Taxpayers Can Seek IGST Refund On Ocean Freight Post Supreme Court Verdict, Say Experts

Taxpayers who have paid GST on 'Ocean Freight' on imported goods will be entitled to claim refunds, following the Supreme Court verdict, provided they have not claimed input tax credit, experts said.

Giving its ruling in the Mohit Minerals case, the Supreme Court held that since the Indian importer is liable to pay IGST on the 'composite supply', comprising of supply of goods and supply of services of transportation, insurance, etc in a CIF (Cost Insurance Freight) contract, a separate levy on the Indian importer for the ‘supply of services' by the shipping line would be in violation of ... the CGST Act.

In this particular case, the company had challenged the validity of the CBIC notification regarding levy of Integrated GST on ocean freight in the Gujarat High Court. The Supreme Court upheld the decision of the Gujarat High Court which had favoured the company.

Tax Connect Advisory Services Partner Vivek Jalan said this is a big relief for importers and GST taxpayers. "Infact those taxpayers who had already paid the GST may also seek a refund of the same now".

Dhruva Advisors Partner Naresh Sheth said, "Such levy, in substance, was a tax on transactions between two foreign parties taking place outside India which apparently is beyond the territorial jurisdiction of the Indian Government." Mr Jalan further said generally, the value of imported goods is CIF and includes the Cost, Insurance and Freight components. Hence Customs Duty and GST is charged on such value.

"However, CBIC also sought to levy GST @5 per cent on the value of Imported goods considering 10 per cent of the value of imported goods as deemed ocean freight," Mr Jalan added.

AMRG & Associates Senior Partner Rajat Mohan said the Supreme Court has upheld the Gujarat High Court judgement categorizing the levy of IGST on ocean freight services as unconstitutional.

This is a dual levy of IGST as the same has already suffered tax as part of the value of goods. Moreover, these services are received by the foreign exporter, thus the Indian importer shall not be held liable to pay GST on the same, he said.

"Through this, a window of opportunity has been opened for the importers who have already paid the tax to demand refund from the exchequer," Mr Mohan added.

Federation of Indian Export organisations (FIEO) DG Ajay Sahai said FIEO has already represented that ocean freight on goods imported on CIF basis should not be charged as it is tantamount to double taxation, adding to the liquidity problem.

"While the set off of IGST on imports was available but after a time lag, it was adding to the challenges for manufacturers and exporters," Mr Sahai said.