2019 (7) TMI 44 - AAR - GST

Applicant must pay IGST on ocean freight under Reverse Charge Mechanism despite CIF value

In Re: M/s. E-DP Marketing Private Limited

The Authority ruled that the applicant must pay IGST on ocean freight under Reverse Charge Mechanism, as per Notifications 10/2017-IT(R) and 8/2017-IT(R), ... Applicability of Reverse Charge Mechanism - Ocean Freight - IGST is paid by the importer on Goods Imported on CIF Basis - Whether the applicant /importer is again required to pay IGST on the component of ocean freight under RCM mechanism on deemed amount which will amount to double taxation of IGST on the deemed component of ocean freight of the imported goods? - HELD THAT:- The Applicant is engaged in trading of various edible oils. It has been mentioned in the application that the applicant intends to import crude Soyabean Oil on CIF (Cost+Insurance+Freight) basis, which includes the component of ocean freight in the price of imported goods. Obviously, in case of such imports the seller being located in non-taxable territory, the ocean freight is collected by the seller from the importer located in the taxable territory. As per Notification 10/2017-lntegrated Tax (Rate) dtd.28.06.2017, [Sr.No.10], the ‘Services supplied by a person located in non-taxable territory by way of transportation of goods be a vessel from a place outside India up to the customs station of clearance in India’ have been put under Reverse Charge Mechanism and the recipient of service viz. ‘Importer, as defined in clause (26) of Section 2 of the Customs Act 1962 (52 of 1962), located in the taxable territory’ - Further, in terms of Notification No.8/2017-lntegrated Tax (Rate) dtd.28.06.2017, read with Corrigendum dtd.30.06.2017, the taxable value in respect of ocean freight has been defined as, ‘Where the value of taxable service provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India is not available with the person liable for paying integrated tax, the same shall be deemed to 10% of the CIF value (sum of cost, insurance and freight) of imported goods’ . In view of the above two notifications we do not find any ambiguity, whatsoever, regarding payment of IGST on ocean freight. As per existing law, IGST on ocean freight has to be paid by the importer under reverse charge mechanism, irrespective of the fact that such freight charges are included in the intrinsic CIF value. It is thus clear that any notification is issued only as per recommendations of the GST Council, and the law laid down is binding upon the concerned. We find that the applicant has questioned the levy under RCM as being without jurisdiction. As already spelt out, this Authority does not have the jurisdiction or authority to dwell into this question, in terms of Section 97(2) of the Act ibid - the applicant is liable to pay IGST on ocean freight under RCM as provided under Notification No. 10/2017-IT (R) read with Notification No.8/2017-lT(R). Issues:Applicability of Reverse Charge Mechanism on Ocean Freight when IGST is paid by the importer on Goods Imported on CIF Basis.Analysis:1. Background: The applicant, engaged in trading edible oils, sought an advance ruling on whether they are required to pay IGST on ocean freight under Reverse Charge Mechanism (RCM) on deemed amount, leading to potential double taxation.2. Legal Provisions: The application falls under Section 97(2)(e) of the CGST Act 2017, concerning the liability to pay tax on goods or services. The applicant fulfilled all requirements for filing the application.3. Applicant's Position: The applicant imports crude soyabean oil on CIF basis, including ocean freight. They argued against double taxation, citing Notification No. 10/2017-IT(R) requiring IGST payment on ocean freight under RCM.4. Concerned Officer's View: The officer supported IGST payment on ocean freight under RCM, as per Notifications 10/2017-IT(R) and 8/2017-IT(R), disregarding inclusion in CIF value.5. Discussion: The Authority found no ambiguity in existing law mandating IGST payment on ocean freight under RCM, regardless of inclusion in CIF value. The applicant challenged the levy's jurisdiction, but the Authority clarified its role and upheld the IGST payment requirement.6. Ruling: The Authority ruled that the applicant must pay IGST on ocean freight under RCM, as per Notifications 10/2017-IT(R) and 8/2017-IT(R), despite inclusion in CIF value. The ruling is valid unless declared void under the GST Act.This detailed analysis covers the legal judgment's background, arguments presented, legal provisions, and the final ruling on the issue of Reverse Charge Mechanism on Ocean Freight under the GST Act.