GST UPDATE ON ADVANCE RULING ON GST LIABILITY ON OCEAN FREIGHT PAID UNDER CIF CONTRACTS

The present update seeks to discuss the recent Advance Ruling pronounced in case of M/s M.K. Agro Tech Pvt. Ltd. on the issue of liability to pay IGST by the importer on ocean freight in case of CIF contracts under reverse charge mechanism. It was pleaded by the applicant that since IGST is paid on import of goods whether on FOB terms or CIF terms, they are not liable to pay IGST on ocean freight under CIF contracts once again as it would lead to double taxation. It was also pleaded by the applicant that they are not covered under the term ‘recipient of supply of goods or services or both’ as they have not paid consideration to the foreign shipping line and the agreement for transportation of goods is entered into by the foreign supplier and the foreign shipping line with foreign supplier making payment to the said foreign shipping line. It was also pleaded by the applicant that the transaction is to be considered as composite supply and the value of freight is to be included in the value of goods for the purpose of discharging IGST on import of goods. Therefore, there is no need to separately pay IGST on the element of ocean freight again under reverse charge mechanism. The AAR Karnataka concluded that there is no double taxation involved in the above transactions as these are two distinct taxable transactions, one relating to supply of goods and other relating to supply of services. Hence, it was held that IGST should be paid by the importer on ocean freight in case of CIF contract. However, it was also stated that since the matter is pending before the Hon’ble Gujarat High Court in the case of M/s Mohit Minerals Pvt. Ltd. and is sub-judice. Consequently, it was stated that the decision is subject to the outcome of the decision of the Hon’ble Gujarat High Court.

Now, the question arises is that whether the Authority for Advance Ruling is competent to pass such an order that the decision is subject to outcome of the decision to be pronounced by the Gujarat High Court in near future? If we pursue the provisions contained in section 98 of the CGST Act, 2017 pertaining to ‘Procedure in receipt of application’, there is no express provision regarding the type/nature/contents of order that can be passed by the authority of advance ruling. However, by applying the general principles of law, the concept of judicial discipline should be adhered to according to which if any issue is sub-judice before higher appellate forum, the matter should be transferred to call book and decision should be passed by the subordinate authority only after the final outcome of the decision by the higher appellate authority. The decision confirming the liability to pay IGST on ocean freight incurred on CIF contracts under reverse charge mechanism subject to the outcome of Hon’ble Gujarat High Court’s final decision is absurd as it leads to unnecessary litigation cost for the applicant. The applicant is required to follow the decision pronounced by the authority for advance ruling as the same is binding on it unless the said decision is appealed further before the appellate authority for advance ruling. Furthermore, as we all know that the final decision pronounced by the High Court involve considerable period of time and if the final decision is rendered in favour of the assessee that there is no need to pay IGST on ocean freight under CIF contracts, the applicant will be put at highly disadvantageous position. Needless to mention, the procedure for claiming refund of IGST already paid on ocean freight under CIF contracts will be a cumbersome task for the applicant. We can say that the above cited decision of the advance ruling is like “Half Yes and Half No” which confirms leviability of the GST liability on ocean freight but subject to outcome of decision of High Court which puts the applicant in ambiguous situation.

The content of this GST update is for educational purpose only and not intended for solicitation.
You can reach us at www.capradeepjain.com, at our facebook page on https://www.facebook.com/GSTTODAYBYPRADEEPJAIN/as well as follow us on twitter at https://www.twitter.com/@capradeepjain21

Comments

GST UPDATE ON ADVANCE RULING ON GST LIABILITY ON OCEAN FREIGHT PAID UNDER CIF CONTRACTS

Post a Comment

Query