Union Of India vs M/S Mohit Minerals Pvt. Ltd. on 19 May, 2022

The case of Union of India vs. M/S Mohit Minerals Pvt. Ltd., decided on May 19, 2022, addressed the levy of Integrated Goods and Services Tax (IGST) on ocean freight in the context of imports under CIF (Cost, Insurance, Freight) contracts.

Key Issues:

  1. Imposition of IGST on Ocean Freight: Whether IGST can be levied on the ocean freight paid by the foreign seller to the foreign shipping line under a CIF contract.
  2. Double Taxation Claim: The importer contended that since ocean freight is included in the value of goods for customs duty, imposing IGST on the freight component amounted to double taxation.
  3. Territorial Nexus and Validity of Notifications: The Gujarat High Court had declared the related notifications ultra vires the IGST Act, questioning their territorial applicability and the statutory basis for such levies.

Supreme Court Decision:

The Supreme Court upheld the Gujarat High Court’s decision, ruling that the notifications imposing IGST on ocean freight are unconstitutional. The judgment provided clarity on several legal and constitutional principles:

Key Findings:

  1. Recipient of Service: Under Section 2(93) of the CGST Act, the recipient of the service is the person who pays the consideration. In a CIF contract, the foreign exporter, not the Indian importer, pays the freight. Hence, the Indian importer cannot be deemed the recipient of the service.
  2. Double Taxation: Ocean freight is part of the value on which customs duty is calculated. Imposing IGST on the same freight component results in double taxation, which is impermissible.
  3. Territorial Nexus: The service of ocean freight, provided by a foreign shipping line to a foreign exporter, occurs entirely outside India. There is no sufficient territorial nexus for India to levy IGST on such services.
  4. Delegated Legislation and Excessive Delegation: The Court observed that the notifications went beyond the scope of the IGST Act. Sections 5(3) and 5(4) of the Act do not empower the government to create a new taxable event or redefine the recipient of a service through delegated legislation.
  5. Composite Supply: The Court rejected the argument that CIF contracts constitute a composite supply where goods and services can be separately taxed. The service of ocean freight is integral to the supply of goods in a CIF transaction.
  6. Constitutional Principles: The Court emphasized the role of the GST Council in maintaining cooperative federalism but clarified that its recommendations are not binding.

Conclusion:

The Supreme Court invalidated the imposition of IGST on ocean freight under CIF contracts, confirming the unconstitutionality of the related notifications. The ruling reinforces the principle that delegated legislation cannot expand the scope of taxation beyond what the parent Act authorizes.