AAR declines ruling on IGST reverse charge on ocean freight citing lack of jurisdiction over constitutional validity under Section 97 CGST Act

The AAR MP declined to rule on whether levying IGST on ocean freight under reverse charge mechanism constitutes double taxation, despite IGST already being paid on CIF value including freight. The Authority held that advance ruling applications can only determine existence of tax liability under Section 97 CGST Act, not constitutional validity of such liability. Since the applicant admitted liability exists but challenged its constitutional validity, the Authority ruled it lacked jurisdiction to examine constitutional questions, which fall within courts' exclusive domain.

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Issues Involved:
1. Double-taxation on freight portion of imported goods.

Issue-wise Detailed Analysis:

1. Double-taxation on Freight Portion of Imported Goods:

Facts and Background:
- The Applicant is engaged in the manufacturing of Single Super Phosphate (Fertilizer) and Sulphuric Acid (Chemical). The major raw material, Rock Phosphate, is imported from various countries and procured locally.
- The Applicant is registered under GST laws and pays GST/IGST and customs duty on imported Rock Phosphate.
- The Applicant imports Rock Phosphate on a CIF (Cost, Insurance & Freight) basis, where the freight invoice is issued by the foreign shipping line to the foreign exporter. The Applicant does not have any invoice of ocean freight nor knowledge of the freight payment amounts.

Question Raised:
- The Applicant questioned the double-taxation on freight portion of imported goods, where IGST is levied on CIF value (including freight) and again on the freight component (Ocean Freight) on a reverse charge basis, amounting to double taxation.

Applicant's Argument:
- The Applicant argued that IGST is paid twice on the same amount: first on the CIF Value plus Customs Duty and second on the Ocean Freight, which is deemed to be 10% of the CIF Value. This, they claim, results in double taxation.
- The Applicant referenced the case of Mohit Minerals Pvt. Ltd. vs Union of India, where the Gujarat High Court ruled that IGST on ocean freight amounts to double taxation and is not sustainable in law.

Legal Provisions and Notifications:
- Section 5(1) of the IGST Act, 2017, and Sections 3(7) and 3(8) of the Customs Tariff Act, 1975, were cited to explain the levy of IGST on imported goods.
- Notification No. 8/2017-Integrated Tax (Rate) and its corrigendum, and Notification No. 10/2017-Integrated Tax (Rate), were referenced to explain the levy of IGST on freight components (Ocean Freight) and the reverse charge mechanism.

Discussion and Findings:
- The Authority considered the submissions and supporting documents provided by the Applicant.
- As per Section 20 of the IGST Act, 2017, read with Section 97 of the CGST Act, 2017, an application for advance ruling can be made only if the question is in respect of specific categories such as classification of goods/services, applicability of a notification, determination of time and value of supply, admissibility of input tax credit, determination of liability to pay tax, registration requirements, and whether a particular activity amounts to a supply.
- The Applicant's question was about the determination of liability to pay tax, specifically challenging the levy of IGST on reverse charge basis on freight on imports made on CIF basis, arguing it amounts to double taxation.
- The Authority noted that to determine if double taxation exists, it would need to opine on the applicability of notifications under the GST Act and rules under the Customs Act, which is beyond its purview.
- The Authority concluded that the question proposed was not about the existence of liability but its constitutional validity, which only courts can determine.

Ruling:
- The Authority ruled that the application is not covered within the scope of Section 97 of the CGST Act. Therefore, the Advance Ruling Authority cannot comment on the question put forth.
- The application was disposed of accordingly, with the ruling valid subject to provisions under section 103 (2) until declared void under Section 104 (1) of the GST Act.

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