GST Update No 137 GST on Ocean Freight-A never ending fight!

The hallmark of levy of tax as provided under Article 265 of Constitution of India is that there cannot be any levy without an authority of law. Any incidence of double taxation will be always outside the framework of taxation. One of the burning issues in GST era is levy of GST on the ocean freight under reverse charge mechanism to be paid by the importer. Although there is favourable decision rendered by the hon’ble Gujarat High Court in the case of MOHIT MINERALS PVT. LTD. but the AAR’s and AAAR’s continue to follow their own interpretation as regards the levy of tax on ocean freight. Recently, the issue regarding levy of GST on ocean freight was again raised before Uttar Pradesh AAAR in the case of M/s SANGAL PAPERS LTD. wherein the order of AAR confirming the taxability of IGST in case of ocean freight under reverse charge mechanism was upheld. The analysis of this decision is the subject matter of discussion of our present update. The AAAR referred to the provisions of notification no. 10/2017-Integrated Tax (Rate) dated 28.06.2017 to justify imposition of IGST on ocean freight under reverse charge mechanism. It was also held that levy of tax under RCM gives a level playing field to the domestic shipping lines. Moreover, the goods are transported from a place outside India upto the customs station in India for the importer and therefore, he is directly or indirectly the recipient of service. It was also stated that the view of AAR in confirming levy of tax on ocean freight is upheld as the decision pronounced by Gujarat High Court in case of MOHIT MINERALS PVT. LTD. has been challenged before Supreme Court and the final outcome is still pending. However, the operative portion of the AAAR order states that as the matter regarding levy of IGST on ocean freight is sub-judice and pending before Apex Court, it is inappropriate for AAAR to pass any order in the instant case. It is pointed that inspite of favourable decision rendered by Gujarat High Court on the issue under consideration, the AAR and AAAR’s refrain from following the said High Court judgment. Similarly, Rajasthan AAR in case of M/S. CHAMBAL FERTILISERS & CHEMICALS LIMITED, held that importer would be liable to pay GST under reverse charge mechanism for ocean freight for CIF contracts and tax paid under RCM would be eligible for credit. Likewise, there are numerous decisions rendered by AARs that run contrary to the analogy laid down by the hon’ble Gujarat High Court. In this context, we are inclined to recall the landmark judgment rendered by the Supreme Court in the case of UNION OF INDIA V KAMALAKSHI FINANCE CORPORATION LTD., wherein, the Apex Court held that, 'THE PRINCIPLES OF JUDICIAL DISCIPLINE REQUIRE THAT THE ORDERS OF THE HIGHER APPELLATE AUTHORITIES SHOULD BE FOLLOWED COMPLETELY BY THE SUBORDINATE AUTHORITIES'. In light of the above cited decision, the orders passed by the High Court is required to be unreservedly followed by the subordinate authorities but it is often observed that the decisions rendered by High Courts are simply ignored while passing orders by revenue authorities. Revenue authorities need to give due regard to the orders of the higher appellate authorities which are binding on them in view of the principle of judicial discipline so that unwarranted litigation can be avoided.

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GST Update No 137 GST on Ocean Freight-A never ending fight!

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