2024 (2) TMI 1066 - HC - GST

IGST refund allowed on shipping services in CIF contracts following Section 8 violation ruling

The HC disposed of a writ petition challenging the constitutional validity of various GST provisions following the SC judgment in Mohit Minerals. The SC ... Composite supply - reverse charge mechanism and specification of recipient by notification - levy of IGST on import value including freight and impermissible vivisection of service component - entitlement to refund of erroneously paid IGST - quashing of adverse advance ruling inconsistent with settled lawComposite supply - levy of IGST on import value including freight and impermissible vivisection of service component - reverse charge mechanism and specification of recipient by notification - Validity of Entry 10 of the impugned notification insofar as it notifies the importer as the recipient for levy of IGST on reverse charge and authorises levy on the importer in CIF imports - HELD THAT: - The writ petition was disposed of in light of the Supreme Court decision in Union of India v. Mohit Minerals (supra). The Supreme Court held that where IGST has been levied on the value of imported goods which includes ocean freight under the IGST/Customs scheme, a separate levy characterising the freight as a distinct taxable supply of service and taxing it again would violate the principle of composite supply under Section 2(30) read with Section 8 of the CGST Act. The Court further observed that the specification of the recipient (the importer) by notification was clarificatory of the recipient prescribed by Section 5(3) of the IGST Act and did not fetter the statutory definitions, but that any separate levy on the service component contrary to the composite supply principle was impermissible. Applying that ratio, the challenge to Entry 10 insofar as it results in double taxation by levying tax again on the service component was upheld. [Paras 5]Entry 10 to the extent it results in a separate levy on the service component of CIF imports, thereby effecting double taxation inconsistent with the composite supply principle, cannot be sustained and the petition is disposed of accordingly.Entitlement to refund of IGST - levy of IGST on import value including freight and impermissible vivisection of service component - Claim for refund of IGST paid by the petitioner on the ground that such tax was levied again on the service component - HELD THAT: - Relying on the Supreme Court's conclusion that the notifications imposing a separate levy on the freight/service component are illegal, the petitioner is held entitled to refund of the IGST paid which is rendered payable consequent to that illegality. The High Court directed respondents to process and grant the refund in accordance with law within a specified period. [Paras 6]The petitioner is entitled to refund of the IGST paid; respondents to effect refund in accordance with law within six weeks from the date of this order.Quashing of adverse advance ruling inconsistent with settled law - composite supply - Challenge to the Advance Ruling (AAR) impugned in the petition - HELD THAT: - In view of the Supreme Court's findings that a separate taxation of the service component where IGST has been charged on the composite import value is impermissible, the order of the Authority for Advance Ruling that is inconsistent with that principle cannot stand. The writ petition was disposed of in light of Mohit Minerals and the relief seeking quashment or modification of the impugned AAR was allowed to the extent it is contrary to the legal position laid down by the Supreme Court. [Paras 5]Impugned Advance Ruling set aside/modifed insofar as it is inconsistent with the legal position in Mohit Minerals.Final Conclusion: Writ petition disposed of in view of Union of India v. Mohit Minerals (supra); Entry 10 insofar as it effects double taxation on the service component of CIF imports is unsustainable, the impugned advance ruling is set aside to the extent inconsistent with that principle, and the petitioner is entitled to refund of IGST paid, to be processed by the respondents within six weeks. Issues involved:The issues involved in the judgment include challenging the constitution of the Authority for Advance Ruling (AAR) and the Appellate Authority for Advance Ruling (AAAR) under the RGST Act and CGST Act, the notification regarding the levy of IGST on reverse charge mechanism, and the proviso to section 5(1) of the IGST Act resulting in double taxation.Constitution of AAR and AAAR:The petitioner sought to declare the provisions of section 96(2) of the RGST Act and section 96 of the CGST Act, along with related rules, as arbitrary and unconstitutional. Similarly, the provisions of section 99 of the CGST Act and RGST Act regarding the constitution of the AAAR were challenged. The petitioner's plea was based on the judgment in Union of India Vs. Mohit Minerals (Pvt.) Limited, where it was indicated that the reliefs claimed by the petitioner would be available. The submissions made were not disputed by the respondents, leading to the disposal of the writ petition in line with the Mohit Minerals case.Levy of IGST on Reverse Charge Mechanism:The petitioner challenged Entry 10 of the Impugned Notification, which notified the 'importer' as the 'recipient' of service for the levy of IGST on reverse charge mechanism. The petitioner argued that this was ultravires to section 5(3) of the IGST Act, 2017. The judgment in the Mohit Minerals case highlighted that a tax on the supply of a service, already included as a tax on the composite supply of goods, cannot be allowed. Consequently, the petitioner was entitled to a refund of the IGST paid, and the respondents were directed to do the needful within six weeks.Proviso to Section 5(1) of the IGST Act:The petitioner also challenged the proviso to section 5(1) of the IGST Act, which provided for the levy and collection of IGST on goods imported into India without excluding the value of Transportation Services, leading to double taxation. The judgment in the Mohit Minerals case emphasized that the impugned levy on the 'service' aspect of the transaction was in violation of the principle of 'composite supply' enshrined under the CGST Act. As a result, the petitioner was granted relief and entitled to a refund of the IGST paid.This summary outlines the key issues raised in the judgment before the Rajasthan High Court, the arguments presented by the petitioner, and the court's decision based on the principles highlighted in the Mohit Minerals case.