Mohit Minerals Pvt. Ltd. Vs Union of India (Gujarat High Court)
In all the captioned writ-applications, the writ-applicants have challenged the levy of the IGST on the estimated component of the Ocean Freight paid for the transportation of the goods by the foreign seller as sought to be levied and collected from the writ-applicants as the importer of the goods.
The Central Government has introduced the Notification No. 8 of 2017 – Integrated Tax (Rate) dated 28th June 2017, wherein vide Entry No.9, the Central Government has notified that the IGST at the rate of 5% will be leviable 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 upto the customs stations of clearance in India.
The Central Government, thereafter, issued the Notification No. 10 of 2017 – Integrated Tax (Rate) dated 28th June 2017, 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.
On Appeal High Court held that no GST 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 Notification Notification No.8 of 2017 – Integrated Tax (Rate) dated 28th June 2017 and Notification No. 10 of 2017 – Integrated Tax (Rate) dated 28th June 2017 is not permissible in law.
Read Detailed Analysis- GST on Ocean Freight – A failed Tax Adventure?
FULL TEXT OF THE HIGH COURT ORDER / JUDGEMENT
1. Since the issues raised in all the captioned writ-applications are the same, those were heard analogously and are being disposed of by this common judgment and order.
2. In all the captioned writ-applications, the writ-applicants have challenged the levy of the IGST on the estimated component of the Ocean Freight paid for the transportation of the goods by the foreign seller as sought to be levied and collected from the writ-applicants as the importer of the goods.
3. The Central Government has introduced the Notification No.8 of 2017 – Integrated Tax (Rate) dated 28th June 2017, wherein vide Entry No.9, the Central Government has notified that the IGST at the rate of 5% will be leviable 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 upto the customs stations of clearance in India.
4. The Central Government, thereafter, issued the Notification No. 10 of 2017 – Integrated Tax (Rate) dated 28th June 2017, 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.
5. We had the benefit of hearing the learned senior counsel appearing in various writ-applications. We heard Mr.Vikram Nankani appearing with Mr.Paritosh Gupta, Mr.J.K.Mittal with Mr.Hardik P.Modh, Mr.Sridharan with Mr.Jigar Shah, Mr.C.Manickam with Mr.Gaurav K.Lakhwani, Mr.Tushar P.Hemani with Mr.Apurva Mehta, Mr.Shashank Shekhar with Mr.Paritosh Gupta and Mr.Uchit Sheth.
6. We also heard Mr.Nirzar S.Desai, Mr.Parth H.Bhatt, Mr.Ankit Shah and Mr.Dhaval D.Vyas, the learned standing counsel appearing for the Union of India.
7. For the sake of convenience, we treat the Special Civil Application No.726 of 2019 as the lead matter.
8. By this writ-application under Article 226 of the Constitution of India, the writ-applicant, a company engaged in the business of import of non-cooking coal from Indonesia, South Africa and U.S.A., has prayed for the following reliefs :
“(A) …this Hon’ble High Court be pleased to issue a writ of certiorari/mandamus or any other appropriate writ/order/direction against the Respondents by quashing the impugned Notification No. 8/2017-Integrated Tax (Rate), dated 28.6.2017 and Entry 10 of the Notification No. 10/2017-Integrated Tax (Rate), dated 28.6.2017 by declaring that same lack legislative competency, ultra vires to the Integrated Goods and Services Tax Act, 2017 and hence unconstitutional;
(B) this Hon’ble High Court be pleased to issue a writ of certiorari/mandamus or any other appropriate writ/order/direction against the Respondents by declaring 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 upto the customs station of clearance in India and levy and collection of tax on such Ocean Freight under the impugned Notifications is not permissible under the law;
(C) this Hon’ble High Court be pleased to issue a writ of mandamus/order/direction to the Respondent No.2 to place before this Hon’ble Court the records of the recommendation given and all decision taken in respect of impugned Notification No.8/2017-Integrated Tax (Rate), dated 28.6.2017 and the Notification No.10/2017-Integrated Tax (Rate) dated 28.6.2017;
(D) that pending the hearing and final disposal of the petition, this Hon’ble Court be pleased to :
i. stay the operation of impugned Notification No.8/2017-Integrated Tax (Rate), dated 28.6.2017 and Entry 10 of the Notification No.10/2017-Integrated Tax (Rate), dated 28.6.2017 and/or;
ii. stay the levy and collection of integrated tax Ocean Freight on transport of goods in a vessel from a place outside India upto the customs station of clearance in India by a person located in non-taxable territory; and/or;
iii. Restrain the Respondent No.1 and all its officers, agents to take any coercive measure against the petitioner and its officers during the pendency of writ petition; and/or;
(E) issue such other writ/order/direction and further orders as the Hon’ble Court may deem just and proper in the facts and circumstances of the case.”
9. The facts as stated in the writ-application giving rise to this litigation are as under :
10. The writ-applicant company is engaged in importing non-cooking coal from Indonesia, South Africa and U.S.A. and supplying it to various domestic industries including power, steel, etc. It has business based at various parts of the country, however, the main business place is in Gujarat and most of the imported coal comes at the port located at Gujarat. The writ-applicant company is registered under the GST laws for payments of GST/IGST besides being paying the customs duty on import of coal. The writ-applicant discharges the customs duty on the imported products at the time of each import and such value includes the value of freight on which customs duty is demanded and paid. The writ-applicant is liable to pay integrated tax in terms of provisions of the Integrated Goods and Services Tax Act, 2017 (IGST/Integrated Tax Act) and accordingly the writ-applicant is paying the integrated tax at the time of import itself, which also includes value of Ocean Freight involved in imported coal.
11. The respondent no.1 is responsible for the implementation of the Central Goods and Services Tax Act, 2017 (for short, ‘the CGST’) and the Integrated Goods and Services Tax Act, 2017 (for short, ‘the IGST’) and has also issued the Notifications in question under the said Acts.
12. The respondent no.2 is a constitutional body constituted under Article 279A of the Constitution of India, as made applicable w.e.f. 12.9.2016, and it is mandatory on the part of the respondent no.2 to make recommendations on various matters relating to the Goods and Services Tax (GST) and further provisions have been made under the respective GST laws, whereby the respondent no.1 have to act on the recommendations of the respondent no.2. To the best of the knowledge of the writ-applicant, the respondent no.2 has not placed, at their own, any such recommendations for public at large.
13. The writ-applicant in the present writ-application is challenging the legality and validity of the impugned Notification No. 8/2017-Integrated Tax (Rate), dated 28.6.2017 and Entry 10 of the Notification No. 10/2017-Integrated Tax (Rate), dated 28.6.2017 as the same are lacking legislative competency, ultra vires to the Integrated Goods and Services Tax Act, 2017, and hence unconstitutional. The respondent no.1 has levied again the integrated tax on reverse charge basis under the impugned Notifications on the Ocean Freight, for which the writ-applicant is already paying the integrated tax at the time of import with the value of imported coal, which is not permissible under the law.
14. The present writ-application has been filed seeking various reliefs, more particularly, seeking quashing of the impugned Notification No.8/2017-Integrated Tax (Rate), dated 28.6.2017 and Entry 10 of the Notification No.10/2017-Integrated Tax (Rate), dated 28.6.2017, by declaring that the same lack legislative competency, ultra vires to the Integrated Goods and Services Tax Act, 2017, and hence unconstitutional. The writ-applicant also seeks declaration that the levy of the integrated tax again on the Ocean Freight under the impugned Notifications is not permissible and amounts to double taxation, as the ‘Integrated Tax’ (under IGST Act, 2017) has been paid on the imported coal at the time of importation (the value which includes Ocean Freight also).
15. The writ-applicant is importing coal from various countries on FOB (Free on Board) and CIF (sum of Cost, Insurance and Freight) basis. The writ-applicant also has the High Sea sale and purchase transactions.
(a) In case of purchases made on CIF basis, the freight invoice is issued by the foreign shipping line to the foreign exporter, the writ-applicant neither has any invoice of such freight and nor has any idea of payments and the amount of such freight;
(b) In case of purchases made on FOB basis, the writ-applicant engages foreign shipping line and pays the Ocean Freight to the foreign shipping line;
(c) In case of the High Sea purchase, the coal is purchased before landing it in Indian port, from the original buyer who purchased the coal. In this case, the writ-applicant neither has any invoice of such freight nor has any idea of payments and the amount of such freight. It is similar to the purchases of coal on CIF basis;
16. The writ-applicant discharges the customs duty on the imported coal at the time of importation and such customs duty is paid on the value of the imported coal which includes the value of Ocean Freight, as determined on the value under Section 14 of the Customs Act, 1962 and Rules made thereunder.
IGST PAID ON IMPORT :
17. The writ-applicant, at the time of importation, in addition to the customs duty, pays the ‘Integrated Tax’ (known as IGST) under the IGST Act, 2017, on the imported coal on the value as determined under the Customs Tariff Act, 1975 (vide proviso to Section 5(1) of the IGST Act, 2017). The said value also includes the value of the Ocean Freight, when the goods are purchased on FOB basis, whereas in case of goods purchased on CIF basis, the cost itself is the sum of cost, insurance and freight basis.
SUBMISSIONS ON BEHALF OF THE WRIT-APPLICANT :
18. Mittal, the learned senior counsel assisted by Mr.Modh made the following submissions :
No levy, but for the impugned Notifications, is ultra vires to the IGST Act and on the supply made beyond the territory to which the Act applies :
19. The impugned Notification No. 8/2017, through Entry 9(ii), has sought to levy the tax on the transactions including ‘service provided by a person located in a non-taxable territory to a person located in non-taxable territory’, by way of transportation of goods by a vessel. Indisputably, both, the service provider and the service recipients are outside India and such a levy goes beyond the mandate of Section 1 of the IGST Act, 2017, which extends to the whole of India and not outside India. No levy exists in law but for the impugned Notification.
20. As per Section 1(2) of the Act, the provisions of the Act apply to the whole of India. As per Section 2(24) of the Act, the words and the expression used and not defined in the IGST Act but defined in the CGST Act, shall have the same meaning as assigned to them in the CGST Act. As per Section 5(1) of the Act, the Integrated Tax is levied on all the inter-state supplies. As per Section 2(108) of the CGST Act, ‘taxable supply’ means a supply of goods or service or both which is leviable to tax under this Act. As per Section 2(109) of the CGST Act, the ‘taxable territory’ means the territory to which the provisions of the Act applies, i.e. the whole of India. It is submitted that the combined reading of the aforesaid provisions indicates that the supply made within the ‘taxable territory’ is leviable to tax.
21. Strong reliance is placed upon the judgment in the case of Indian Association of Tour Operators v. Union of India and others, reported in 2017(5) GSTL 4 (Del.) (paras 5, 18, 19, 26, 48), which is under the Finance Act, 1994, which also had the similar provisions under Section 64 of the said Act, where the Act was applied to the whole of India except the State of Jammu & Kashmir and the taxable territory was defined as the territory to which the provisions of the said Act was applicable. In this context, reliance is also placed on a decision of the Delhi High Court, wherein it is held that the services rendered outside India cannot be brought to tax by a delegated legislation by fixing a deeming provision without amending Section 64 of the Finance Act, 1994. It is an essential legislative function. The same analogy is sought to be extended in the present case also.
22. It is submitted that the provisions of Section 1 of the Customs Act, 1962, as amended by the Finance Act, 2018, extend its operation to offence committed outside India. Therefore, the IGST Act, 2017, which is not extended to the supply made outside India, through the impugned Notifications, cannot be brought to tax. Therefore, the levy has been imposed but for the impugned Notifications, on the supply which happened outside India, which is impermissible under the law. Therefore, the impugned Notifications lack the legislative competency, ultra vires to the IGST Act, 2017, and are liable to be quashed.
The principle of extra-territorial levy applies to both; CIF and FOB purchases :
23. In case of purchases made on the CIF basis, indisputably, both, the service provider and the service recipients are outside India and the writ-applicant – purchaser is concerned only with the purchases of goods and having no idea of payments made towards the freight for vessel. Therefore, the supply has happened outside India. Similarly, when purchases are made on FOB basis by the writ-applicant, the Ocean Freight is paid by the writ-applicant to the foreign shipping line. The transportation of goods by a vessel is done from a place outside India upto the port in India. Thus, the supply happened outside India. Such activity takes place outside the territory of India, and thus, it is outside the purview of the tax. Hence, the impugned Notification is ultra vires to the Act.
No levy could be imposed twice under the same Act :
24. The writ-applicant has already paid the ‘Integrated Tax’ (Known as the IGST) under the IGST Act, 2017, on the imported coal, which includes the value of the Freight (FOB basis), whereas in the case of goods purchased on the CIF basis, the cost includes the sum of cost, insurance and freight. The impugned Notifications again seek to levy the ‘Integrated Tax’ under the IGST Act, 2017, on freight components (Ocean Freight) on the reverse charge basis. In such circumstances, to levy and collect once again the Integrated Tax under the same Act on the ‘supply’ (same aspect) amounts to double taxation under the same Act, which is impermissible under the law. Therefore, the impugned Notifications are illegal and unconstitutional.
25. The levy under the impugned Notification is contrary to the concept of ‘composite supply’ under the Act. In Section 2(30) of the CGST Act, the term ‘composite supply’ has been defined, wherein an illustration has been given, where the goods are supplied with transportation, insurance, etc. will be a composite supply and the supply of goods is a principal supply. As per Section 8 of the CGST Act, the tax liability in case of the composite supply shall be determined by treating it as a supply of such principal supply. In other words, the tax will be levied on the principal supply. Therefore, when the goods are imported and integrated tax is levied and collected on the value of goods (coal), which includes the Ocean Freight, the Ocean Freight cannot be taxed as a separate supply under the impugned Notification, which is ultra vires to the provisions of Section 2(30) read with Section 8 of the CGST Act, also.
‘Deeming fiction of value’ in the Notification is illegal and there is no concept of ‘value of taxable service’ in the Act :
26. It is submitted that para-4 inserted by the Corrigendum dated 30.6.2017 has a deeming fiction for the ‘value of taxable service’ as 10% of the CIF value of the imported goods. In case of import on the CIF value basis, the writ-applicant is not concerned about the freight and is not knowing even about the charges for the same, which is the sole responsibility of the supplier of the coal outside India.
27. First, in the Act, there is no concept of ‘taxable service’, which has been the concept only in the erstwhile Finance Act, 1994, to levy the service tax.
28. Secondly, through the delegated legislation there cannot be a deeming fiction to ascertain the value on which the tax is payable as it is an essential legislative function (see Indian Association of Tour Operators v. Union of India and others, reported in 2017(5) GSTL (Del.) (para 48).
29. Thirdly, as per the settled law, the vagueness in the measure or value on which the rate will be applied for computing the tax liability makes the levy fatal to its validity (see Govind Saran Ganga Saran v. CST, AIR 1985 SC 1041: 1985 Supp (1) SCC 205 (para 6) and also Mathuram Agrawal v. State of MP, AIR 2000 SC 109 : (1999)8 SCC 667 (para 12)). Therefore, the deeming fiction for the valuation inserted in the impugned Notification is illegal and liable to be quashed.
30. The expression ‘service provided or agreed to be provided’ used in Entry 9(ii) of the impugned Notification No. 8/2017 is not to be found in the Act. In the Entry 9(ii) of the impugned Notification No.8/2017 – Integrated Tax (Rate), dated 28.6.2017, the expression used is ‘service provided or agreed to be provided’, whereas such expression is not to be found under the IGST Act/CGST Act. Such an expression was there in the erstwhile Finance Act, 1994. The present Act has used the terms ‘supply’ and ‘taxable supply’. Similarly, in para 4 of the impugned Notification, the expression used is the ‘value of taxable service provided’, which is also used in the erstwhile Finance Act, 1994. Therefore, while issuing the impugned Notification, the delegated legislature had in mind the provisions of the Finance Act, 1994, instead of the object of bringing the GST by making the Constitutional (101st) Amendment Act, 2016, to merge all the taxes levied on the goods and services to one tax known as the GST. Despite having levied and collected the Integrated Tax under the IGST Act, 2017, on all the import of coal/goods on the entire value, which includes the Ocean Freight, through the impugned Notifications, once again the Integrated Tax is sought to be levied under the misconception that a separate tax could be levied on the services components (freight), which is impermissible under the scheme of the GST legislation made under the Constitutional (101st) Amendment Act, 2016. Therefore, the impugned Notifications are beyond the legislative competency and liable to be quashed.
The impugned Entry 10 of the Notification No.10/2017 is ultra vires to the Act :
31. It has been argued that as per Section 5(3) of the Act, the tax liability could be shifted on the ‘recipient’ on reverse charge basis by issuing the Notification. However, as per the impugned Entry 10 of the Notification No.10/2017 – Integrated Tax (Rate), dated 28.6.2017, the liability has been shifted on the ‘importer’ and not on the ‘recipient’; that too, the transaction not exigible to tax under the Act.
32. It is contended that in the first place the supply itself has to be made taxable and then only such provisions of shifting of the liability on the recipient can be made applicable. Therefore, when the activity takes place outside the taxable territory, the provisions of the Act itself could not be made applicable and the recipient could not be held liable to pay the tax, as otherwise it will amount to making a non-taxable supply as taxable supply, which is ultra vires to the Act itself.
33. Secondly, under the impugned Entry 10 of the Notification No.10/2017, the tax liability has been shifted on the ‘importer’ and not on the ‘recipient’, which is contrary to the provisions of Section 5(3) of the Act, under which the said Notification has been issued.
34. It is submitted that in Govind Saran Ganga Saran v. CST, AIR 1985 SC 1041 : 1985 Supp (1) SCC 205 (para 6), it has been held that any vagueness of the person on whom the levy is imposed and who is obliged to pay the tax make the levy fatal. Also referred to Mathuram Agrawal v. State of MP, AIR 2000 SC 109 : (1999)8 SCC 667 (para 12).
35. Therefore, the impugned Entry 10 of the Notification No.10/2017 – Integrated Tax (Rate), dated 28.6.2017, is ultra vires to sub-section (3) of Section 5 of the Act, under which the said Notification has been issued, and it also makes a non-taxable supply as taxable supply. Therefore, the same is liable to be quashed.
The concept of ‘Chapter’, ‘Section’ or ‘Heading’ ‘scheme of classification of services’ or ‘description of services’ introduced in the impugned Notification No.8/2017 is beyond the competency of delegated legislation :
36. As per clause (ii) of para 5 of the impugned Notification No.8/2017 – Integrated Tax (Rate), dated 28.6.2017, ‘Reference to ‘Chapter’, ‘Section’ or ‘Heading’, wherever they occur, unless the context otherwise requires, shall mean respectively as the ‘Chapter’, ‘Section’ and ‘Heading’ in the scheme of classification of services annexed to the Notification No. 11/2017 – Central Tax (Rate), published in the Gazette of India, Extraordinary, Part II, Section 3, sub-section (i), dated 28th June, 2017, vide number G.S.R. 690(E), dated 28th June, 2017′. It is pointed out that the respondents in their counter affidavit have not disputed the writ-applicant’s contention that there is no ‘scheme of classification of services’ or ‘description of services’ in the Act, and the Respondents have also not disputed that no power is vested with the Respondents under the Act, to specify the ‘scheme of classification of services’ or ‘description of services’ at all, as done in the impugned Notification No. 8/2017 – Integrated Tax (Rate), dated 28.6.2017 read with Notification No.11/2017 – Central Tax (Rate), dated 28.6.2017. The Respondents have also not disputed the contentions of the writ-applicant that specifying the ‘scheme of classification of services’ or ‘description of services’ etc. are essential functions of the Parliament, which are neither delegated nor could have been delegated but assumed by the Respondents while issuing the impugned Notification.
37. It is submitted that in Vasu Dev Singh and others v. UOI and others (2006)12 SCC 753 (para 118) – it has been held that ‘It is impermissible for the legislature to abdicate its essential legislative functions’.
38. It is pointed out that in Municipal Corporation v. Birla Cotton, Spinning and Weaving Mills, AIR 1968 SC 1232 (para 89), the Supreme Court, by majority decision, took the view that ‘(ii) Essential legislative function cannot be delegated by the legislature’.
39. The Respondents have not disputed that in the impugned Notification also the given chapter, section and heading in respect of different services, which is nowhere defined in the Act and neither there is any power to refer to such chapter, section and heading and such scheme of classification has not been provided under the parent Act at all. Thus, the Notifications are beyond the scope of the Act and do not conform to the provisions of the statute under which these are issued.
40. It is argued that in General Officer Commanding-in-Chief v. Subhash Chandra Yadav (1988)2 SCC 351 (para 14), it was held that rule must conform to the statute and come within rule making power, if either of these two conditions is not fulfilled, the rule so framed would be void.
41. In Union of India v. S. Srinivasan, (2012)7 SCC 683, at page 690 (para 21) held that : ’21….If a rule goes beyond the rule-making power conferred by the statute, the same has to be declared ultra vires’. However, the Respondents may justify that the impugned Notifications after their issuance have been placed before the Parliament, which is not tenable in law.
42. The Supreme Court in Hukam Chand v. Union of India, AIR 1972 SC 2427 held that : ‘The fact that the rules framed under the Act have to be laid before each House of the Parliament would not confer validity on a rule if it is made not in conformity with Section 40 of the Act’.
43. The Delhi High Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. v. Union of India, 2013(29) S.T.R. 9 (Del.), while declaring Rule as ultra vires, observed that : ‘It is no answer to say that under sub-section (4) of Section 94 of the Act, every rule framed by the Central Government shall be laid before each House of Parliament and that the House has the power to modify the rule’.
The ‘scheme of classification of services’ or ‘description of services’ in the impugned Notification No. 8/2017 are without any legislative policy and arbitrary :
44. It is submitted that without prejudice to the foregoing contentions and without admitting even if it is assumed that the function of the ‘scheme of classification of services’ or ‘description of services’ etc. can be delegated, the Parliament has not laid down clearly the legislative policy and the guidelines which serve as guidance for the authority on which the function is delegated (see Municipal Corporation v. Birla Cotton, Spinning and Weaving Mills, AIR 1968 SC 1232 (para 89).
45. It is argued that the respondents have wrongly assumed as if such functions have been delegated to them and given in the the impugned Notification No.8/2017 – Integrated Tax (Rate), dated 28.6.2017, artificial classification of services or description of services as well as to specify the rates, which has no basis at all. Thus, the Respondents have acted arbitrarily while issuing the impugned notification, therefore, it is also hit by Article 14 of the Constitution of India and liable to be quashed.
Various provisions are cited for exercising the power for issuing the impugned Notification No.8/2017, whereas no power can be traced under the said provisions which are for different purposes :
46. The impugned Notification No. 8/2017 – Integrated Tax (Rate), dated 28.6.2017, has been issued by referring as the power conferred under the various provisions of the Integrated Goods and Services Tax Act, 2017, as well as the Central Goods and Services Tax Act, 2017, all such provisions are for different purposes.
(a) the said Notification No.8/2017 has also been issued under sub-section (1) of Section 6 of the IGST Act, 2017, under which the power of exemption has been granted, but the impugned Notification is not for the purpose of exemption, but to specify the ‘rate’, therefore, is totally misconstrued by the Respondents.
(b) the said Notification No.8/2017 has also been issued referring to the power under clauses (iii) and (iv) of Section 20 of the IGST Act, 2017, whereas under these provisions, there is no power to issue any such notification but it only incorporate the provisions by reference of the CGST Act, 2017.
(c) the said Notification No.8/2017 has also been issued referring to the provisions of Sections 15(5) and 16(1) of the Central Goods and Services Tax Act, 2017 (CGST Act), whereas under these provisions, there is no power to issue any such notification, but only to make the Rules, which have already been framed separately by the Respondents (Valuation Rules, under Section 15(5) and Input Tax Credit Rules, under Section 16(1) of the said Act) under Chapters IV and V of the CGST Rules, 2017, respectively.
(d) the said Notification No.8/2017 has also been issued referring to Section 5(1) of the IGST Act, 2017, but it only empower to issue the notification to specify rates and not for any other purpose, whereas the notification is ultra vires to the Act, as already discussed in the preceding paras, which are not repeated for the sake of brevity.
47. It has been argued that the respondents have issued the notifications under the various provisions which are not applicable for issuing rate notifications. Thus, the impugned Notifications are beyond the scope and mandate of the Act. The impugned Notifications are ultra vires the Act and liable to be struck down.
The conditions specified in column 5 of the impugned Notification No.8/2017 is ultra vires to the Act :
48. The impugned Notification No.8/2017 – Integrated Tax (Rate), dated 28.6.2017 has also placed various conditions in column 5 of the said Notification, without any basis and dehors such power available to the respondents to impose such conditions while issuing the rate notification under Section 5(1) of the Act. The conditions so specified under the said rate notification to deny the input tax credit are directly in conflict with Sections 16 and Section 17 respectively of the CGST Act, 2017, which deal with the conditions of eligibility of availment of the input tax credit. Hence, the impugned Notification is ultra vires to the said Act and liable to be struck down.
49. The learned senior counsel placed strong reliance on the following decisions :
(i) Indian Association of Tour Operators v. Union of India and others, reported in 2017(5) GSTL 4 (Del.) (paras 5, 18, 19, 26, 48), wherein it was held that the legal fiction treating the service rendered outside India to be a service rendered in India cannot be introduced by way of Rules as it is an essential legislative function which cannot be delegated to the Central Government.
(ii) The Supreme Court, in GVK Industries Ltd. v. ITO (2011)4 SCC 36 (para 124), clearly stated that the Parliament may exercise its legislative powers with respect to the extra-territorial aspect, that too when they have an impact on or nexus with India. Therefore, it does not empower the delegated legislation to exercise such power and nor such power can be delegated by the Parliament.
(iii) Ishikawajma-Harima Heavy Industries Ltd. v. Director of Income Tax, Mumbai, AIR 2007 SC 929, held that the ‘entire services having been rendered outside India, the income arising therefrom cannot be attributable to the permanent establishment so as to bring within the charge of tax’. The Court further held that the taxation liability of the oversea services would not arise in India. The Court also observed that ‘in cases such as this, where different severable parts of the composite contract is performed in different places, the principle of apportionment can be applied to determine which fiscal jurisdiction can tax that particular part of the transaction’.
(iv) The Supreme Court in the case of Mathuram Agrawal v. State of MP, AIR 2000 SC 109, held that : ’12… The statute should clearly and unambiguously convey the three components of the tax law, i.e. the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law’.
(v) The Supreme Court in the case of Govind Saran Ganga Saran v. CST, AIR 1985 SC 1041, held that : ‘6… The components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness in the legislative scheme defining any of those components of the levy will be fatal to its validity’.
(vi) In Vasu Dev Singh and others v. UOI and others (2006)12 SCC 753 – it is held that : ’18… It is essential for the legislature to declare its legislative policy which can be gathered from the express words used in the statute or by necessary implication, having regard to the attending circumstances. It is impermissible for the legislature to abdicate its essential legislative functions’.
(vii) In Municipal Corporation v. Birla Cotton, Spinning and Weaving Mills, AIR 1968 SC 1232 (para 89), by majority decision took the view that : ‘(ii) Essential legislative function cannot be delegated by the legislature, that is, there can be no abdication of legislative function or authority by complete effacement, or even partially in respect of a particular topic or matter entrusted by the Constitution to the legislature;’ Therefore, the legislature can delegate non-essential legislative functions, but while delegating such functions, there must be a clear legislative policy which serves as guidance for the authority on which the function is delegated.
(viii) In Hukam Chand v. Union of India, AIR 1972 SC 2427 (para 13) it has been held that : ’13… The fact that the rules framed under the Act have to be laid before each House of Parliament would not confer validity on a rule if it is made not in conformity with Section 40 of the Act’.
(ix) The Delhi High Court in the case of Intercontinental Consultants and Technologies Pvt. Ltd. v. Union of India 2013(29) S.T.R. 9 (Del.) while declaring Rule as ultra vires observed that : ‘It is no answer to say that under sub-section (4) of Section 94 of the Act, every rule framed by the Central Government shall be laid before each House of Parliament and that the House has the power to modify the rule’.
(x) In General Officer Commanding-in-Chief v. Subhash Chandra Yadav (1988)2 SCC 351, it has been held as follows: ’14… before a rule can have the effect of a statutory provision, two conditions must be fulfilled, namely, (1) it must conform to the provisions of the statute under which it is framed; and (2) it must also come within the scope and purview of the rule-making power of the authority framing the rule. If either of these two conditions is not fulfilled, the rule so framed would be void’.
(xi) The Supreme Court in the case of Union of India v. S. Srinivasan, (2012)7 SCC 683, at page 690 (para 21) held that : ’21… If a rule goes beyond the rule-making power conferred by the statute, the same has to be declared ultra vires’.
SUBMISSIONS ON BEHALF OF THE UNION OF INDIA :
50. The learned standing counsel appearing for the Union of India have tendered written submissions. The written submissions are as under :
51. It is a settled legal preposition by now that a subordinate/ delegated legislation can be challenged only on the limited grounds as held by the Supreme Court in the case of State of T.N. and others v. P. Krishnamurthy and others, reported in 2006(4) SCC 517. The Supreme Court in paras 15 and 16 of the aforesaid judgment observed as under :
“Whether the rule is valid in its entirety ?
15. There is a presumption in favour of constitutionality or validity of a sub-ordinate Legislation and the burden is upon him who attacks it to show that it is invalid. It is also well recognized that a sub-ordinate legislation can be challenged under any of the following grounds :-
a) Lack of legislative competence to make the sub-ordinate legislation.
b) Violation of Fundamental Rights guaranteed under the Constitution of India.
c) Violation of any provision of the Constitution of India.
d) Failure to conform to the Statute under which it is made or exceeding the limits of authority conferred by the enabling Act.
e) Repugnancy to the laws of the land, that is, any enactment .
f) Manifest arbitrariness/unreasonableness (to an extent where court might well say that Legislature never intended to give authority to make such Rules).
16. The court considering the validity of a subordinate Legislation, will have to consider the nature, object and scheme of the enabling Act, and also the area over which power has been delegated under the Act and then decide whether the subordinate Legislation conforms to the parent Statute. Where a Rule is directly inconsistent with a mandatory provision of the Statute, then, of course, the task of the court is simple and easy. But where the contention is that the inconsistency or non- conformity of the Rule is not with reference to any specific provision of the enabling Act, but with the object and scheme of the Parent Act, the court should proceed with caution before declaring invalidity.”
52. The aforesaid ratio was considered and followed by the Supreme Court once again in the case of Cellular Operators Association of India and others v. Telecom Regulatory Authority of India and others, reported in 2016(7) SCC 703 and reference to the same has been made in para 34 of the aforesaid judgment and, therefore, this Court may consider the challenge to the impugned Notifications No.8/2017 and 10/2017 in light of the aforesaid ratio.
Why Ocean Freight was necessitated
53. Prior to 1.6.2016 (Budget 2016-17), the services of transportation of goods in a vessel from a place outside India upto the customs station of clearance in India was exempted from service tax. As a result, the Indian shipping lines were unable to avail input tax credit paid on the input goods and services and such tax formed a part of their transportation costs. So they were rendered uncompetitive vis-a-vis foreign shipping lines. In view of the requests from the Indian Shipping Industries and other stakeholders, to provide them the level playing field vis-a-vis the foreign shipping lines, service tax was imposed on the service of inward transportation of goods to enable the Indian shipping lines to use the ITC available with them, which they could not otherwise utilize, as outward transportation of the goods was also exempted from service tax. As per the Place of Provision of Services Rules, 2012, the service of export of goods was not leviable to the service tax as the place of provision of service was outside the taxable territory of India. However, the shipping lines were permitted to avail the ITC of the excise and service tax suffered on the input goods and/or services (i.e. the export of goods/services was zero rated). This ITC could be availed by the shipping lines for paying the service tax on the service of inward transportation of goods.
54. Subsequently, many representations were received from the shipping lines that in view of the levy of the service tax on the inward transport, FOB contracts were being converted to CIF contracts and these were being entered into in the non-taxable territory (i.e. outside India). Thus, the entire purpose of the amendments affected in the Budget 2016-17 and was not being fulfilled. In order to see that tax is suffered by both Indian shipping lines and foreign shipping lines on inward transportation of goods, the importers had been made liable to pay tax on the service of inward transportation of import cargo, as it was not possible to collect it from the foreign shipping lines entering into contract with a foreign supplier for transportation of goods to India. Thus, the provision is not arbitrary and is aimed at providing level playing field to the Indian shipping lines. In this regard, it is submitted that the issue has been examined by the Ministry in consultation with the Ministry of Shipping. The collective view of the Ministries is that there is no double taxation in case of levy of the IGST on import freight service and it does not result in any additional cost to the importer as the GST paid by the importer on the inward transportation of goods as well as on the import freight services is available to them as the ITC and are not adversely affected by this measure because it does not add to their cost.
55. It is submitted that under the aforesaid circumstances the Ocean Freight was decided to be levied.
56. In reply to the argument canvassed on behalf of the writ-applicant that the levy of the IGST on the Ocean Freight in respect of transport of goods in a vessel from a place outside India to the customs station of clearance in India is illegal and ultra vires the Constitution and the IGST Act, it is submitted that in the ‘transport of goods’ which is carried out by a person other than the importer himself is an activity which gives rise to the aspect of providing transportation services of the said imported goods and as such gives rise to a taxing incident distinct from the tax on import of goods.
57. It is submitted that in Gujarat Ambuja Cements vs. U.O.I. & Anr. (2005) 4 SCC 214, the petitioners had challenged the legislative competence of the Centre to impose service tax on transport of goods as the same could only be imposed by the States under Entry 56 of List II, which reads as “taxes on goods and passengers carried by roads or inland waterways“. The Supreme Court held that the legislative competence must be determined in accordance with the object of the tax.
58. It is further submitted that the Supreme Court, relying upon the aspect theory, stated that since the tax was a tax on the event of service and not a levy on passengers and goods and since the service tax could only be imposed under Entry 97, List I, the Centre had the legislative competence to enact the law as the same related to taxation on service. Furthermore, the Supreme Court held that the imposition of tax by the Centre did not tantamount to usurpation of power of the State or a colorabale exercise of power and was not in violation of the doctrine of separation powers. The Parliament has the legislative competence to tax the service aspect even if the legislative competence to tax the other aspects involved in the transaction is vested with the State. The Supreme Court upheld the legislative competence in similar circumstances in a catena of decisions and in that view of the matter, it could be said that the legislative competence is there and therefore the challenge to the notifications is not sustainable in law.
59. The Supreme Court, in All India Federation of Tax Practitioners case cited in 2007 (7) S.T.R. 625 (S.C.), has held as follows :-
In the light of what is stated above, it is clear that Service Tax is a VAT which in turn is destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country. Service tax is a value added tax.
On the basis of the above discussion, it is clear that service tax is VAT which in turn is both a general tax as well as destination based consumption tax leviable on services provided within the country.
60. Under Section 5(1) of the IGST Act, the IGST is levied on all the inter-State supplies of goods or services or both. The GST on goods imported into India is being levied and collected in accordance with the provisions of Section 3 of the Customs Tariff Act, 1975, on the value as determined under the said Act at the point when the duties of customs are levied on the said goods under Section 12 of the Customs Act, 1962. Section 7(4) of the IGST Act provides that supply of services imported into the territory of India shall be treated to be a supply of services in the course of the inter-State trade or commerce.
61. Further, as per Section 11 of the IGST Act, the place of supply of goods imported into India shall be the location of the importer. As per Section 13(9) of IGST Act, the place of supply of services of transportation of goods other than by way of mail or courier, shall be the place of destination of such goods. Thus, with respect to goods destined for India, services by way of transportation of such goods by a vessel are taxable in India.
62. In Gujarat Ambuja Cements Vs UOI 2005 (182) ELT33 (SC): 2005(182) ELT 33 SC, the Supreme Court has stated that the legislative competence is to be determined with reference to the object of the levy and not with reference to its incidence or machinery and that there is a distinction between the object of tax, the incidence of tax and the machinery for collection of the tax.
63. In A.H. Wadia v. CIT [AIR 1949 PC 18], the Supreme Court stated that : ‘In the case of a sovereign Legislature, the question of extra-territoriality of any enactment can never be raised in the municipal courts as a ground for challenging its validity.’
64. In GVK Industries Limited v. Income Tax Officer [(2011) 4 SCC 36], the Supreme Court examined the limitation of the Parliament in enacting the legislations with respect to the extraterritorial aspects that do not have any direct or indirect, tangible or intangible impact(s) on or effects in or consequences for :- (a) the territory of India, or any part of India; or (b) the interests of, welfare of, well-being of, or security of inhabitants of India, and Indians. It stated that the Parliament is indeed limited with respect to the extra-territorial aspects, however, in ‘such extraterritorial aspects or causes, only when such extra-territorial aspects or causes have, or are expected to have, some impact on, or effect in, or consequences for : (a) the territory of India; or (b) the interest of, welfare of well-being of or security of inhabitants of India, and Indians’, the Parliament may exercise its legislative powers with respect to the extra-territorial aspects or causes which may occur naturally or on account of some human agency and can ‘seek to control, modulate, mitigate or transform the effects of such extra-territorial aspects or causes, or in appropriate cases, eliminate or engender such extra-territorial aspects or causes’.
“125. It is important for us to state and hold here that the powers of Legislation of the Parliament with regard to all aspects or causes that are within the purview of its competence, including with respect to extra-territorial aspects or causes as delineated above and as specified by the Constitution, or implied by its essential role in the constitutional scheme, ought not to be subjected to some a-priori quantitative tests, such as “sufficiency” or “significance” or in any other manner requiring a pre-determined degree of strength, All that would be required would be that the connection to India be real or expected to be real and not illusory or fanciful.
126. Whether a particular law enacted by the Parliament does show such a real connection, or expected real connection, between the extraterritorial aspect of cause and something in India or related to India and Indians, in terms of impact, effect or consequence, would be a mixed matter of facts and of law. Obviously, where the Parliament itself posits a degree of such relationship, beyond the constitutional requirement that it be real and not fanciful, then the courts would have to enforce such a requirement in the operation of the law as a matter of that law itself and not of the Constitution.
127. (2) Does the Parliament have the powers to legislate ‘for’ any territory, other than the territory of India or any part of it ?
The answer to the above would be no. It is obvious that the Parliament is empowered to make laws with respect to aspects or causes that occur, arise or exist, or may be expected to do so, within the territory of India, and also with respect to the extra-territorial aspects or causes that have an impact on or nexus with India as explained above in the answer to Question 1 above. Such laws would fall within the meaning, purport and ambit of the grant of powers to the Parliament to make laws ‘for the whole or any part of the territory of India’, and they may not be invalidated on the ground that they may require extra-territorial operation. Any laws enacted by the Parliament with respect to the extra-territorial aspects or causes that have no impact on or nexus with India would be ultra vires, as answered in response to the Question 1 above, and would he laws made ‘for’ a foreign territory.”
65. It is submitted that the levy which is introduced by way of the impugned notifications on import freight service does not result in additional cost to the importer as the GST paid by the importer on the invert transportation of goods as well as on the import freight services is available to them as the ITC and are not adversely affected by this measure as it does not add to their cost. The impugned provision is aimed at collection of tax with minimum disruption. Since the importer of the goods is the beneficiary on whose behalf the impugned services are being taken by the foreign exporter from the foreign shipping line, both of which are outside the taxable territory of India, the tax on such services can be collected from the end-beneficiary or recipient of such services in accordance with Section 5(3) of the IGST Act, 2017.
66. The Supreme Court, in Gujarat Ambuja Cements Vs UOI 2005(182) ELT33 (SC) = 2005(182) BLT 33 SC, held that, ‘the point at which the collection of the tax is to be made is a question of legislative convenience and part of the machinery for realization and recovery of the tax. Subject to the legislative competence of the Taxing Authority, a duty can be imposed at the stage which the authority finds it to be convenient and the most effective at whatever stages it may be. The Central Government is, therefore, legally competent to evolve a suitable machinery for collection of the service tax subject to the maintenance of a rational connection between the tax and the person on whom it is imposed. It is outside the judicial ken to determine whether the Parliament should have a specified common mode for the recovery of the tax as a convenient administrative measure in respect of a particular class. That is ultimately a question of policy, which must be left to the legislative wisdom.’
67. There are two separate taxable events. The levy under the notification draws power from the charging section of the Act. In the present case, the levy on the transportation services received by the importer under the impugned notification draws power under Section 5 of the IGST Act, 2017, and that the levy on the import of goods is a separate taxable event, the levy of which is under Section 3(7) of the Customs Tariff Act, 1975.
68. Further, there is no violation of Article 14 or Article 19(1)(g) of the Constitution of India inasmuch as the importers are free to carry on their trade. This levy is on all importers and does not interfere with the right of the importers to practice any profession, or to carry on any occupation, trade or business.
69. It is submitted that the column no.4 of the said notification is only explanatory in nature and does not widen the definition of ‘recipient’. In fact, column no. 4 only explains as to who can be said to be a recipient in respect of that particular service mentioned in column no. 2 mentioned in the category of supply of service. This explanation is given to ensure that a person who is liable to pay the tax may not shift the burden of paying the tax on the ground that he is not the one who is the recipient of the service and it is actually the end user for whom the goods are imported is the recipient of service. To clear this confusion, the explanation is given in column no. 4 which is strictly in accordance with and within the meaning of definition of ‘recipient’ as defined in Section 2(93) of the GST Act which reads as under:
“Section 2(93): “recipient” of supply of goods or services or both means-
(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;
(b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and
(c) where no consideration is payable for the supply of a service, the person to whom the service is rendered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied.”
70. If the definition is read closely, after (c) in the later part of the definition, it is very categorically stated as under:
“and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied;”
71. The aforesaid portion of the definition indicates that the definition of the recipient is inclusive in nature and includes an agent acting on behalf of the recipient in relation to the goods or service or both, supplied. Now, in view of this, the definition of ‘agent’ can be seen as defined in Section 2(5) of the GST Act which is stated as under :
“Section 2(5): “Agent” means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another.”
72. The definition of agent is also inclusive definition and carries a much wider meaning. It also says that an agent may be a person by whatever name called, who carries on business of supply or receipt of goods or services or both on behalf of another. Meaning thereby, that even an importer who receives services on behalf of another, also acts as the agent of the recipient and, therefore, as per the definition of the recipient even an agent is also a recipient. Therefore, if we read together Section 2(93) and Section 2(5) of the ‘recipient’ and ‘agent’, it can be understood that the definition of recipient has a much wider scope and meaning than what is projected before the Court and therefore, even the importer also falls within the definition of recipient and hence it cannot be said that the Notification No.10/2017 has an excessive delegation of powers and, therefore, is contrary to the powers conferred under the Act and hence ultra vires.
73. It is submitted that the term composite supply is defined in Section 2(30) of the GST Act as under :
“Section 2(30): “Composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.
Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.”
74. The composite supply is defined in the GST Act. In Section 8, it is specifically mentioned as to how the tax liability on composite and mix supplies are to be determined. Section 8 of the GST Act reads as under :
“8. Tax liability of composite and mixed supplies – The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:
(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and
(b) a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax.”
75. Section 15 of the GST Act which is in respect of the value of taxable supply reads as under :
“15. Value of taxable supply.- (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.
(2) The value of supply shall include–––
(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;
(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;
(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;
(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and
(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.
Explanation.–– For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.
(3) The value of the supply shall not include any discount which is given––
(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
(b) after the supply has been effected, if—
(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.
(4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed.
(5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed.
Explanation.— For the purposes of this Act,––
(a) persons shall be deemed to be “related persons” if––
(i) such persons are officers or directors of one another’s businesses;
(ii) such persons are legally recognised partners in business;
(iii) such persons are employer and employee;
(iv) any person directly or indirectly owns, controls or holds twenty-five per cent or more of the outstanding voting stock or shares of both of them;
(v) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by a third person;
(vii) together they directly or indirectly control a third person; or
(viii) they are members of the same family;
(b) the term “person” also includes legal persons;
(c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.”
76. It is submitted that if Sections 8 and 15 are read together, it suggests that, in case of a composite supply comprising of two or more supplies, one can be said to be the principal supply and shall be treated as supply of such principal supply, meaning thereby that if it is claimed that the supply is a principal supply, in that case, in the invoice, every services are required to be mentioned, and out of the services mentioned, one can be determined as a principal supply and the entire supply shall be treated as supply of such principal supply. Meaning thereby, a supply can be said to be a principal supply only in case if in the invoice all the supplies are separately mentioned and one of the supplies is identified as principal supply and not otherwise. In case of CIF, it is only the total value of the cost, insurance and freight are stated in the invoices and therefore, it cannot fall within the definition of composite supply and therefore, the argument, that tax is charged on composite supply and hence it should not be charged again, cannot stand.
FOB contracts
77. The importer has been made liable to pay the GST on the service in question in accordance with the provisions contained in Section 5, sub section (3) of the IGST Act, 2017, which provides that the Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable to pay the tax in relation to the supply of such goods or services or both. The goods are transported from a place outside India upto the customs station in India for the importer and therefore, he is directly or indirectly the recipient of service. It is submitted that it cannot be said that the notification has been issued without the authority of law and is ultra vires the IGST Act.
78. Taxability of Ocean Freight under different situations is as under:
