5% GST on ocean freight imports exempted from October 1, 2023

GST on ocean freight

GST on ocean freight imports: In a recent move, the Indian government has decided to waive the 5% integrated GST on ocean freight for imported goods, effective from October 1, 2023. The Finance Ministry made amendments to the IGST Act to implement this exemption, relieving importers from the previous obligation of paying 5% GST under the Reverse Charge Mechanism.

This decision aligns with the Supreme Court’s ruling in the Mohit Minerals case, underscoring the government’s position on this matter. The apex court had clarified that imposing a separate levy on Indian importers for the ‘supply of services’ by the shipping line would contradict the GST Act, considering the composite nature of the supply involving transportation, insurance, and more in a CIF (Cost Insurance Freight) contract.

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Currently, importers are required to pay 5 per cent GST under the Reverse Charge Mechanism. One of the experts said the amendments proposed are aligned with the apex court’s ruling in the case of Mohit Minerals and help explicitly mention the government’s alignment to the position.

“While this has been issued prospectively, the industry has been seeking and successfully claiming refund of taxes already paid for the past period, where credit has not been availed,” the expert added.

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Giving its ruling in the Mohit Minerals case, the Supreme Court in May last year had held that since the Indian importer is liable to pay IGST on the ‘composite supply’, comprising of supply of goods and supply of services of transportation, insurance, etc in a CIF (Cost Insurance Freight) contract, a separate levy on the Indian importer for the ‘supply of services’ by the shipping line would be in violation of the GST Act.

In the Mohit Minerals case, the company challenged the validity of the CBIC notification regarding the levy of IGST on ocean freight in the Gujarat High Court. The Supreme Court upheld the decision of the High Court.

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