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Levy of Integrated Goods and Services Tax on Ocean Freight under RCM is Unconstitutional
The GST levy on Ocean Freight levied on services rendered by a person located in non-taxable territory by means of transport of goods by a vessel from a place outside India to a customs clearance station in India is one of the most argumentative issues to be discussed.
Taxability-NN 8/2017-IT (Rate) dated 28.06.2017-IGST is taxable at 5% under clause (ii) of heading 9965 for services described as follows:
"Transportation of goods in a vessel, including services rendered or agreed to by an individual located in non-taxable territory, to an individual located in non-taxable territory by means of movement of goods by a vessel from a position outside India to a customs clearance station in India."
NN 10/2017-IT (rate) dated 28.06.2017 stipulates that the importer, as stated in clause (26) of section 2 of the Customs Act, 1962, who is located in the taxable territory, is liable to pay integrated tax as the purchaser of the service for the services mentioned therein as the following:
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Nature of Service |
Supplier of Service |
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Services rendered by an individual residing in non-taxable territories by means of transport of goods by a vessel from a position outside India to a customs clearance station in India. |
A person who is located in Non-taxable land
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As regards valuation, the Government provided NN 8/2017-IT(R) dt by way of corrigendum (dt. 30.06.2017). 28.6.2017, if the amount of ocean freight is not available, the same shall be deemed to be 10% of the cif value (sum of rate, insurance and freight) of imported goods.
Recently, in the landmark judgment decided by the Hon'ble High Court of Gujarat in the case of Mohit Minerals (P.) Ltd. vs. High Court of Gujarat, cited in (2020) 113 taxmann.com 436 (Gujarat), it was held that no tax is imposed under the IGST Act of 2017 on ocean freight for services provided by an individual in a non-taxable jurisdiction by means of movement of goods by a vessel from a position outside the jurisdiction. Therefore, NN 8/2017-IT(R) dt. 28.6.2017 and Entry 10 of NN 10/2017-IT(R) of 28.6.2017 are unconstitutional.
Consequently, in the case of Gokul Agro Resources Ltd. vs. Union of India referred to in (2020) 116 (Gujarat), the Hon'ble High Court of Gujarat further confirmed the decision in favour of the applicant by upholding the decision of the case Mohit Minerals (P.) Ltd. vs. High Court of Gujarat, which asked the competent authority to issue instructions for reimbursement of the amount of IGST there.
By way of a sequence of judgments declared by the Hon'ble Gujarat High Court, it can be viewed that IGST should not be charged and collected on Ocean Freight under RCM and that the tax paid, if any, should be accepted as a refund.
