GST: Supreme Court Strikes Down Levy Of Ocean Freight On Import Of Goods

The Supreme Court has dismissed an appeal against the Gujarat High Court that struck down the ocean freight levy when goods are imported on a cost, freight, insurance contract.

The top court upheld the Gujarat High Court’s judgment that the central government can’t levy integrated goods and services tax on ocean freights for Indian importers.

The dispute stemmed from the levy of IGST on transport charges that arise on the shipping service being provided for goods supplied to an Indian importer under a CIF contract. For instance, a foreign exporter enters into an agreement with a foreign shipping company to deliver the goods to an Indian company. In such a situation whether the recipient of the goods should be made to pay the GST on the shipping service is what the court examined.

A 2017 notification required a 5% tax rate on the service provided by a shipping company through a reverse charge mechanism, which means that the recipient instead of the supplier has to pay the tax under the GST regime.

One of the companies that challenged the levy was Mohit Mineral Pvt.—an importer of non-cooking coal from Indonesia, South Africa and the U.S. The company succeeded in its objection in the Gujarat High Court, prompting the central government to challenge the decision in the Supreme Court.

The ruling will mean that GST on ocean freight paid in case of import of goods is “unconstitutional”, but further it may also change the landscape of provisions under the GST regime which are subject to judicial review, Abhishek A Rastogi, partner at Khaitan & Co., who argued for parties that challenged the levy, said.

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