The Indian government has made a significant decision regarding the Reverse Charge Mechanism (RCM) for Ocean Freight on imports. With the issuance of Notification No. 11/2023 and 13/2023-INTEGRATED TAX (Rate) dated September 26, 2023, the RCM on Ocean Freight has been discontinued, effective from October 1, 2023. This development follows a crucial judgment by the Hon’ble Supreme Court in the case of Union of India & Anr. Versus M/s Mohit Minerals Pvt. Ltd (Civil Appeal No. 1390 of 2022).
Following the Hon’ble Supreme Court Judgment in the case of Union of India & Anr. Versus M/s Mohit Minerals Pvt. Ltd (Civil Appeal No. 1390 of 2022), entry relating to Ocean freight on import is being omitted in the RCM notification as below:
1. Notification No.11/2023 – Integrated Tax (Rate) dated 26-Sep-2023 – Amendment to Notification No.8/2017-Integrated Tax (Rate) dated 28th July 2017: 9(ii) Transport of goods in a vessel
including services provided or agreed to be 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. – 5% GST
2. Notification No.13/2023 – Integrated Tax (Rate) dated 26-Sep-2023 – Notification No.10/2017-Integrated Tax (Rate) dated 28th July 2017 – Serial No.10 and entries relating thereto omitted:
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.
√ Notification effective 1st Oct 2023. Hence with effect from 1st Oct 2023, RCM is not payable on the Ocean Freight for Import of goods.
√ However, there are more questions to be answered in this regard!
RCM for Ocean Freight – Position before 1st Oct 2023
A. What was the Position before 1st Oct 2023?
√ The RCM levy has been already tested in the Hon’ble Supreme Court Judgment in the case of Union of India & Anr. Versus M/s Mohit Minerals Pvt. Ltd and has been held that the RCM levy is in violation of Section 8 of the CGST Act.
√ Subsequently, CBIC Legal Cell has issued Letter vide F.No. 275/11/2022-CX.8A dated November 04, 2022 that the Board has decided not to file a Review Petition in the subject matter challenging the Supreme Court decision in Mohit Minerals, in which the imposition of IGST on ocean freight is quashed.
√ Thus it is also being squarely agreed by the CBIC that the levy of RCM fails in this case and then suitable amendments are being brought in the notification as well.
√ In this context, since the levy fails and it can be concluded that the impugned RCM is never a tax liability payable even before 1st Oct 2023. One can also decide on a legal position that such RCM was never payable not only with effect from the date of Apex court decision but even with effect from 1st July 2017 itself, since it is being well accepted that the levy of RCM is in violation of the law and hence the exchequer cannot demand the tax liability.
What if RCM on Ocean Freight was already paid?
B. What if RCM was already paid and ITC has been availed on the same?
√ There is no harm in payment of such RCM and the corresponding availment of ITC cannot be denied until 30th September 2023, since the RCM provision was available in the notification without any amendments. There is no loss to the exchequer!
C. What if RCM on Ocean Freight was already paid and ITC HAS NOT BEEN AVAILED? Can it be claimed as REFUND?
√ Relevant extract from the Conclusion- PART E of the order in the Hon’ble Supreme Court Judgment in the case of Union of India & Anr. Versus M/s Mohit Minerals Pvt. Ltd. Through Director. (2022):
√ “The impugned levy imposed on the ‘service’ aspect of the transaction is in violation of the principle of ‘composite supply’ enshrined under Section 2(30) read with Section 8 of the CGST Act. Since the Indian importer is liable to pay IGST on the ‘composite supply’, comprising of supply of goods and supply of services of transportation, insurance, etc. in a CIF contract, 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.”
√ Since the levy of RCM is in violation of the act, the amount ought to be refunded and the taxpayer should file RFD01 refund application to claim the legitimate rights of refund.
Time limit for refund?
D. What is the time limit for such refund?
Interestingly, when it comes to time limitation for refund of tax collected without levy, Courts have always given taxpayer favourable decisions.
In the case of RCM on Ocean Freight, it is quite apparent from the Hon’ble Gujarat High Court decision in the case of M/S COMSOL ENERGY PRIVATE LIMITED Versus STATE OF GUJARAT, on the verbatim similar dispute of refund of RCM paid on Ocean freight wherein Comsol filed the refund claims of IGST paid on ocean freight under the RCM after the decision of Hon’ble High Court, Gujarat in Mohit Minerals in Jan 2020.
Hon’ble Gujarat High Court allowed the refund claim of IGST paid on ocean freight under RCM beyond the statutory time limit prescribed under Section 54 of CGST Act. Relevant extracts:
> Article 265 of the Constitution of India provides that no tax shall be levied or collected except by authority of law. Since the amount of IGST collected by the Central Government is without authority of law, the Respondent is obliged to refund the amount erroneously collected.
> Section 54 of the CGST Act is applicable only for claiming refund of any tax paid under the provisions of the CGST Act and/or the GGST Act. The amount collected by the Revenue without the authority of law is not considered as tax collected by them and, therefore, Section 54 is not applicable. In such circumstances, Section 17 of the Limitation Act is the appropriate provision for claiming the refund of the amount paid to the Revenue under mistake of law, which is as under:
Time limit for refund?
> “Section 17(1) of the Limitation Act, 1963 (1) Where, in the case of any suit or application for which a period of limitation is prescribed by this Act,— (a) the suit or application is based upon the fraud of the defendant or respondent or his agent; or (b) *** (c) the suit or application is for relief from the consequences of a mistake; or (d) ***”
Set aside Impugned Deficiency Memo and directed the Respondent to process the refund claim along with simple interest at the rate of 6% per annum at the earliest.
Other similar case decisions cited in the Comsol verdict:
Other similar case decisions followed by Comsol verdict:
Thus, it can be clearly concluded that for any RCM on Ocean Freight paid by the taxpayer, the time limitation is as per Section 17(1) of the Limitation Act, 1963
Time limit as per Limitation Act?
Refund of Interest already paid?
As per Section “Section 17(1) of the Limitation Act, 1963 (1) Where, in the case of any suit or application for which a period of limitation is prescribed by this Act,—
(c) the suit or application is for relief from the consequences of a mistake;
the period of limitation shall not begin to run until ……………………….. the mistake or could, with reasonable diligence, have discovered it………………………
Thus, one can construe that the time limitation for refund of 3 years as per the Limitation Act shall begin only after the Apex court verdict has been pronounced and accepted by the Revenue, and thus any such RCM paid without availment of ITC for any of the period starting from 1st July 2017, refund can still be applied within this time limit of 3 years starting from the discovery of mistake by the Apex court and the Revenue acceptance thereof.
E. What if interest is paid along with the RCM?
Can it be obtained as refund? When the levy of tax itself fails and it is construed as an amount collected without authority of law, there is no question of interest which is equally collected without authority of law. And hence any interest paid in this regard shall also be refundable.
RIGHTS OF THE TAXPAYER TO BE EXCISED!
However, it is the rights of the taxpayer and the taxpayer need to excise such rights by seeking and obtaining such refund within this time frame.
This documentation is prepared with an intention to give clarity on the recent notifications, circulars, etc. issued under GST law. It shall not be construed as a substitute for the legal regulations/ notifications / Act. Any decision to be taken shall be made on obtaining professional advice.
(Author CA SARADHA H can be reached at firstname.lastname@example.org)