IGST on ocean freight reverse charge: rectification denial quashed after Mohit Minerals decision applied retrospectively

IGST liability on ocean freight under the reverse charge mechanism was contested; the article concludes the Proper Officer erred in treating the controlling judicial decision as prospective. The analysis states the Supreme Court in Mohit Minerals treated the notification as clarificatory, not substituting a taxable person, so that the judicial ruling applies retrospectively unless expressly made prospective, rendering prior demands unsustainable. Consequently, rejection of the rectification application confirming the original demand was set aside and the impugned demand could not be sustained in light of the retrospective application of the clarificatory notification interpretation.

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Issues: Whether the order-in-original and rectification order imposing IGST under reverse charge on ocean freight for imported goods for the period July 2017 to March 2018 can be sustained in view of the Hon'ble Supreme Court's decision in Mohit Minerals (P.) Ltd. and the subsequent amendment/deletion of Entry 10 in Notification No. 10/2017 effective 01-10-2023.

Analysis: The Court examined (i) the legal effect of the Supreme Court's decision in Mohit Minerals which held that Notification No. 10/2017 was clarificatory and that separate levy on the service element in a CIF contract would violate the principle of composite supply under Sections 2(30) and 8 of the CGST Act, and (ii) the effect of a later amendment deleting Entry 10 of Notification No. 10/2017 with effect from 01-10-2023. The Court applied the principle that a constitutional court's declaration of law ordinarily has retrospective effect unless expressly made prospective, whereas a statutory amendment is prospective unless expressly made retrospective. The Court held that a subsequent amendment or notification cannot override or trump the statutory framework or judicial pronouncement applicable to transactions in an earlier period. The Proper Officer's reliance on the post-facto amendment (effective 01-10-2023) to impose tax for the 2017-2018 period was found to be without basis because the Supreme Court's ruling that Notification No. 10/2017 was clarificatory meant the levy could not be imposed for the earlier period; notifications must conform to the statute and cannot create a retrospective tax liability contrary to judicially declared law.

Conclusion: The order-in-original dated 30-01-2025 and the rectification order dated 25-03-2025 imposing IGST on ocean freight for the period July 2017 to March 2018 are set aside; the writ petition is allowed in favour of the assessee.

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