M/s Mohit Minerals Pvt. Ltd. v. Union of India (2023)

Issue: Levy of IGST on ocean freight under reverse charge mechanism (RCM)

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📝 TL;DR – Mohit Minerals Case (2023)

• Case: Importers challenged levy of IGST on ocean freight in CIF contracts.
• Dispute: Importers already paid IGST on CIF value (including freight), but the government sought IGST again on freight under RCM.
• High Court Ruling (Gujarat): Levy unconstitutional; importers cannot be forced to pay tax twice.
• Supreme Court (2023): Upheld the Gujarat HC ruling; struck down the IGST levy on ocean freight.
• Impact: No double taxation on imports under CIF contracts. Major relief for importers.

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Introduction

Under GST, importers of goods are required to pay Integrated GST (IGST) on the value of imports. The value typically includes the CIF (Cost, Insurance, and Freight) component. Despite this, a notification from the GST Council sought to levy IGST again on the freight element under the reverse charge mechanism (RCM), requiring importers to pay IGST on freight charges paid by foreign exporters to shipping companies.

This led to the Mohit Minerals Pvt. Ltd. case, which became one of the most significant judgments of 2023 in the context of GST and imports.

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Background of the Case

• In CIF contracts, the foreign exporter arranges and pays for freight and insurance.
• Importers in India, however, were asked to pay IGST on ocean freight under RCM, even though freight was already included in the CIF value on which IGST was charged at the time of customs clearance.
• Importers argued that this amounted to double taxation.

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Legal Question Before the Court

👉 Is the levy of IGST on ocean freight under reverse charge valid when IGST is already paid on the CIF value of imported goods?

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Arguments by Importers (Mohit Minerals Pvt. Ltd.)

1. Double Taxation: Importers already pay IGST on the CIF value of goods (which includes freight). Imposing IGST again on freight separately is unconstitutional.
2. No Supply Relationship: Importers do not contract shipping services directly — freight is arranged by the foreign exporter. Hence, importers are not the recipients of such service.
3. Extraterritoriality: The levy applies to services provided outside India (foreign exporter paying foreign shipping line). Taxing such a transaction is beyond India’s jurisdiction.
4. Violation of GST Principles: GST should avoid cascading of taxes. The impugned levy contradicts this core principle.

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Arguments by the Union of India (Revenue)

1. Reverse Charge Justified: Reverse charge was introduced to plug revenue leakage and ensure tax collection in India.
2. Deemed Recipient: Even if the foreign exporter pays freight, the benefit is enjoyed by the Indian importer, making them liable under RCM.
3. Delegated Legislation: Notifications issued under GST law are valid and binding.
4. Revenue Protection: Without such levy, a major chunk of freight services would escape GST net.

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High Court Ruling (Gujarat High Court)

The Gujarat HC sided with importers:

• Levy of IGST on ocean freight was unconstitutional.
• Importers already paid IGST on the CIF value, which included freight. Charging IGST again meant taxing the same component twice.
• Importers cannot be treated as recipients of service when the foreign exporter contracts and pays the shipping line.

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Supreme Court Ruling (2023)

The Supreme Court upheld the Gujarat HC ruling:

1. Double Taxation Unacceptable: Since IGST is already paid on the CIF value, levying IGST again on freight would amount to double taxation.
2. No Service Recipient in India: In CIF contracts, the Indian importer is not the service recipient of the shipping service. The service is between the foreign exporter and the foreign shipping line.
3. Limits of Delegated Legislation: The government cannot impose taxes through notifications that go beyond the scope of the CGST/IGST Act.
4. Judicial Review: Even economic legislation is subject to constitutional scrutiny if it leads to unfair or unconstitutional taxation.

Thus, the Supreme Court struck down the IGST levy on ocean freight under RCM.

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Key Takeaways

1. No Double Taxation: Importers will not pay IGST twice on the freight component of CIF imports.
2. Judicial Clarity: Importers are not the recipients of ocean freight services in CIF contracts.
3. Check on Delegated Power: Notifications cannot override statutory provisions of the GST Act.
4. Relief to Importers: Significant reduction in compliance burden and tax disputes for businesses engaged in imports.