[Justin- Notice by Supreme Court] Gujarat High Court Ocean Freight Matters allowing the petitions and pronouncing levy to be ultra vires.

Latest Update:

UPON hearing the counsel the Court made the following ORDER

The Supreme court has issued a notice in this case.

We have heard Mr. N Venkatraman and Mr. K M Nataraj, learned Additional Solicitor Generals, appearing on behalf of the petitioners, and Mr. Mukul Rohatgi, learned Senior Counsel, appearing on behalf of the respondent in SLP (C) No 13958/2020.

Issue notice, returnable in eight weeks.

Mr. Malak Manish Bhatt, learned counsel, accepts notice on behalf of the respondent in SLP(C) No 13958 of 2020.

The counter-affidavits shall be filed within a period of six weeks from today.

Case Covered:

MOHIT MINERALS PVT LTD  Versus UNION OF INDIA & 1 other(s) Gujrat High Court

Related Topic:
RCM ON FREIGHT PAID FOR EXEMPT PRODUCTS

Facts of the case:

IGST  on Ocean Freight for services supplied by a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India. The importer in India was made liable to pay tax in RCM via notification no. 8/2017 IGST. The importer was liable to pay tax @5% in RCM.

Related Topic:

Gujarat HC Order in the case of Nagri Eye Research Foundation Versus Union Of India

Observation of Honourable Gujrat High Court:

The impugned Notification No.8/2017, through Entry 9(ii), has sought to levy the tax on the transactions including ‘service provided by a person located in a non-taxable territory to a person located in the non-taxable territory’, by way of transportation of goods by a vessel. Indisputably, both, the service provider and the service recipients are outside India and such a levy goes beyond the mandate of Section 1 of the IGST Act, 2017, which extends to the whole of India and not outside India. No levy exists in law but for the impugned Notification.

Strong reliance is placed upon the judgment in the case of Indian Association of Tour Operators v. Union of India and others, reported in 2017(5) GSTL 4 (Del.) (paras 5, 18, 19, 26, 48), which is under the Finance Act, 1994, which also had the similar provisions under Section 64 of the said Act, where the Act was applied to the whole of India except the State of Jammu & Kashmir and the taxable territory was defined as the territory to which the provisions of the said Act was applicable. In this context, reliance is also placed on a decision of the Delhi High Court, wherein it is held that the services rendered outside India cannot be brought to tax by a delegated legislation by fixing a deeming provision without amending Section 64 of the Finance Act, 1994. It is an essential legislative function. The same analogy is sought to be extended in the present case also.

The principle of extra-territorial levy applies to both; CIF and FOB purchases :

In case of purchases made on the CIF basis, indisputably, both, the service provider and the service recipients are outside India, and the writ-applicant – the purchaser is concerned only with the purchases of goods and having no idea of payments made towards the freight for the vessel. Therefore, the supply has happened outside India. Similarly, when purchases are made on a FOB basis by the writ-applicant, the Ocean Freight is paid by the writ-applicant to the foreign shipping line. The transportation of goods by a vessel is done from a place outside India up to the port in India. Thus, the supply happened outside India. Such activity takes place outside the territory of India, and thus, it is outside the purview of the tax. Hence, the impugned Notification is ultra vires to the Act

No levy could be imposed twice under the same Act :

The writ-applicant has already paid the ‘Integrated Tax’ (Known as the IGST) under the IGST Act, 2017, on the imported coal, which includes the value of the Freight (FOB basis), whereas in the case of goods purchased on the CIF basis, the cost includes the sum of cost, insurance, and freight. The impugned Notifications again seek to levy the ‘Integrated Tax’ under the IGST Act, 2017, on freight components (Ocean Freight) on the reverse charge basis. In such circumstances, to levy and collect once again the Integrated Tax under the same Act on the ‘supply’ (same aspect) amounts to double taxation under the same Act, which is impermissible under the law. Therefore, the impugned Notifications are illegal and unconstitutional.

Ruling:

• This Hon’ble High Court be pleased to issue a writ of certiorari/mandamus or any other appropriate writ/order/direction against the Respondents by declaring that no tax is leviable under the Integrated Goods and Services Tax Act, 2017 on Ocean Freight for services supplied by a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India and levy and collection of tax on such Ocean Freight under the impugned Notifications is not permissible under the law;
• that pending the hearing and final disposal of the petition, this Hon’ble Court be pleased to: i. stay the operation of impugned Notification No.8/2017-Integrated Tax (Rate), dated 28.6.2017 and Entry 10 of the Notification No.10/2017-Integrated Tax (Rate), dated 28.6.2017 and/or; ii. stay the levy and collection of integrated tax Ocean Freight on the transport of goods in a vessel from a place outside India up to the customs station of clearance in India by a person located in the non-taxable territory; and/or; iii. Restrain the Respondent No.1 and all its officers, agents to take any coercive measure against the petitioner and its officers during the pendency of writ petition; and/or;

Download full judgment:

GJHC240056532018-9