Gujarat High Court directs GST department to refund IGST within six weeks

Shishir Sinha | | Updated on: Jul 29, 2022

In May, the Supreme Court held that if IGST is paid on freight which is included in the value of imported goods, levying tax again as a supply of service, was illegal

Following a Supreme Court verdict, the Gujarat High Court has directed the GST department to grant refund of tax paid on ocean freight within six weeks. Experts say this ruling is beneficial on two counts – first, defines a time-bound refund settlement process for GST on ocean freight and, second, provides clarity on sectors that are outside GST or under theinverted duty structure.

In May this year, dismissing an appeal by the Centre in the matter of Mohit Minerals, the Supreme Court upheld a ruling by a division bench of the same High Court and said: “Having paid IGST (Integrated Goods & Service Tax) on the amount of freight which is included in the value of imported goods, the impugned notifications levying tax again as a supply of service, without any express sanction by the statute, are illegal and liable to be struck down.”

Relying on this, a division bench of the High Court said in view of the decision in Mohit Minerals Pvt Ltd, since the impugned notifications have already been declared as ultra vires, the petition deserves to be allowed. “It is directed that if any IGST amount is collected, the same shall be refunded within six weeks, along with a statutory rate of interest,” it said, while disposing a petition by Lousi Dreyfus Company Pvt Ltd.

With the commencement of GST levy with effect from July 1, 2017, a notification (08/2017) provided that IGST at the rate of 5 per cent shall be levied on inter-state supply of services when the goods are transported in a vessel. Another notification (10/2017) prescribed that in respect of services supplied by a person located in a non-taxable territory by way of transportation of goods by vessel from a place outside India up to the Custom Clearance Station in India, the entire IGST shall be paid on reverse charge basis by the importer. Later, it was said IGST will be collected at the rate of 10 per cent of the CIF (Cost, Insurance and Freight) value.

This issue has been a bone of contention over the last three years. There is a feeling that since customs duty on the CIF value (which includes the component of freight as well) of the goods imported into India is also paid by the importer, there is double taxation on the component of ocean freight under GST law, which is an impediment and has raised the cost of imports and, accordingly, GST on ocean freight should be done away.

Experts say the industry filed multiple refund claims with the GST department after the Supreme Court struck down the levy of GST on ocean freight. The pending refund claims have led to increased cost of working capital.

The Gujarat High Court judgement brings much-awaited relief, wherein the tax department has been instructed to process refund claims in a time-bound manner, along with interest.

Saurabh Agarwal, Tax Partner with EY India, says: “Sectors such as alcohol, power, petroleum, fertilisers, textiles and footwear have been the biggest beneficiaries of the levy of GST on ocean freight that wasstruck by the Supreme Court in case of Mohit Minerals. The primary reason for the same is that GST paid on ocean freight was either a cost to them or had resulted in accumulation of Input Tax Credit, which otherwise could not be liquidated on account of an inverted duty structure. Many of the assessees in these sectors have filed the refund claim for GST previously paid by them on ocean freight. This judgment is likely to help in expediting the refund claims for such assesses, resulting in increased cash flows for such companies.“

Published on July 29, 2022
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