ISSUE II: IN CASE OF “CIF” TRANSACTIONS, DOES THE RECIPIENT OF THE IMPORTED GOODS IS ALSO A RECIPIENT OF SHIPPING SERVICES?

The contentions were put forth by Union of India, that the importer cannot be termed as the recipient of supply of services. Honorable Supreme Court right away disagreed to this statement made by Union of India by highlighting the Section 2(93) of CGST Act, 2017 which states the definition of recipient of supply of services and since Section 5(3) reconfirms that the taxable person must be the recipient of the service and the importer wasn’t explicitly defined in the Act as a recipient of service, the argument must be rejected.

ISSUE III: WHETHER SUCH TRANSACTION AMOUNTS COMPOSITE SUPPLY WHICH GIVES RISE TO DOUBLE TAXATION?

Three parties are involved in the transaction: the transportation line, the Indian importer, and the overseas exporter. The Indian importer is required to pay IGST on the transaction value for the first stage of the trade between the overseas exporter and Indian importer, which includes the provision of services like insurance and freight and qualifies as a “composite supply” under Section 2. (30).The agreement between the foreign exporter and the shipping line for the provision of services for the transport of goods to India is the second element of the transaction. This is a separate agreement between a foreign exporter and a transportation line and which, as a result, said that a contract between a foreign exporter and a shipping line to which an Indian importer is not a party cannot be regarded as a portion. The Court rejected the application of aspect theory and stated that the Revenue Department cannot take contradictory stands, which would imply double taxation standards.

Implications Of Above Issues

1. The said notifications have been declared ultra vires and no GST under RCM is applicable on ocean freight on the CIF import.
2. Refund of IGST already paid under Reverse Charge Mechanism (RCM): In accordance with the Honorable Supreme Court’s decision, the importers can seek refund of IGST already paid under RCM as per Section 5(1) of the IGST Act read with Section 20 of the IGST Act, Section 8 and Section 2(30) of the CGST Act. It should be noted that the following judgements of The Hon’ble High Courts of India can be relied upon where the allowance of a refund of IGST paid on maritime freight after the limitation time specified by the GST Law which is 3(three) years from the knowledge of such mistake of law has passed:

• M/s. Comsol Energy Private Limited v. State of Gujarat [R/Special Civil Application No. 11905 of 2020 decided on December 21, 2020],
• 3E Infotech Ltd. vs. Cestat, [2018 (7) Tmi 276 – Madras High Court],
• Union Of India Vs. Itc Ltd. [1993 (7) Tmi 75 – Supreme Court Of India]
• Binani Cement Ltd. Versus Union of India,

CONCLUSION

The judgment of Hon’ble Gujarat High Court in the case of Mohit Minerals Pvt Ltd Versus Union Of India & Other (2020), was upheld by the Hon’ble Supreme Court Judgment stating that the Notification No.8/2017 dated 28.06.2017 and the Notification No.10/2017 dated 28.06.2017 were declared ultra vires as they lacked the legislative competency, thereby making it unconstitutional to levy IGST @ 5% under RCM on overseas freight on the services provided by an overseas exporter in a non-taxable territory by way of transportation of goods through vessel from a place outside India to customs limits of India under CIF contract.

Moreover, on the value of the composite supply of goods, which includes insurance and freight components, a levy of IGST u/s 5(1) of the IGST Act read with Section 20 of the IGST Act, Section 8 and Section 2(30) of the CGST Act, is made and no separate levy of IGST @ 5% under RCM can to be made on the Indian importer for the supply of services of transportation of goods by the transportation  line as it would be in violation of Section 8 of the CGST Act, 2017and shall tantamount to double taxation.