L S Mills Limited Vs Union of India (Madras High Court)
Conclusion: Levy of Integrated Goods and Services Tax (IGST) on ocean freight under Cost, Insurance, and Freight (CIF) contracts was unsustainable in law as such a tax constituted double taxation contrary to the principle of composite supply under the GST law.
Held: Assessee-textile company had challenged the validity of Sl.No.10 of Notification No.10/2017-Integrated Tax (Rate) and Sl.No.9(ii) of Notification No.8/2017-Integrated Tax (Rate), both dated June 28, 2017, and the consequential Show Cause Notice No.04/2021-GST dated 15.12.2021 issued by the Assistant Commissioner of Central GST and Central Excise, Dindigul-II Division. Assessee contended that the impugned notifications imposing IGST on ocean freight services under reverse charge mechanism (RCM) were unconstitutional and ultra vires Sections 1, 5(3), and 7(4) of the IGST Act, 2017, and violative of Articles 245 and 269A of the Constitution. Assessee relied heavily on the Supreme Court’s decision in Mohit Minerals Pvt. Ltd. which held that a separate levy of IGST on the “service” component of CIF imports, where IGST was already paid on the composite supply of goods (including freight and insurance), was impermissible under the GST framework. It was held that following the ratio in Union of India v. Mohit Minerals Pvt. Ltd. [2022 (61) G.S.T.L. 257 (SC)], the Court held that once IGST had been paid on the CIF value (which includes freight and insurance), a separate levy of IGST on the service component (ocean freight) was impermissible under the GST framework. The impugned Notifications No. 10/2017 and 8/2017, to the extent they levy IGST on ocean freight, were ultra vires the IGST Act and the Constitution. Consequently, the show cause notice dated 15.12.2021 issued by the Assistant Commissioner of Central GST & Central Excise was quashed, and the Writ Petition was allowed, with no order as to costs.
