Refund of IGST paid on Ocean Freight

Integrated GST (IGST) on Ocean freight has always remained a point of discussion around the corner.

The whole trouble started when the tax department started issuing fresh tax demands and issued notices to companies over GST on ocean freight. Some of the companies had even approached various courts and failed writ petitions against the tax department’s decision to issue tax notices.

The basic issue is that, in most cases, the ocean freight is paid by the seller or companies that are not based in India. So, for instance, if a company based in Europe is exporting goods to India, the company tends to enter into an agreement with shipping companies and pay ocean freight.

Recovery of IGST

In such cases, the tax department is unable to recover GST from the European company. The tax department hopes to recover the IGST from importers or companies that are based in India through a “reverse charge mechanism.”

Earlier, the High Court held that the GST law specifically provides that the importers are required to discharge IGST at the rate of 5 percent on ocean freight services under the Reverse Charge Mechanism (RCM) under which, the importer has to pay IGST on behalf of the foreign buyer.

However, at the same time, 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. As a result, there is double taxation on the component of ocean freight under GST law which is an impediment and has bloated the cost of imports.

Concurring with the above view of the High Court, recently Supreme Court in its judgment held that “GST on ocean freight paid in case of import of goods is not leviable”

Key takeaways from this ruling are:

• There is no implication of IGST on the ocean freight going forward;
• The Indian importers who had paid such tax will be eligible for a refund;
• Also, those importers who had not paid the tax on the import of services will now not be required to pay tax because of this Supreme Court ruling

GST Council Recommendations

The court also said that recommendations by the GST council are not binding on either the union or the state and it has persuasive value.

“This judgment may change the landscape of those provisions under GST which are subject to judicial review. As the court has gone ahead to categorically hold that the GST Council recommendations have only persuasive value, there will be a pragmatic approach to the provisions which are subject to judicial review by way of challenge to the constitutionality of such provisions based on GST Council recommendations”

It will be interesting to observe whether this would impact some of the ongoing controversies involving the state and the centre.

Good news for all the importers is that you can claim your IGST refund on ocean freight paid by you!

Must Read: GST Refund Challenges for Exporters.