Notifications Levying IGST on Importer on Component of Ocean Freight Paid by Foreign Seller Unconstitutional

Facts of the case:

• Applicant imported non-cooking coal from outside India on both CIF and FOB basis.
• Applicant pays IGST on the value of goods imported at the time of custom clearance and value of Ocean freight happens to be included in the value of goods. However, department demands IGST on ocean freight separately as well by treating it as a service which results in double taxation within same Act.

Issue raised in the filed writ application:

• The writ-applicant has sought declaration of IGST levied on Ocean freight paid by Foreign seller to transporter as ultra-vires, since it is levied on the supply made beyond the territory to which the Act applies, and hence, unconstitutional.

Contention put by applicant in support of his case:

• No levy could be imposed twice, since IGST is already paid on the imported coal, which either includes the value of the Freight (if imported on FOB basis) or in the case of CIF basis, customs valuation includes freight cost for charging IGST. Therefore, IGST under reverse charge on Ocean freight should not be levied again.

Findings and judgement passed by the High court of Gujarat:

• It was observed that in case of CIF contract, the contract for transportation is entered into by the seller, i.e. the foreign exporter, and not by the buyer, i.e. the importer, and the importer is not the recipient of the service of transportation of goods.
• As a result of this, impugned Notification No.8/2017 – Integrated Tax (Rate) dated 28th June 2017 and the Entry 10 of the Notification No.10/2017 – Integrated Tax (Rate) dated 28th June 2017 are declared as ultra vires and are hereby declared unconstitutional.

Source: [2020] 113 taxmann.com 436 (Gujarat) dated January 24, 2020.