and Freight) contracts, the service provider as well as the service recipient both have to belong from outside the territory of India. No tax can be collected on reverse charge mechanism on this service. The third element is that for High Sea sales, the burden is cast on the petitioner as an importer, since the petitioner is not the recipient of the service. In such cases, it is the seller of goods of the petitioner on high sea basis who has received the services from the exporter/ transporter.   

It was previously declared by the High Court that GST law specifically states that the importers will have to discharge IGST at the rate of 5 percent on ocean freight services. The duty of importer has to pay IGST on behalf of the foreign buyer under the Reverse Charge Mechanism (RCM).  

But, customs duty on the CIF value of the goods which are imported into India is also paid by the importer. Hence, the importer is charged with double taxation on the component of ocean freight under GST law. This has bloated the cost of imports. Following the decision of the Apex Court, the Gujarat High court has ruled out that the CBIC has to grant refund of goods and services tax that is paid on ocean freight within six weeks with interest. This has offered some relief to the importers.