No IGST Is Payable On Ocean Freight Under Reverse Charge Mechanism; Madras High Court Directs Refund

The Madras High Court has directed the department to refund the GST paid by the assessee on the ocean freight under the reverse charge mechanism.

The bench of Justice Mohammed Shaffiq has relied on the decision of the Supreme Court in the case of Mohit Minerals Private Limited, in which it was held that no IGST is payable on ocean freight under the reverse charge mechanism for cost, insurance, and freight (CIF) imports.

The petitioner/assessee has challenged the order in appeal dated December 3, 2021, and the rectification order passed by the respondent department rejecting the refund claim of the assessee. The assessee sought directions for the respondents to sanction and grant the refund along with appropriate interest for the month of July 2019.

The petitioner contended that the issue stands covered by the judgment of the Supreme Court confirming the judgment of the Gujarat High Court, in which it was held that the levy of GST on ocean freight services via notification 8/2017-IT(Rate), dated July 28, 2017, and the entry of notification No.10 of 2017-IT(Rate), dated June 28, 2017, were struck down.

Prior to the introduction of GST, ocean freight was exempted via Notification 25/2012 dated June 20, 2012; however, later on, it was made taxable with the issuance of Notification 12/2017 dated January 12, 2017. With the introduction of GST Notification No. 8/2017, Integrated Tax (Rate), dated June 28, 2017 by the Central Government on the recommendation of the GST Council, and in exercise of powers under Sections 5(1), 6(1), and 20(iii) of the IGST Act read with Sections 5(1), 6(1), and 20(iii) of the IGST Act read with Section 15(5) and Section 16(1) of the CGST Act, entry 9 of the said notification levied an 'integrated tax at the rate of 5 percent on the supply of specified services, including transportation of goods, in a vessel from a place outside India up to the Customs station of clearance in India.' Another notification No. 10/2017 dated June 28, 2017 was issued categorizing the recipient of services of supply of goods by a person in a non-taxable territory by a vessel to include an importer under Section 2(26) of the Customs Act 1962 at Serial No. 10 of the Notification.

The Gujarat High Court in the case of Mohit Minerals v. Union of India struck down Notification 8/2017-IT(Rate) dated July 28, 2017 and the Entry of Notification No. 10 of 2017-IT(Rate), dated June 28, 2017. The Department preferred SLP before the Supreme Court. The Supreme Court confirmed the judgment of the Gujarat High Court holding that the levy of GST on ocean freight services via notification is ultra vires section 8 of the CGST Act as well as section 5(3) of the IGST Act, and accordingly, no GST is leviable.

The petitioner had filed a rectification application dated May 30, 2022, under Section 161 of CGST to rectify the order, but the Department rejected the application, stating that the petitioner is seeking remedy before the Goods and Service Tax Appellate Tribunal. However, the Tribunal has not been constituted, and thus it is not in existence.

The court, while disposing of the appeal, held that the issue of the levy of GST on Ocean Freight Services was settled by the Supreme Court, and the Notification 8/2017-IT(Rate), dated July 28, 2017, and the Entry of Notification No.10 of 2017-IT(Rate), dated June 28, 2017, are struck down as ultra vires. Therefore, the department is not empowered to collect GST for Ocean Freight Services, and consequently, the department is bound to refund the amount collected.

Counsel For Petitioner: Jas Sanghavi

Counsel For Respondent: R.Senthil Kumar

Case Title: Viterra India Pvt Ltd. Versus The Union of India

Citation: 2024 LiveLaw (Mad) 323

Case No.: W.P(MD)No.19314 of 2024 and W.M.P(MD)Nos.16380 and 16382 of 2024

Click Here To Read The Order