IGST on ocean freight can’t be imposed on importers, companies tell supreme court of India

Importers have argued against the imposition of integrated goods and services tax (IGST) on ocean freight in the Supreme Court on Thursday. They 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.

Ocean freight is the cost incurred through an agreement between two foreign parties to ship goods to India. For instance, if goods are exported from Washington, the exporter concerned may enter into an agreement with a shipping line there and pay ocean freight to it.

A provision in the Central GST Act permitted levy of both basic customs duty and IGST on the cost, insurance and freight (CIF) value of goods brought into India. A government notification later also extended IGST to ocean freight on importers on the reverse charge mechanism. Under GST, service tax is usually paid by sellers of services, but where it becomes difficult for the government to receive tax from sellers, it imposes it on recipients of services. This is called the reverse charge mechanism.

Arguing on behalf of companies, Abhishek Rastogi, partner at Khaitan & Co., said Indian importers will not fall within the definition of recipient under the GST Act as the exporters of goods situated outside India are liable to pay ocean freight to the foreign shipping line.

He said only the recipient can be burdened with the tax on liability of services which 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 extra territorial and that it is not a case of double taxation.

Last year, the Gujarat High Court had declared imposition of IGST on ocean freight as violative of the Constitution.

The court had said the levy and collection of tax on ocean freight was not permissible under the law.