Supreme Court: CBIC Notification Imposing IGST on Importers is in Violation of GST Law

The Supreme Court has held that the Central Board of Indirect Taxes and Customs (CBIC) notification levying IGST on the importers violates Section 8 of the CGST Act.

Mohit Minerals Pvt Ltd (petitioner) filed a petition in Gujarat High Court challenging the vires of the CBIC notification. The High Court ruled in favour of the petitioner, and then the department filed an appeal in Supreme Court against the order. The petition has principally three elements. The first one is that the petitioner can’t be asked to pay the tax on ocean freight despite paying IGST on the entire value of imports, including ocean freight, using a different notification.

The Apex Court observed on a combined reading of Sections 2(11) and 13(9) of the IGST Act, read with Section 2(93) of the CGST Act, that the import of goods on a CIF basis constitutes an “inter-state” supply. It is subject to IGST, where the importer would be the recipient of the shipping service.

Also, it mentioned that the IGST and CGST Act bind the court to determine whether this case falls under composite supply. We can not ignore Section 8 of the CGST Act and treat the two transactions as standalone agreements. In a CIF contract, the supply of goods is accompanied by transportation and insurance, and the responsibility lies on the seller, i.e., the foreign exporter in this case.

The supply of transportation services by the foreign shipper forms a part of the bundle of supplies between the foreign exporter and the Indian importer, and IGST is payable under Section 5(1) of the IGST Act read with Section 20 of the IGST Act, Section 8 and Section 2(30) of the CGST Act. Levying the IGST on the service component of the transaction would contradict the principle enshrined in Section 8 and violate the scheme of the GST law. 

Based on the above, the court stated that the department has validly issued the challenged notifications under Sections 5(3) and 5(4) of the IGST Act. However, they violate Section 8 of the CGST Act and the GST law. The court agreed with the High Court on not allowing the levy of tax again on services already taxed as composite supply.

Hence, the Apex Court ruled that the levy imposed on the service aspect of the transaction violates the principle of ‘composite supply’ defined under Section 2(30), read with Section 8 of the CGST Act. As the Indian importers are liable to pay IGST on the ‘composite supply’, consisting of goods and services such as transportation, insurance, etc., in a CIF contract, a separate levy on tax on shipping services would violate Section 8 of the CGST Act.

For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in