Supreme Court decision Mohit Minerals decision for a layman’s understanding

 The earlier position for an importer was when he is importing and paying ocean freight for import, he might be paying the freight to a Non resident line and hence it was treated as an import of service. For import of service, importer was liable to pay IGST on Reverse Charge Basis and he could claim Input Tax Credit on the same (so there was no effect at all).

But when he is importing goods on a CIF basis, the freight was paid by then Non resident seller and importer is not paying any ocean freight. But department demanded that there is an import of service and hence importer has to pay IGST and he can take ITC also. But trade objected this because of 3 reasons – (1) the ocean freight cost is already loaded on the value of goods imported and hence paying tax on ocean freight again will result in double taxation and (2) as the non-resident seller is paying the ocean freight, they don’t even know the amount of ocean freight.  (3) When something is imported on CIF basis, service is received by the foreign seller and not the Indian importer. So there cannot be any import of service by the importer of goods.

So the matter went to Gujarat High Court and Gujarat High Court held that importers need not pay IGST on reverse charge basis on ocean freight when import was on CIF basis.

Department went in appeal before Supreme Court against this order and Supreme Court now held that the decision of the Gujarat High Court is valid.

Now the factual situation is like this:

Payment on FOB basis:

• ·       If shipping line is based in India, GST payable by shipping company under forward charge.
• ·       If shipping line is based outside India, GST payable by Importer under RCM.

Payment on CIF basis:

• ·       If shipping line is based in India, GST payable by shipping company under forward charge.
• ·       If shipping line is based outside India, NO GST payable as per Supreme Court Decision