Madhya Pradesh AAR held that importer is liable to pay IGST on ocean freight under RCM

Categories: Advance Ruling
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Recently, the issue of levibility of IGST on ocean freight for CIF- based imports came before the Authority of Advance Ruling of Madhya Pradesh, wherein it was held that importer is liable to pay IGST on ocean freight under Reverse Charge Mechanism (“RCM). [E-DP Marketing Private Limited (2019 (7) TMI 44)].

Facts & Background:

  • M/s. E-DP Marketing Private Limited (“the Applicant”) is engaged in the trading of various edible oils which are falling under chapter heading 15. Further, the applicant intends to import soyabean oil on CIF basis (Cost + Insurance + Freight) which includes the component of ocean freight in the price of imported goods.
  • The Applicant are required to authorize the seller who is a person located in non-taxable territory for transporting the goods by a vessel from supplier’s place up to the place in Indian Custom Territory. Ocean Freight will not be paid by the applicant because, the seller is supposed collect the ocean freight while deciding the price of the goods payable by the applicant. The payment of ocean freight would be made by the seller located outside India.
  • Further,  as per the corrigendum issued on June 30, 2017 in regards to Notification No. 8/2017-Integrated Tax (Rate) dated June 28, 2017, the importer of the goods is required to pay IGST on Reverse Charge Mechanism on the amount of deemed ocean freight equal to 10% of the value of goods imported.Therefore, the issue was raised by the applicant  on the applicability of Reverse Charge Mechanism (“RCM”) on Ocean Freight when IGST is paid by the importer on Goods Imported on CIF Basis.

Issue: 

  • Whether importer is again required to pay IGST on the component of ocean freight under RCM on deemed amount which will amount to double taxation of IGST on deemed component of ocean freight of the imported goods?

Applicant’s Interpretation of Law:

  • The applicant submits that at the time of import of goods into India then the applicant is required to pay aggregate custom duties on CNF/CIF value of the imported goods which is considered as an assessable value for the purpose of levying the import duties on such goods and which includes the IGST component also. Since the CNF/CIF value of the imported goods includes the component of ocean freight, therefore the applicant is required to pay IGST on this Ocean freight component also along with other duties of customs.
  • Further, it was submitted by the applicant that as per Notification No. 10/2017 – IGST(R) dated June 28, 2017, as per entry no 10, the applicant is again required to pay IGST on Ocean Freight incurred by the importer in respect of imported cargo under RCM mechanism. However, if this is paid by the applicant it will amount to double taxation of IGST on the same component of Ocean Freight, which is apparently illegal and against the basic principles of GST Law.

Held:

The Authority of Advance Ruling of Madhya Pradesh vide Advance Ruling Order No. 05/2019 dated May 02, 2019 held that: –

  • In case of such imports, the ocean freight is collected by seller being located in non-taxable territory from importer being located in the taxable territory.
  • As per Notification No. 10/2017- Integrated Tax (Rate) dated June 28, 2017, the ‘Services supplied by a person located in a non-taxable territory by way of transportation of goods by a vessel from place outside India upto the  customs station of clearance in India’ has been put under RCM and he recipient of service viz. Importer, as defined under Section 2(26)of the Customs Act, 1962, located in the taxable territory.
  • Further, in terms of Notification No. 8/2017- Integrated Tax (Rate) dated June 28, 2017, read with Corrigendum dated June 30, 2017, the taxable value in respect of ocean freight has been defined as, ‘Where the value of taxable service provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India upto the customs station of clearance in India is not available with the person liable for paying integrated tax, the same shall be deemed to 10% of the CIF value (sum of cost, insurance and freight) of imported goods’.
  • Therefore, the authority held that in view of the above two notifications, the Applicant shall be liable to pay IGST on ocean freight paid on imported goods under RCM irrespective of the ocean freight component having been a part of the CIF value of imported goods and rejected the applicant’s contention that it will amount to double taxation.

Citation: [E-DP Marketing Private Limited (2019 (7) TMI 44)].