Manufacturing company liable to pay GST on freight charges under reverse charge mechanism per Notification 13/2017-CT

The AAR, UP ruled that a manufacturing company is liable to pay GST on freight charges under reverse charge mechanism per Notification No. 13/2017-CT (Rate). The applicant must pay IGST on ocean freight for CIF imports under Notification No. 10/2017-Integrated Tax (Rate) and additional GST on domestic freight under RCM. The Authority held that ocean freight transportation by foreign shipping entities to Indian ports constitutes inter-state supply under Section 7 of IGST Act, 2017, making IGST applicable under Section 5. The Authority declined to rule on double taxation issues, stating it falls outside their mandate under Section 97 of CGST Act, 2017.

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Issues Involved:
1. Liability to pay GST on freight under Reverse Charge Mechanism (RCM) for indigenous supplies.
2. Liability to pay GST on ocean freight under RCM when GST is already paid on the CIF value of imported goods.

Issue-wise Detailed Analysis:

1. Liability to pay GST on freight under Reverse Charge Mechanism (RCM) for indigenous supplies:

The applicant, a limited company engaged in manufacturing paper, sought an advance ruling on whether GST needs to be paid again on freight under RCM when GST has already been paid on the freight for indigenous supplies. The applicant contended that paying GST again would result in double taxation.

The Authority examined the provisions of Section 5(3) of the IGST Act, 2017, and Section 9(3) of the CGST Act, 2017, which allow the government to specify categories of supplies where the tax is to be paid on a reverse charge basis by the recipient. Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017 specifies that the tax liability on goods transport agency (GTA) services is to be discharged under the reverse charge mechanism if the service recipient falls under a specified category, which includes any body corporate established under any law.

Since the applicant is a limited company, the notification applies to them, making them liable to pay GST on the freight paid under RCM. The Authority noted that the issue of double taxation is outside its purview as per Section 97 of the CGST Act, 2017, and thus cannot provide a ruling on that matter.

2. Liability to pay GST on ocean freight under RCM when GST is already paid on the CIF value of imported goods:

The applicant also sought clarity on whether any further GST liability exists under RCM when GST has already been paid on the ocean freight included in the CIF value of imported goods. The applicant referenced the judgment of the Hon’ble High Court of Gujarat in the case of M/s Mohit Minerals Pvt. Ltd. Vs Union Of India, arguing that ocean freight should not be liable to GST.

The Authority referred to Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017, which specifies that IGST is payable on services supplied by a person located in a non-taxable territory for the transportation of goods by a vessel from a place outside India to the customs station in India. This notification mandates that the importer, defined under Section 2(26) of the Customs Act, 1962, is liable to pay GST on ocean freight under RCM.

The Authority observed similar rulings by the Authority for Advance Ruling for Uttarakhand in the case of M/s Bhal Paper Mills Ltd. and by the Rajasthan Authority for Advance Ruling in the case of M/s Chambal Fertilizers and Chemical Limited, which upheld the requirement to pay IGST on ocean freight under RCM even when GST has been paid on the CIF value of imported goods.

Ruling:

1. The applicant is liable to pay GST on freight under RCM as per Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017.
2. The applicant is liable to pay IGST on ocean freight under RCM as per Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017.

Validity:

This ruling is valid within the jurisdiction of the Authority for Advance Ruling Uttar Pradesh and subject to the provisions under Section 103(2) of the CGST Act, 2017, until declared void under Section 104(1) of the Act.

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