The issue involved was whether Integrated Goods and Services Tax (IGST) can be separately levied and collected from the Indian importer on ocean freight paid by the foreign exporter to a foreign shipping line, where Customs duty together with IGST has been already discharged on the value of imported goods.
SC concluded that:
- The recommendations
of the GST Council are not binding on the Union and States.
- On a conjoint reading
of Sections 2(11) and 13(9) of Integrated Goods and Services Tax Act, 2017
(IGST Act), read with Section 2(93) of Central Goods and Services Tax Act,
2017 (CGST Act), the import of goods by a CIF contract constitutes an
“inter-state” supply which can be subject to IGST where the importer of
such goods would be the recipient of shipping service.
- IGST Act and CGST Act
define reverse charge and prescribe the entity that is to be taxed for
these purposes. The specification of the recipient by the notification is
only clarificatory. The Government by notification did not specify a
taxable person different from the recipient prescribed in Section 5(3) of
the IGST Act.
- Section 5(4) of the
IGST Act enables the Central Government to specify a class of registered
persons as the recipients, thereby conferring the power of creating a
deeming fiction on the delegated legislation.
- Since the Indian
importer is liable to pay IGST on the ‘composite supply’, comprising
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.
Comments
a. The ruling puts an end to a long-drawn litigation on taxability of ocean freight on the importer in case of CIF imports.
b. The judgement provides significant relief to the industry, particularly in cases where taxpayers are not able to claim full credit. On the flip side, the department may dispute the eligibility per se of input tax credit of IGST paid under reverse charge, in light of the judgement. One will need to evaluate the relevant provisions and judicial precedence in this regard.
c. For the past period, the importers, who are outside the GST credit chain, may consider claiming refund of tax paid under RCM. While doing so, it would be relevant to analyze the applicability of two years limitation period, since it can be argued that the levy of tax per se was not proper.
d. Considering the emphasis placed on the principle of composite supply, the impact of the SC ruling will also need to be seen in case of import of goods under FOB contracts.
e. Apex court's observations with regard to binding nature of the recommendations of GST Council may generate debate on various actions taken by the Government by way of implementation of various decisions of the Council in the past.
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Thank you for sharing this.
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