No GST on Sea Import Freight, Refunds in GST Wrongly Charged

· Supreme Court’s Observation in Ocean Freight Ruling could Change Landscape of GST Framework, Experts

Ocean Freight-No GST-SC Judgment

Supreme Court pronounces judgment in Mohit Minerals case (Ocean Freight matter). While upholding the judgment of Gujarat High Court, the Supreme Court holds that recommendations of GST Council are only recommendatory and not binding on Union and State. In nutshell, GST not leviable on ocean freight.

Great judgment.

The Supreme Court on Thursday, 19 May 2022, ruling has held that GST on ocean freight paid in case of import of goods is unconstitutional. Also, the Indian importers who had paid such tax will be eligible to refund.

The Supreme Court’s ruling in the case of ocean freight that is set to give relief to several Indian companies and importers could also change the way the Goods and Services Tax (GST) framework operates in the country, say legal experts.

The Supreme Court on Thursday, ruling has held that GST on ocean freight paid in case of import of goods is unconstitutional. Also, the Indian importers who had paid such tax will be eligible to refund.

Further, those importers who had not paid the tax on import of services will now not be required to pay tax because of this Supreme Court ruling.

The court also said that recommendations by the GST council are not binding on either the union or the state and it has persuasive value.

“This judgement may change the landscape of those provisions under GST which are subject to judicial review. As the court has gone ahead to categorically hold that the GST Council recommendations have only persuasive value, there will be pragmatic approach to the provisions which are subject to judicial review by way of challenge to the constitutionality of such provisions based on GST Council recommendations” said Abhishek A Rastogi, Partner at Khaitan & Co, who argued for the petitioners before Gujarat High Court, Supreme Court and several other courts.

Parliament and state legislatures possess equal powers to legislate on GST, SC ruled.

Experts say that it will be interesting to observe whether this would impact some of the ongoing controversies involving the state and the centre.

ET had first reported about the controversy in 2017 when the tax department had started issuing the notices.

The basic issue is that, in most cases, the ocean freight is paid by the seller or companies that are not based in India. So, for instance, if a company based in Europe is exporting goods to India, the company tends to enter into an agreement with shipping companies and pay ocean freight.

In such cases, the tax department is unable to recover GST from the European company. The tax department hopes to recover the IGST from importers or companies that are based in India through a "reverse charge mechanism."

The government had approached the Supreme Court against an earlier Gujarat High Court judgement that said that IGST (integrated GST) on ocean freight is unconstitutional.

In the last few months or so, the tax department has started issuing fresh tax demands and has issued notices to companies over GST on ocean freight.

Some of the companies had even approached various courts and failed writ petitions against the tax department’s decision to issue tax notices.