2024 (10) TMI 492 - HC - Customs

IGST refund claim allowed after notification struck down as ultra-vires for FOB transactions

Gujarat HC allowed petition challenging refund claim rejection. Court held Entry No. 10 of Notification No. 10/2017 ultra-vires IGST Act and Constitution ... Levy of IGST on ocean freight - Valuation of imported goods including cost, insurance and freight - Validity of Notification No. 10/2017 - IGST (Rate) - Application of Mohit Minerals judgment to FOB imports - Refund of IGST on ocean freight - Quashing of ex parte withdrawal of refundLevy of IGST on ocean freight - Valuation of imported goods including cost, insurance and freight - Application of Mohit Minerals judgment to FOB imports - Validity of Notification No. 10/2017 - IGST (Rate) - Levy of IGST on ocean freight for imports made on FOB basis is not sustainable where Notification No.10/2017-IGST(Rate) has been struck down and IGST has already been paid on the value of imports. - HELD THAT: - The Court held that IGST is leviable on the value determined under the Customs law which, by the proviso to section 14 of the Customs Act and the proviso to section 5(1) of the IGST Act, includes cost, freight and insurance at the place of importation. Consequently, where IGST has been paid on the transaction value that includes freight, it makes no difference whether the contract is CIF or FOB. Having regard to the Supreme Court's decision in Union of India v. Mohit Minerals (which upheld the High Court's declaration striking down Notification No.10/2017) and consistent authority from the Bombay High Court, the notification cannot be invoked to levy IGST again on ocean freight in FOB transactions; the struck-down notification cannot sustain a separate levy of IGST on freight after tax has already been paid on the import value. [Paras 28, 29]Levy of IGST on ocean freight in FOB imports is not valid where the notification permitting such levy has been struck down and IGST was paid on the value including freight.Refund of IGST on ocean freight - Quashing of ex parte withdrawal of refund - Impugned appellate order passed ex parte withdrawing the refund of IGST on ocean freight was not sustainable and is quashed. - HELD THAT: - The petitioner had filed for and obtained refund of IGST paid on ocean freight following the authoritative judgment. The appellate authority proceeded to withdraw the refund by an ex parte order on the ground of non-appearance despite the petitioner having sought time and later submitting written respostas. The Court found the impugned ex parte withdrawal to be improper in the circumstances and, in view of the legal position on levy and the struck-down notification, set aside the order withdrawing the refund. [Paras 16, 30]Impugned ex parte order withdrawing the refund is quashed and set aside.Final Conclusion: Petition allowed: the Court held that IGST cannot be levied afresh on ocean freight for FOB imports where IGST has already been paid on the import value including freight and the Notification No.10/2017 enabling such levy has been struck down; the impugned ex parte order withdrawing the refund is quashed. Issues Involved:1. Validity of Entry No. 10 of Notification No. 10/2017-Integrated Tax (Rate) dated 28.6.2017.2. Levy of IGST on ocean freight under FOB contracts.3. Withdrawal of IGST refund on ocean freight for CIF imports.4. Application of the Supreme Court's judgment in Mohit Minerals Pvt. Ltd. to FOB contracts.Issue-wise Detailed Analysis:1. Validity of Entry No. 10 of Notification No. 10/2017:The petitioner challenged Entry No. 10 of Notification No. 10/2017-Integrated Tax (Rate) dated 28.6.2017, claiming it was ultra-vires the provisions of the IGST Act and unconstitutional under Articles 14 and 265 of the Constitution of India. The petitioner argued that the levy of tax on ocean freight in FOB contracts was contrary to the Supreme Court's judgment in Mohit Minerals Pvt. Ltd., which struck down a similar levy as unconstitutional. The court agreed with the petitioner, referencing the Mohit Minerals case, where the notification was declared ultra-vires, and upheld by the Supreme Court, rendering the notification inapplicable.2. Levy of IGST on Ocean Freight under FOB Contracts:The petitioner contended that IGST was already paid on the total value of imports, including freight, at the time of importation, rendering further levy on ocean freight under FOB contracts invalid. The court noted that the Supreme Court's decision in Mohit Minerals applied to both CIF and FOB contracts, as IGST was levied on the total value, including freight, under the Customs Act. The court concluded that the respondent authorities could not levy IGST on ocean freight for FOB contracts, as the notification was struck down.3. Withdrawal of IGST Refund on Ocean Freight for CIF Imports:The petitioner sought to quash the order withdrawing the refund of IGST paid on ocean freight for CIF imports. The court found that the refund was initially sanctioned based on the Supreme Court's judgment, which invalidated the notification. The appellate authority's ex-parte order withdrawing the refund was deemed unjustified, as the petitioner had complied with the necessary requirements, including reversing the input tax credit to prevent double benefits.4. Application of the Supreme Court's Judgment in Mohit Minerals Pvt. Ltd. to FOB Contracts:The petitioner argued that the Supreme Court's judgment in Mohit Minerals Pvt. Ltd. applied to FOB contracts, as the court had considered both CIF and FOB transactions. The court agreed, citing the Bombay High Court's decision in M/s. Agarwal Coal Corporation Pvt. Ltd., which confirmed that the Mohit Minerals judgment applied to both contract types. The court emphasized that once the notification was declared ultra-vires, it could not be applied to FOB contracts, and any levy based on it was invalid.Conclusion:The court allowed the petition, quashing the impugned order and ruling that the respondent authorities could not levy IGST on ocean freight for FOB contracts, as the notification was struck down. The court reinforced that IGST paid on the total value, including freight, covered both CIF and FOB imports, aligning with the Supreme Court's judgment in Mohit Minerals Pvt. Ltd. The petition succeeded, and the rule was made absolute, with no order as to costs.