Taxpayers can seek IGST refund on Sea Freight Post Supreme Court verdict, experts say


Taxpayers can claim IGST refund on ocean freight

New Delhi:

Taxpayers who paid GST on “ocean freight” on imported goods will be entitled to claim refunds, following the Supreme Court’s verdict, provided they did not claim a tax credit on inputs, experts said.

Rendering its decision in the Mohit Minerals case, the Supreme Court ruled that since the Indian importer is liable to pay IGST on the “composite supply”, comprising the supply of goods and the supply of transportation services, insurance, etc in a CIF (Cost Insurance Freight), a separate levy on the Indian importer for the “provision of services” by the shipping company would be contrary to … the CGST law.

In this particular case, the company had challenged the validity of the CBIC’s notification regarding the levying of embedded GST on ocean freight in the High Court of Gujarat. The Supreme Court upheld the decision of the Gujarat High Court which had favored the company.

Tax Connect’s advisory services partner, Vivek Jalan, says this is a big relief for importers and GST taxpayers. “In fact, taxpayers who had already paid the GST can also apply for a refund of the same now.”

Naresh Sheth, partner at Dhruva Advisors, said: “This levy, in essence, was a tax on transactions between two foreign parties taking place outside India, which apparently goes beyond the territorial jurisdiction of the Indian government.” Mr. Jalan added that generally speaking, the value of imported goods is CIF and includes Cost, Insurance and Freight components. Therefore, customs duties and GST are charged on this value.

“However, the CBIC has also sought to levy GST @ 5% on the value of imported goods by considering 10% of the value of imported goods as deemed ocean freight,” Mr. Jalan added.

AMRG & Associates senior partner Rajat Mohan said the Supreme Court upheld the judgment of the Gujarat High Court that found the IGST levy on ocean freight services to be unconstitutional.

This is a double charge of IGST, as it has already been taxed as part of the value of the goods. Moreover, these services are received by the foreign exporter, so the Indian importer will not be liable to pay GST on them, he said.

“Through this, a window of opportunity has been opened for importers who have already paid the tax to demand reimbursement from the Treasury,” Mohan added.

DG Ajay Sahai of the Federation of Indian Export Organizations (FIEO) said that the FIEO had already stated that ocean freight on goods imported on CIF basis should not be charged as it amounts to double taxation, which which adds to the liquidity problem.

“While the IGST compensation on imports was available but after a certain delay, it added to the challenges for manufacturers and exporters,” Sahai said.


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