No IGST On Ocean Freight – Hon’ble Supreme Court Upholds Gujarat High Court Order

The Hon’ble Supreme Court vide its order dated 19th May 2022 in the matter of Union of India Vs. Mohit Minerals Private Limited in Civil Appeal NOS 1390, 1394 OF 2022 & OTHS held that the IGST would not be levied on the ‘service’ portion in CIF contracts entered by the Indian importer with the foreign shipping lines when the IGST has already been paid on the ‘composite supply’ comprising of supply of goods and supply of transportation and, insurance etc.  It was further held that the impugned levy on the ‘service aspect’ is in violation of the principle of ‘Composite Supply’ prescribed under Section 2(30) read with Section 8 of the CGST.

The Appellant (Union of India) preferred the appeal before the Hon’ble Supreme Court against the judgment of Division Bench of Gujarat High Court dated 23rd January 2020 Wherein the Gujarat High Court allowed the writ petition under Article 226 challenging the constitutional validity of Entry 9 of Notification 8/2017 dated 28.06.2017 and Serial No. 10 of Notification 10/2017 dated 28.06.2017.


  • The respondents import non-coking coal from Indonesia, South Africa and the U.S. by ocean transport on a ‘Cost-Insurance-Freight’ basis which is supplied to domestic industries. The goods are transported from a place outside India, up-to the customs station in India and the respondents is paying custom duty on the import of coal, which includes the value of ocean freight.  The foreign shipping lines raises the freight invoice to the foreign exporter without involvement of the importer, however in the case of FOB ‘Free on Board’ ocean freight is paid by the importer only.
  • That prior to introduction of GST the ocean freight was exempted vide Notification 25/2012 dated 20th June 2012, however later on it was made taxable with the issuance of Notification 12/2017 dated 12th January 2017.
  • That with the introduction of GST Notification No. 8/2017 – Integrated Tax (Rate) dated 28th June 2017 by the Central Government on the recommendation of the GST Council, and in exercise of powers under Section 5(1), 6(1) and Section 20 (iii) of IGST Act read with Section 15(5) and Section 16(1) of 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.’
  • That another notification No. 10/2017 dated 28.06.2017 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 said Notification.
  • Further section 5(1) provides for levy of integrated tax on all inter-state supplies of goods and services or both and it can also be levied on goods imported in India on the value determined under Section 3 of the Custom Tariff Act 1975, at the point when custom duties are levied on goods under Section 12 of Custom Act, 1862. Section 11 provides that the place of supply of goods in the case of goods imported into India shall be the place of the importer. Section 13(9) of the IGST Act contemplates that the place of supply of services, in the case of transportation of goods shall be the destination of the goods
  • It was the contention of the respondents that impugned notifications give rise to an element of double taxation as the value of Ocean Freight is included in the value of goods in case of CIF contract for the purpose of custom duty which the importer is liable to pay, however liability of IGST on FOB basis is not disputed by the respondents.
  • The respondent before the High Court challenged the impugned notifications i.e. Notification 8/2017 entry 9 & Serial No. 10 of Notification 10/2017 contending that these notifications are ultra-vires the CGST & IGST Act and with all other submissions it was submitted that it creates a deeming fiction and a separate taxable event which is not permissible in law.
  • The contention of Union of India before the High Court was that although tax is being paid twice on the value of ocean freight, it is not unconstitutional as the tax is on two different aspects of the transaction, namely, the supply of service and import of goods.
  • The Division Bench of Gujarat High Court while declaring the impugned notifications unconstitutional held that ‘ (i) The importer of goods on a CIF basis is not the recipient of the transport services as Section 2(93) of the CGST Act, (ii) Section 5(3) of the IGST Act enables the Government to stipulate categories of supply, not specify a third-party as a recipient of such supply, (iii) There is no territorial nexus as the supply of service of transportation of goods is by a person in non-taxable territory to another person in non-taxable territory, (iv) since the goods are transported on a CIF basis, the recipient of service is the foreign exporter who is outside India, (v) Section 7(5)(c) of the IGST Act cannot be read so extensively that it conflates the “supply of goods or services or both in the taxable territory” to “place of supply”, (vi) Section 12 & 13 would not apply if the supplier and recipient of service is based outside India, (vii) That Section 20 and Section 13 IGST Act are applicable only vis-à-vis the actual recipient of the supply of service, which is the foreign exporter in this case, (viii) Section 15(1) of the CGST Act enables the determination of the value of the supply, only between the actual supplier and actual recipient of the service, (ix) importer would not be in a position to avail ITC as the importer is not the recipient of Service as per Section 2(93), (x) Since the importer pays customs duties on the goods which include the value of ocean freight, the impugned notifications impose double taxation through a delegated legislation, which is impermissible.

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