Background

Supreme Court of India in the matter of M/s Mohit Minerals Pvt Ltd (‘Respondent’) pronounced landmark judgement by eliminating levy of IGST under reverse charge on Ocean Freight on transportation of goods by vessel from a place outside India to a place in India. Union of India (‘Petitioner’) filed an appeal against judgment of the Gujarat High Court (HC), deeming the importer of goods as the recipient of shipping services in case of import of goods on a Cost-Insurance-Freight (CIF) basis.

Apex court agreed with the HC to the extent that a tax on the supply of a service, which has already been included by the legislation as a tax on the composite supply of goods, cannot be allowed.

Brief Facts and Contentions

• Respondent imported non-coking coal from Indonesia, South Africa and the U.S. by ocean transport on CIF basis, which is supplied to domestic industries. Goods are transported from a place outside India, up-to the customs station in India;
• Respondent pays customs duties on the import of coal, which includes the value of ocean freight. In the case of a CIF contract, the freight invoice is issued by the foreign shipping line to the foreign exporter, without the involvement of the importer. Ocean freight is paid by the importer when goods are imported under a ‘Free-on-Board’ contract.
• Respondent alleges that Notification 8/2017- Integrated Tax (Rate) and Serial 10 of Notification 10/2017- Integrated Tax (Rate) [‘the Impugned Notifications’] amounts to double taxation, as ocean freight is included in the value of goods for the purpose of customs duty which the importer is liable to pay;
• Respondent filed a writ petition before the HC challenging that the impugned notifications are ultra vires the IGST Act and CGST Act and as customs duty is levied on the component of ocean freight, levy of IGST on the freight element in the course of transportation would amount to double taxation;