Reverse charge mechanism: CBIC not to seek review of SC verdict quashing IGST levy on ocean freight

The Central Board of Indirect Taxes & Customs (CBIC) will not file a review petition against a ruling by the Supreme Court in favour of Mohit Minerals, quashing an Integrated Goods & Services Tax (IGST) levy on ocean freight under RCM (Reverse Charge Mechanism). Experts say the legal battle is closed for now, unless the government amends the law.

The legal cell of the board has communicated to the GST Commissioner of Mumbai Central that it would not file a review petition against the May 19 ruling. The ruling has become famous for a court observation which states that recommendations of the GST Council are not binding on the government, which has triggered strong political debates.

Jatin Arora, Partner with Phoenix Legal, said the CBIC’s latest move is good news to those awaiting a refund of the GST paid by them.

Saket Patawari, Executive Director with Nexdigm, feels the move can bring quick closure to legal battles on the issue of taxability of GST on import freight, when the value of freight is included in the value of imported goods.

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Sudipta Bhattacharjee, Partner (Indirect Taxes & Customs), Khaitan & Co says: “It is heartening to see that the government has decided not to challenge this judgement, especially given our history of retrospective amendments to overturn taxpayer-friendly judgements.”

Now, as there will be no review petition and there is no indication of a change in law, Patwari says importers should be able to claim refund of IGST paid, subject to proving that they have not passed on the burden of IGST paid to their customers (unjust enrichment), or have not taken input tax credit of the tax so paid.

“Refund beyond the limitation period of two years could be a litigative issue unless, originally, tax was paid under protest. Importers in such cases can rely on the apex court judgement to argue that the tax collection was illegal and, hence, should be refunded even if it is beyond two years,” he said.

Bhattacharjee expects CBIC’s move to send a positive message to the trade and will be a harbinger of a similar positive trend vis-a-vis future taxpayer friendly-judgements. “This decision will be a boon for Indian importers across sectors (who import on a CIF basis), by bringing in long-term certainty of the tax position and consequent ease of business.”

However, Arora sees much wider implications of the Supreme Court order. When it is held that CIF transaction is a composite supply, which cannot be bifurcated under the present scheme of law into individual supplies to levy GST, then should it not automatically exempt various other components of cost and insurance, involving activities undertaken by different agents and sub-agents, from levy of GST?

“This would need detailed analysis on a case-to-case basis. Other observations related to territorial nexus and the Government’s power to declare any person in India as a person liable to pay GST, could have larger implications on cross-border arrangements. We could see more such contentious issues as the GST law would further evolve,” he said.

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