In this week, the Hon’ble SC has pronounced very interesting decision which has widespread in the media. The Hon’ble SC decision, besides holding that Indian importer is not liable for GST under RCM in CIF imports, has also explained several important aspects of Federal Constitution, GST council roles & rules of interpretation etc. In this short article, the authors attempted to brief the legal background of the decision along with course of action that one can take now. For detailed analysis of the decision, readers may refer Part II of this article.
Ocean freight (Transportation) in import transactions is central point of the decision. Popularly there are 2 ways of arranging transportation (contractually) as depicted below along with GST applicability:
Note 1: In all aforesaid cases, the Indian importer would be paying applicable IGST at the time of import (including the value of aforesaid Transportation).
Note 2: The Notifications made the Indian importer to pay GST in 4th Scenario with a premise to provide level playing field to the Indian Shippers for the reason that if an Indian shipping company ships the goods to India, they would pay the taxes under the forward charge, and thus non taxing the ocean freight charged by the foreign companies would render the Indian shipping industry noncompetitive in CIF contracts.
Notifications asking Indian importer to pay GST albeit not being a contractual party to the Shipping contract in 4th scenario was challenged before Hon’ble Gujarat HC on multiple counts. The Hon’ble Gujarat HC has held that such notifications as ultra vires the IGST Act, 2017 & unconstitutional.
Unhappy with the Hon’ble Guj HC decision, the Revenue department appealed it before the Hon’ble Apex Court. The Hon’ble SC delivered its decision on 19th May 2022 inter alia holding that Indian importer is not liable for GST on the Ocean freight in CIF import contracts under RCM as it violative of ‘Composite supply’ u/s. 8 of CGST Act, 2017. However, partly overturning the Hon’ble Guj HC, the Hon’ble SC held that Indian importer can be construed as ‘Recipient of service’ and the Notification is not ultra vires the IGST Act, 2017.
The suggested course of action:
Hon’ble SC gives big sigh of relief to the Indian importers. It would be interesting to see how the Government will react. The suggested course of action is tabulated below:
|The suggested course of action
|Not paid GST under RCM on Ocean freight
|Not liable to paid & pending demands, if any can be contested
|GST Paid under RCM, availed it as ITC & utilised
|No action required
|GST Paid under RCM, availed it as ITC but could not be utilised
|Reverse unutilised ITC & can claim refund
|Future period Continue to remit if taxpayer can utilise the ITC.
|This is to shield against the possible amendments to nullify the decision.
If could not be utilised, can stop paying it or also pay under protest.
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