The Hon’ble Supreme court in a recent case of
UOI vs. Mohit Minerals Private Limited (CA 1390/2022) (Mohit Mineral’s case) examined the validity of imposition of IGST under Reverse charge provisions (RCM) on ocean freight incurred during importation of goods into India. The appeals were filed by the Revenue pursuant to Gujarat High Court’s decision to strike down an entry in the RCM notification on the grounds of being ultra-vires the parent enactment. The limited issue for consideration before the Courts is whether the RCM is imposable on the Indian importer in respect of ocean freight paid by the overseas supplier to foreign liner for transportation of goods (CIF arrangements).
ECONOMIC BACKGROUNDPrior to 1st June, 2016 (Budget 2016-17), the services of transportation of goods in a vessel from a place outside India up to the customs station of clearance in India was excludible from service tax. As a result, the Indian shipping lines were unable to avail input tax credit (ITC) paid on the input goods and services and such tax formed a part of their transportation costs. Government’s objective was to create a level playing field between Indian liner and foreign liner. In addition, the Government also believed that freight element ought to be ‘taxable as a service’ despite the same being included as a component of the overall value of imported goods for customs duty purposes. Hence, necessary legal changes were attempt
