Importers upset over the imposition of IGST on ocean freight

Stretching on for a few years now, the implementation of IGST on ocean freight sees a new development. Last week, the Supreme Court saw importers put forth an argument against the imposition of integrated goods and services tax (IGST) on ocean freight. 

The importers pleaded for the quashing of a petition by the government filed in the apex court against a Gujarat High Court judgment that had declared IGST on ocean freight as violative of the Constitution.

Earlier this year, the apex court admitted a plea of the central government that challenged the decision of Gujarat High Court of quashing IGST on ocean freight under reverse charge mechanism.

Last year, the Gujarat High Court declared IGST on ocean freight unconstitutional for the lack of legislative competency under the notification 8/2017 IGST (R) and entry 10 of notification 10/2017 IGST (R). 

The Matter in hand

The Central GST Act in a provision permits levy of both basic customs duty and IGST on the cost, insurance, and freight (CIF) value of goods brought into India. 

In a later development, a government notification extended IGST to ocean freight on importers on the reverse charge mechanism. 

Usually, the service tax under GST is to be paid by the sellers of services, but where it becomes difficult for the government to receive tax from sellers, it imposes it on the recipients of services and this is known as the reverse charge mechanism.

The government is trying to bring in the importer of ocean freight under this reverse charge mechanism, but the importer perceives it as irrelevant. 

Kartik Shah, regional manager APAC – logistics, Sennheiser, supporting the importers says, “I guess this argument has been going on since 2018, and I think it’s irrelevant for the importer to pay IGST, as they do not fall within the definition of the recipient under the GST Act.”

He questions, how can the government hold importers responsible for paying IGST, just to make revenues? It’s not logical, he said. 

Other industry experts also argue on the same and say that the exporters of goods situated outside India are liable to pay ocean freight to the foreign shipping line.

They argue that only the recipient can be burdened with the tax on the liability of services that draw GST.

Companies such as Gujarat Petrochem are respondents to the case in the Supreme Court.

Additional Solicitor General N Venkataraman, on the other hand, argued that the levy is not extraterritorial and that it is not a case of double taxation.

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