2026 (1) TMI 1149 - HC - GST

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 ... Rejection of petitioner’s application for rectification - petitioner had failed to make payment of Integrated Goods and Services Tax (IGST) on ocean freight (under reverse charge mechanism) for goods imported by it - HELD THAT:- The notice to show cause issued to the petitioner, reveals that initially an issue as regards non-payment of IGST under the reverse charge mechanism on ocean freight on imports was raised vide audit observation no.4 for the period July 2017 to March 2018 and the petitioner’s response to the same was called for. The petitioner responded to the audit observation on January 2, 2021 thereby referring to the judgment of the Hon’ble High Court of Gujarat in the case of Mohit Minerals (P.) Ltd [2020 (1) TMI 974 - GUJARAT HIGH COURT], however, the revenue proceeded to issue the notice to show cause while observing that the judgment of the Hon’ble Gujarat High Court had been assailed before the Hon’ble Supreme Court holding that 'But the Hon’ble Supreme Court has admitted the plea of the Central Government to challenge Gujarat High Court’s decision quashing Integrated Goods and Service Tax (IGST) on ocean freights under reverse charge mechanism.' The Proper Officer was, thus, of the view that since the amendment in the notification took effect from October 1, 2023 therefore transactions pertaining to any period prior to the amendment of the said notification would attract GST on ocean freight for imports notwithstanding the judgment of the Hon’ble Supreme Court in the case of Mohit Minerals (P.) Ltd. Such view of the Proper Officer is fundamentally wrong. It is well-settled that a judgment of a Constitutional Court declaring a law applies retrospectively unless it is expressly made prospective, whereas a statute applies prospectively unless it is expressly made retrospective - In such view of the matter, the Proper Officer was not right in concluding that since the judgment of the Hon’ble Supreme Court in the case of Mohit Minerals (P.) Ltd. did not indicate as to whether the same would apply prospectively or retrospectively, the same should be given prospective effect. The Hon’ble Supreme Court has clearly held in the case of Mohit Minerals (P.) Ltd. that the Notification 10/2017 is only clarificatory and that the same “did not specify a taxable person different from the recipient prescribed in Section 5(3) of the IGST Act for the purposes of reverse charge”. Since the petitioner’s application for rectification was rejected by the order dated March 25, 2025 thereby confirming the impugned order in original, the same also cannot be sustained. The same also stands set aside - application disposed off. 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.