We had earlier discussed about the ocean freight issue vide our tax alert dated 25.3.2019 with respect to the fact that taxability of ocean freight component has always been a matter of litigation under pre-GST regime and the issue under the service tax regime have still not been resolved and continued under GST regime. Our alert touched upon the matter wherein it was discussed in detail with respect to the double taxation issue with respect to the ocean freight transaction. Recently, a Judgement has been given by the High Court of Gujarat on the ocean freight issue.
The Gujarat High Court declared Integrated Goods & Services Tax (IGST) on ocean freight as ‘unconstitutional’ providing a relief to the importers.
IGST is levied on all Inter-State supplies of goods and/or services. It is also applicable on any supply of goods and/or services in cases of import into and export from the country. Under the GST, there is specific provision with respect to taxability on the component of ocean freight. The law specifically provides that the importers are required to discharge IGST at the rate of 5 per cent on ocean freight services under the RCM. Under RCM, it is the duty of the importer to pay IGST on behalf of the foreign buyer.
The Gujarat High Court while holding IGST on ocean freight as ultravirus mainly considered writ petition based on three elements. Firstly, having paid the tax under IGST Act on the entire value of imports (inclusive of ocean freight), the petitioner cannot be asked to pay tax on the ocean freight all over again under a different notification. Secondly, in case of Cost, Insurance and Freight (CIF) contracts, both the service provider and the service recipient are outside the territory of India. No tax on such service can be collected even on reverse charge mechanism (RCM). Thirdly, in case of High Sea sales, the burden is on the petitioner as an importer, whereas, the petitioner is not the recipient of the service at all. It is the petitioner’s seller of goods on high sea basis who has received the services from the exporter/ transporter.
In the instant case customs duty on the CIF value (which includes the component of freight as well) of the goods imported into India is also paid by the importer. As a result, there is double-taxation on the component of ocean freight under GST law which is an impediment and has bloated the cost of imports.
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Twenty years of experience in tax practice. Specialist in structuring & planning and tax optimization under indirect tax. Lead eastern India indirect tax practice of Ernst & Young in past.