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Basic Issue: – The basic issue is that, in most cases, the ocean freight is paid by the seller or companies that are not based in India. So, for instance, if a company based in USA is exporting goods to India, the company tends to enter into an agreement with shipping companies and pay ocean freight. In such cases, the tax department is unable to recover GST from the USA company. The tax department hopes to recover the IGST from importers or companies that are based in India through a Reverse Charge Mechanism. Peculiarly, the onus of discharging IGST on ocean freight was shifted to the Indian CIF importer, who did not statutorily qualify as a “recipient” of the services in question. The matter approached the Gujarat High Court & the Gujarat High Court had struck down the levy pursuant to its finding that the reverse charge was ultra vires the parent enactment, that is the Integrated Goods and Services Tax Act, 2017 (IGST Act). The government had approached the Supreme Court against an earlier Gujarat High Court judgement

Latest Update: – On 19 May 2022, much awaited Judgment in the case of Union of India & Anr. vs. Mohit Minerals Pvt. Ltd. (Supreme Court) pronounced by the Apex court of the county. The Hon’ble Supreme Court affirmed the judgement of the Gujarat High Court whilst dismissing the Revenue’s Special Leave Petition (SLP). The Supreme Court declared levy of GST on ocean freight on import as Unconstitutional where Indian importer is already paying IGST on CIF value on the composite value of goods, transportation, insurance etc. The Supreme Court held a separate levy on the Indian importer for the ‘supply of services’ by the shipping line would be in violation of Section 8 of the CGST Act. 

GST on Ocean freight can be summarized as:

The Indian importers who had paid such tax & to the extent not utilized as input credit will be eligible to claim refund of the same. Further, those importers who had not paid the tax on import of services will now not be required to pay tax because of this Supreme Court ruling. the Supreme Court has also observed that the recommendations of the GST Council are not binding on the Government and have only persuasive Values.

Now it stands confirmed that the reverse charge levy on ocean freight, which can be traced to Notification No. 10/2017-IGST (Rate) dated 28 June 2017, did not have the force of law.

This judgement may change the landscape of those provisions under GST which are subject to judicial review. Further, the findings of the Supreme Court with respect to the recommendations of the GST Council to be only persuasive will be useful in those cases where the validity of provisions are under judicial review and such provisions were implemented based on the recommendations of the GST Council. Parliament and state legislatures possess equal powers to legislate on GST, SC ruled. Now, it will be interesting to observe whether this would impact some of the ongoing controversies involving the state and the center.

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I'm a Practicing Chartered Accountant and founder of D Rahul and Associates, Navi Mumbai. Having a rich experience of more than 14 years. Expertise in field of Income Tax and GST along with account finalization, Auditing , board presentation, MIS reporting, corporate and tax planning, cost reduction View Full Profile

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May 2024