IGST on Deemed Ocean Freight: AAR Upholds Reverse Charge Mechanism Decision

The Authority for Advance Ruling (AAR) held that the applicant must pay IGST on deemed ocean freight under the reverse charge mechanism, despite already paying IGST on the CIF value of imported goods. The AAR rejected the argument of double taxation, citing different provisions governing the levy of IGST on goods and services. The ruling emphasized compliance with the IGST Act, 2017, and related notifications. The issue of double taxation, as raised by the applicant, remains unsettled pending a Supreme Court decision on the matter.

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Issues Involved:
1. Liability to pay IGST under Reverse Charge Mechanism (RCM) on deemed Ocean Freight on import of goods on CIF basis.
2. Double taxation on Ocean Freight.

Detailed Analysis:

1. Liability to pay IGST under Reverse Charge Mechanism (RCM) on deemed Ocean Freight on import of goods on CIF basis:

The applicant, a company engaged in manufacturing fertilizers, imports raw materials on a CIF (Cost, Insurance, and Freight) basis. The company contends that it already pays IGST on the total CIF value, which includes the value of ocean freight. However, as per Notification No. 10/2017-Integrated Tax (Rate), IGST on services provided by a person in a non-taxable territory by way of transportation of goods by a vessel up to the customs station in India must be paid on a reverse charge basis by the importer. The value of such services, if not known, is deemed to be 10% of the CIF value as per Notification No. 8/2017-Integrated Tax (Rate).

The legal provisions under Section 5 of the IGST Act, 2017, and the related notifications mandate that IGST on ocean freight must be paid under the reverse charge mechanism. This is irrespective of whether the importer has already paid IGST on the CIF value, which includes the ocean freight component.

2. Double taxation on Ocean Freight:

The applicant argues that paying IGST on both the CIF value (which includes ocean freight) and again on the deemed value of ocean freight under reverse charge mechanism amounts to double taxation. They cite the Gujarat High Court's decision in the case of Mohit Minerals Pvt. Ltd. vs Union of India, where it was held that IGST on ocean freight, already included in the assessable value of imported goods, leads to double taxation and is thus not permissible.

The Authority for Advance Ruling (AAR) analyzed the provisions of the IGST Act, 2017, and the Customs Act, 1962, concluding that the integrated tax on goods imported into India is levied and collected according to the Customs Tariff Act, 1975. The AAR found that the applicant's contention of double taxation is unsubstantiated because the levy of IGST on import of goods and services (including ocean freight) is governed by different provisions and mechanisms.

Conclusion:

The AAR ruled that the applicant is liable to pay IGST on deemed ocean freight under the reverse charge mechanism, in addition to the IGST paid on the CIF value of imported goods. The ruling is based on the prevailing provisions of the IGST Act, 2017, and the related notifications. The AAR also noted that the issue of double taxation raised by the applicant, referencing the Gujarat High Court's decision, has not attained finality as the department has filed an SLP against the said order before the Supreme Court.

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