GST is still work-in-progress and the frequent changes being announced since the introduction have posed the challenge to keep pace and comply with the emerging law, so as to avoid future disputes.
One such interesting issue has been dealt with recently by AAR-Madhya Pradesh in the case of E-DP Marketing (P.) Ltd. Salient facts of the matter are as under:
1) Applicant is a importer of Crude Soya-bean Oil for manufacturing various edible oils on CF or CIF (Cost, Insurance and Freight) basis
2) Seller is a person located in non-taxable territory for transporting the goods by a vessel from supplier’s place up to the place in Indian Customs station. The seller collected the ocean freight in the price of goods from the buyer i.e. applicant by including therein and not charging separately in invoice.
3) Applicant was paying IGST on full value of goods, while importing the goods into India. In other words, IGST was already being paid on the CIF/CF value of the goods which impliedly included the freight upto Indian Customs Ports.
4) Applicant filed an application to seek a ruling on question that whether the applicant/importer was again required to pay IGST on the component of ocean freight under RCM mechanism on deemed amount which in turn would amount to double taxation of IGST on the deemed component of ocean freight of the imported goods.
LAW ON THE ISSUE :
a) Notification No. 10/2017—Integrated Tax (Rate) dated 28th June, 2017, which deals with the services on which GST is to be paid on `Reverse Charge basis’ , wherein the entry No. 10 reads as under:
|Sl. No.||Category of Supply of Services||Supplier of service||Recipient of Service|
|10||Services supplied by a person located in non- taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India.||A person located in non-taxable territory||Importer, as defined in clause (26) of section 2 of the Customs Act, 1962 (52 of 1962), located in the taxable territory.|
b) Notification No. 8/2017- integrated Tax (Rate), dated 28th June, 2017 , read with Corrigendum dated 30th June, 2017, the taxable value in respect of ocean freight has been defined as under:
‘Where the value of taxable service provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India is not available with the person liable for paying integrated tax, the same shall be deemed to 10% of the CIF value (sum of cost, insurance and freight) of imported goods.’
Revenue has contented that In view of the above two notifications there is no any ambiguity, whatsoever, regarding payment of IGST on ocean freight. As per existing law, IGST on ocean freight has to be paid by the importer under reverse charge mechanism, irrespective of the fact that such freight charges are included in the intrinsic CIF value and already borne tax by way of IGST.
RULING BY THE AUTHORITY:
i) Applicant has pleaded that the authority to levy and collect IGST on import of goods from outside India vests under the Customs Act only hence on deemed value of ocean freight the levy of RCM is without jurisdiction under GST Law
ii) Applicant has broadly challenged the validity of levy of IGST on ocean freight under RCM. Any question relating to constitutional validity of the Notifications issued is not within the ambit of the jurisdiction of this Authority.
iii) Nevertheless, it is pertinent to mention that the Notifications are issued on the basis of the recommendations of the GST Council, and the GST Council in turn is empowered by the provisions of Article 279A(4) of the Constitution of India inserted vide the Constitution (One Hundred and First) Amendment Act, 2016, to make recommendations.
iv) In terms of prevailing provisions of the IGST Act, 2017 and the Rules made thereunder, the applicant is liable to pay IGST on ocean freight under RCM as provided under Notification No.10/2017-IT(R) read with Notification No.8/2017-IT(R).