Recently, the issue of applicability of GST on the Ocean Freight came up before the Hon’ble Supreme Court. Before we go into the details of ruling given by the Court, it would be worthwhile to have a quick look at the nature of transactions generally undertaken by the importers.
Mainly, there are two types of transactions – Import on CIF (Cost, Insurance and Freight) and Import on FOB (Free on Board) basis.
Under the CIF sales, the responsibility of freight is on the supplier. In other words, no separate transportation charges are levied by the supplier though the transporter is hired by the supplier.
Whereas, in the case of FOB sales, the responsibility of transportation is on the importer, hence under this situation the transporter is hired and paid by him.
It is interesting to note that customs duty is applicable on assessable value, which includes the freight. Thus, the GST is payable on the freight element by including it in the assessable value of goods. In case the GST is paid on freight on RCM (Reverse Charge Method), it would lead to double taxation.
After hearing the arguments of the Revenue and the taxpayer, the Court has held that levy of IGST under RCM on the Indian importer on the component of ocean freight paid by the foreign seller to a foreign shipping line is ultra vires the IGST Act, 2017. While upholding the constitutional validity of the notifications, it has held that RCM on the service aspect of transaction is in violation of the principle of ‘composite supply’ enshrined under Section 2(30) read with Section 8 of the CGST Act, thus ultra vires IGST/CGST Act, 2017. #shipping#freight#freightforwarding#gst#gstupdate # #supremecourt
