GST UPDATE ON LEVY OF IGST ON OCEAN FREIGHT UNDER RCM PART-2

In our earlier update, we have discussed the contention regarding double taxation as regards levy of IGST on ocean freight under reverse charge mechanism to be paid by importer. The present update seeks to discuss the viability of the second ground regarding importer not to be considered as ‘recipient of service’ and not liable to pay IGST under reverse charge mechanism.

Before proceeding further, it is pertinent to mention that recently, the Hon’ble High Court of Gujarat in the case of MOHIT MINERALS PVT. LTD. VS UNION OF INDIA has declared the notification no. 8/2017-Integrated Tax (Rate) dated 28.06.2017 and entry no. 10 of the notification no. 10/2017-Integrated Tax (Rate) dated 28.06.2017 pertaining to levy of IGST on ocean freight under reverse charge mechanism by the importer as ultra vires the provisions contained in IGST Act, 2017. It is also worth noting that the contention that importer is not ‘recipient of service’ was accepted by the Hon’ble Gujarat High Court and has been discussed in detail in the judgment delivered. The submission is discussed in detail as follows:-

The term 'recipient' is not defined in the IGST Act. However, sub-section (24) of Section 2 of the IGST Act states that the words and expression not defined in the IGST Act but defined in the Central Goods and Services Act, 2017 (CGST Act), the Union Territory Goods and Services Tax Act, 2017 and the Goods and Services Tax (Compensation to States) Act, 2017 shall have the same meaning as assigned to them in the said Acts.

Sub-section (93) of Section 2 of the CGST Act defines the term 'recipient' as under:

“(93) 'recipient' of supply of goods or services or both, means

(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;

(b) where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and

(c) where no consideration is payable for the supply of a service, the person to whom the service is rendered and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied.”

Thus, the term 'recipient is defined as a person liable to pay consideration, where the consideration is payable for the supply or the person to whom the services are rendered, where no consideration is payable for the supply of service.

In case where goods are being imported on CIF basis, i.e. the contract is for supply of goods delivered at the Indian port, the transportation of goods in a vessel is the obligation of the foreign exporter. The foreign exporter enters into contract with the shipping line for availing the services of transportation of goods in a vessel. The obligation to pay consideration is also of the foreign exporter. The importer is not at all concerned with how the foreign exporter delivers the goods at the Indian port or whether the consideration of the shipping line has been paid by the foreign exporter or not.

Thus, the importer could be said to have neither availed the services of transportation of goods in a vessel nor he is liable to pay the consideration of such service. Hence, the importer is not the 'recipient' of the transportation of goods in a vessel service as per Section 2(93) of the CGST Act.

In our opinion, the above interpretation is legally sound and also aligns with the decision given by the Hon’ble Gujarat High Court. It is submitted that as per the provision contained in section 5(3) of the IGST Act, 2017, the government can specify categories of supply on which tax shall be paid the recipient of the supply. The Hon’ble High Court also pointed that the section 5(3) of the IGST Act, 2017 does not provide that government can specify any other person other than recipient of supply to pay tax under reverse charge mechanism. Under section 5(3) of the IGST Act, 2017 only recipient can pay tax under reverse charge mechanism. As we have already discussed that the importer cannot be considered as ‘recipient of service’ of ocean freight rendered by foreign shipping line, the question of paying IGST under reverse charge mechanism does not arise. Therefore, we concur with the reasoning adopted by the Hon’ble Gujarat High Court in the case of Mohit Minerals and expect that suitable amendment removing levy of IGST on ocean freight to be paid by importer under reverse charge mechanism is carried by the government soon.

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GST UPDATE ON LEVY OF IGST ON OCEAN FREIGHT UNDER RCM PART-2

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