The Authority for Advance Rulings for Uttarakhand after considering Notification No. 08/2017- IGST (Ratee) and Notification No. 10/2017-Integrated Tax (Rate) ruled that even if the importer has paid IGST on CIF Value of Imported goods, he is still required to pay IGST on Ocean Freight. In Notification No. 08/2017 applicable IGST rate on services have been Notified and at Sr. No. 10 of the table appended IGST @ 5% on ocean freight have been prescribed. A Corrigendum to the said Notification was issued on 30th June, 2017, the relevant portion of which reads as under.
“Where the value of taxable service provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India is not available with the person liable for paying integrated tax, the same shall be deemed to be 10% of the CIF value (sum of cost, insurance and freight) of imported goods.”
Certainly, the language of the above paragraph gives an impression that IGST on Ocean Freight is required to be paid in addition to the IGST on CIF value of imported goods and in Notification No. 10/2017 an importer have been notified as a person liable to pay tax on Ocean Freight. However, Authority for Advance Ruling failed to appreciate that tax cannot be levied and collected unless squarely covered under the Charging provisions. The Charging provisions of IGST Act are contained in its Section 5 relevant portion of which reads as under.
“SECTION 5. Levy and collection. — (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person :
Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 (51 of 1975) on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962 (52 of 1962).”
As per the aforesaid provisions, a tax (not multiple taxes) is levied on all inter-state supply of goods and services. By virtue of Section 7, import of goods and services are treated as inter-state supply. As per proviso to Section 5, IGST on goods imported into India will be collected at the port of customs clearance. Accordingly, IGST is paid on imported goods at applicable rate on CIF value. But the question is whether IGST is required to be separately paid on Ocean Freight. Section 2(30) of the CGST Act, 2017 defines Composite Supply and its Section 8 prescribes tax treatment of composite supply. Needless to say that the said provisions are equally applicable in IGST Act. The said provisions are reproduced below.
“(30) “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;
Illustration. – Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply;
SECTION 8. Tax liability on composite and mixed supplies. — The tax liability on a composite or a mixed supply shall be determined in the following manner, namely :—
(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and
(b) a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax”.
From the above provisions, it is clear that import of CIF basis is a composite supply and IGST have to be paid, on entire CIF Value, at the tax rate applicable on the item imported. It is also clear that there is no scope to tax independently the other components like freight and insurance.
It is should also be kept in mind that the said proposition may not be applicable in case of import on FOB basis. Though, Customs duty and IGST would be charged only after adding amount of freight and insurance in FOB value, but the said supply is not a composite supply. Therefore, IGST would be payable under reverse charge in case of import on FOB basis.
Notification No. 10/2017 have been issued under Section 5(3) of the IGST Act, 2017, and Section 5(3) reads as under.
“(3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.”
The above statutory provisions empower Government to specify categories of goods or services the tax on which shall be paid by the recipient. The term ‘recipient’ have been defined in Section 2(93) of the CGST Act, 2017 as per which recipient is the person who is liable to pay consideration. The above provisions nowhere empower the government to make a person, other than recipient, liable to pay tax. In case of import on CIF basis, the person liable to pay Ocean Freight is the overseas supplier and not the importer. Hence, importer is not liable to pay IGST on Ocean Freight, if the import is on CIF basis.