BACKGROUND (Ocean Freight)
The Central Government has introduced the Notification No.8 of 2017 – Integrated Tax (Rate) dated 28th June 2017, wherein vide Entry No.9, the Central Government has notified that the IGST at the rate of fifty will levied on the service of transport of products in the vessel including the services provided or agreed to be provided by an individual located in non-taxable territory to an individual located in non-taxable territory by way of transportation of products by a vessel from an area outside India up to the customs stations of clearance in India. The Central Government, thereafter, issued the Notification No.10 of 2017 – Integrated Tax (Rate) dated 28th June 2017, by which the Central Government has notified that for the said category of service provided at Serial No.10 to the said Notification, the importer as defined in clause 2(26) of the Customs Act located in taxable territory shall be the recipient of service.
CURRENT ISSUE ( (Ocean Freight)
The writ-applicant company is engaged in importing non-cooking coal from Indonesia, South Africa, and the U.S.A. and supplying it to numerous domestic industries including power, steel, etc. It is having a business based at various parts of the country, however, the prominent business place is in Gujarat and most of the imported coal comes at the port located at Gujarat. The writ-applicant company is registered under the GST laws for payments of GST/IGST besides being paying the duty on import of coal. The writ-applicant discharges the customs on the imported products at the time of every single import and such value includes the worth of freight on which duty is demanded and paid.
The writ-applicant is was made liable to pay integrated tax in terms of provisions of the Integrated Goods and Services Tax Act, 2017 (IGST/Integrated Tax Act) and accordingly the writ-applicant is paying the integrated tax at the time of import itself, which also includes the value of Ocean Freight involved in imported coal. The writ-applicant in present writ-application is challenging the legality and validity of the impugned Notification No.8/2017-Integrated Tax (Rate), dated 28.6.2017 and Entry 10 of the Notification No.10/2017-Integrated Tax (Rate), dated 28.6.2017 because the same is lacking legislative competency, ultra vires to the Integrated Goods and Services Tax Act, 2017, and hence unconstitutional. The respondent no.1 has levied again the integrated tax on reverse charge basis under the impugned Notifications on the Ocean Freight, that the writ-applicant is already paying the integrated tax at the time of import with the worth of imported coal, which isn’t permissible under the law.
QUESTION OF LAW:
The levy under the impugned Notification is contrary to the concept of ‘composite supply’ under the Act. In Section 2(30) of the CGST Act, the term ‘composite supply’ has been defined, wherein an illustration has been given, where the products are provided with transportation, insurance, etc. is a composite supply and therefore the supply of products may be a principal supply. As per Section 8 of the CGST Act, the liabilities just in case of the composite supply shall be determined by treating it as a supply of such principal supply. In other words, the tax can be levied on the principal supply. Therefore, when the goods are imported and integrated tax is levied and collected on the worth of goods (coal), which incorporates the Ocean Freight, the Ocean Freight can’t be taxed as a separate supply under the impugned Notification, which is ultra vires to the provisions of Section 2(30) read with Section 8 of the CGST Act.
The court had reached to the conclusion that no tax is leviable under the Integrated Goods and Services Tax Act, 2007, on the ocean freight for the services provided by an individual located during a non-taxable territory by way of transportation of products by a vessel from an area outside India up to the customs station of clearance in India and therefore the levy and collection of tax of such ocean freight under the impugned Notifications isn’t permissible in law. Finally, as a result, the writ-application alongside all other connected writ-applications is allowed. The impugned Notification No.8/2017 – Integrated Tax (Rate) dated 28th June 2017 and therefore the Entry 10 of the Notification No.10/2017 – Integrated Tax (Rate) dated 28th June 2017 is declared as ultra vires the Integrated Goods and Services Tax Act, 2017, as they lack legislative competency. Both the Notifications are hereby declared to be unconstitutional. Civil Application, if any, stands disposed of.