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UNION OF INDIA & ANR V. MOHIT MINERALS PVT. LTD

Union of India & Anr v. Mohit Minerals Pvt. Ltd. [2022 (61) GSTL 257 (SC)]:

ISSUE:

  • Whether the Central Goods and Services Tax (CGST) Act, 2017 and the Integrated Goods and Services Tax (IGST) Act, 2017 apply to ocean freight under the reverse charge mechanism (RCM) for cost, insurance, and freight (CIF) imports?

RULE:

  • The Central Goods and Services Tax (CGST) Act, 2017 and the Integrated Goods and Services Tax (IGST) Act, 2017 do not apply to ocean freight under the reverse charge mechanism (RCM) for cost, insurance, freight (CIF) imports.

FACTS:

  • Mohit Minerals Pvt. Ltd. (the respondent) imports coal into India under CIF terms, meaning that the cost of ocean freight is included in the price of the coal.
  • The respondent is liable to pay customs duty and IGST on the value of the imported coal, including the cost of ocean freight.
  • However, the respondent is not liable to pay GST on the ocean freight under the RCM, because the shipping line is not registered for GST in India.
  • The Indian government issued notifications in 2017 imposing GST on ocean freight under the RCM for CIF imports.
  • The respondent challenged these notifications before the Gujarat High Court, which held that they were unconstitutional and ultra vires the CGST Act and the IGST Act.
  • The Indian government appealed the Gujarat High Court's decision to the Supreme Court,
    which upheld the Gujarat High Court's decision and held that the CGST Act and the IGST Act do not apply to ocean freight under the RCM for CIF imports.

HELD:

  • The reverse charge mechanism (RCM) under the Goods and Services Tax (GST) is only applicable to services that are provided in India.
  • Ocean freight is not part of the value of imported goods, but rather a separate service that is provided by the shipping line
  • Therefore, the Central Goods and Services Tax (CGST) Act, 2017 and the Integrated Goods and Services Tax (IGST) Act, 2017 do not apply to ocean freight under the RCM for cost, insurance, freight (CIF) imports.
  • The Supreme Court held that the government notifications imposing GST on ocean freight under the RCM for CIF imports were unconstitutional and ultra vires the CGST Act and the IGST Act.
  • The Supreme Court’s decision is a significant victory for importers, as it means that they are no longer liable to pay GST on ocean freight under the RCM for CIF imports.
  • This can lead to a significant reduction in the cost of imports for businesses that import goods under CIF terms.
  • The Supreme Court’s decision is only applicable to CIF imports. For imports under other terms, such as free on board (FOB), the importer may still be liable to pay GST on the ocean freight under the RCM.