In its ruling the apex court upheld the ruling by the Gujarat High Court and accordingly struck down levy of IGST on transportation of goods by vessel from a place outside India to a place in India. The same ruling also observed on the non-binding nature of recommendations by GST Council on Centre and States.

“There is no thinking on filing review petition. Accordingly, the Council will take up a proposal to issue a circular quashing the provision of levying IGST on ocean freight,” a senior Finance Ministry official told BusinessLine. Further, the circular is also likely to talk about refund. Last month, relying on Supreme Court order, Gujarat High Court ordered refund of IGST within six weeks along with interest.

The Issue

The issue begun after issuance of two notifications and a corrigendum. Notification No. 8 of 2017 dated June 28, 2017 provided that the IGST at the rate of 5 per cent shall be levied on inter-state supplies of services when the goods are transported in a vessel, etc., with the commencement of the levy of GST. 

Another Notification No. 10 of 2017 dated June 28, 2017 was issued notifying that in respect of services supplied by a person located in the non-taxable territory by way of transportation of goods by vessel from a place outside India up to the Custom Clearance Station in India, the entire IGST shall be paid on the reverse charge basis by the importer. A corrigendum dated June 30, 2017 was issued. The IGST was set to be collected at a rate of 10 per cent of the cost, insurance, and freight (CIF) value. 

When Gujarat High Court in the matter of Mohit Mineral declared both the notifications unconstitutional and ultra vires the statute, the Centre filed an appeal in the Apex Court, deeming the importer of goods as the recipient of shipping services in case of import of goods on a CIF basis. 

It also said that IGST Act and the CGST Act define reverse charge and prescribe the entity that is to be taxed for these purposes. The specification of the recipient – in this case the importer – by notification is only clarificatory. Government by notification did not specify a taxable person different from the recipient prescribed in the law for the purposes of reverse charge. 

Further, Impugned levy imposed on the ‘service’ aspect of the transaction is in violation of the principle of ‘composite supply’. 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 contract, a separate levy on the Indian importer for the ‘supply of services’ by the shipping line would be in violation of Section 8 of the CGST Act, the apex court said while dismissing the appeal. Keeping this ruling and also by Gujarat High Court directing refund, the CBIC is working on a circular.