Rajasthan High Court Follows Gujarat HC: IGST on Ocean Freight Held Unconstitutional

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Case Name

M/s Shree Mahesh Oil Products vs. Union of India & Ors. (Rajasthan High Court at Jodhpur)

D.B. Civil Writ Petition No. 14177/2019

Date: 13th July 2021

Key Takeaways

• The Rajasthan High Court declared certain GST notifications imposing IGST on ocean freight as unconstitutional, following the Gujarat High Court’s decision in Mohit Minerals Private Limited vs. Union of India.
• The court found that the notifications lacked legislative competence and were ultra vires the IGST Act, 2017.
• The decision reinforces the principle that tax notifications must strictly adhere to the parent statute and cannot expand the scope of taxation beyond what the law permits.
• The petitioner is entitled to a refund of IGST paid under these notifications.
• The judgment has significant implications for importers who paid IGST on ocean freight, potentially allowing them to claim refunds.

Issue

Was the imposition of IGST on ocean freight services, through Notification No. 8/2017-Integrated Tax (Rate) and Notification No. 10/2017-Integrated Tax (Rate), constitutional and within the powers granted by the IGST Act, 2017?

Facts

• Parties: The petitioner is M/s Shree Mahesh Oil Products, a registered partnership firm in Rajasthan. The respondents are the Union of India (Ministry of Finance), the GST Council, and the Commercial Taxes Officer, Rajasthan.
• Dispute: The petitioner challenged two GST notifications:
• Notification No. 8/2017-Integrated Tax (Rate) dated 28.06.2017 (Sr. No. 9(ii)), which prescribed IGST on transportation of goods by vessel from outside India to an Indian customs station, even when both the service provider and recipient are outside India.
• Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017 (Sr. No. 10), which deemed the ‘importer’ as the recipient of service for the purpose of IGST, even if the actual contract was between two foreign parties.
• Timeline: The writ petition was filed in 2019. The judgment was delivered on 13 July 2021.
• Reliefs Sought: The petitioner sought to have the notifications declared unconstitutional and to get a refund of IGST paid under these notifications.

Arguments

Petitioner (M/s Shree Mahesh Oil Products)

• The notifications are ultra vires the IGST Act, 2017, as they impose tax on services where both the supplier and recipient are outside India.
• The notifications go beyond the powers granted by Section 5(3) of the IGST Act, 2017, and Section 2(93) of the Central Goods and Services Tax Act, 2017.
• Relied on the Gujarat High Court’s decision in Mohit Minerals Private Limited vs. Union of India and Ors. (R/Special Civil Application No. 726 of 2018), which held similar notifications unconstitutional.
• Also cited M/s COMSOL Energy Private Limited vs. State of Gujarat (R/Special Civil Application No. 11905 of 2020), where the Gujarat High Court directed a refund of IGST paid under the impugned notifications.

Respondents (Union of India & Others)

• Did not dispute that the issue was covered by the Gujarat High Court’s decisions.
• Noted that the Mohit Minerals judgment was under challenge before the Supreme Court, but there was no stay on its operation.

Key Legal Precedents

• Mohit Minerals Private Limited vs. Union of India and Ors. (R/Special Civil Application No. 726 of 2018, Gujarat High Court, decided on 23.01.2020):
• Held that Notification No. 8/2017-Integrated Tax (Rate) and Entry 10 of Notification No. 10/2017-Integrated Tax (Rate) were ultra vires the IGST Act, 2017, and unconstitutional.
• The Gujarat High Court found that the notifications lacked legislative competence and could not deem the importer as the recipient of service for the purpose of IGST when both the service provider and recipient were outside India.

• M/s COMSOL Energy Private Limited vs. State of Gujarat (R/Special Civil Application No. 11905 of 2020, Gujarat High Court, decided on 21.12.2020):
• Directed the refund of IGST paid under the impugned notifications, following the Mohit Minerals decision.

• Bharat Oman Refineries Ltd. vs. Union of India (Special Civil Application No. 8881 of 2020, Gujarat High Court, decided on 18.08.2020):
• Also directed refund of IGST paid under the same notifications, reinforcing the Mohit Minerals precedent.

• Relevant Statutory Provisions:
• Section 5(3) of the IGST Act, 2017
• Section 2(93) of the Central Goods and Services Tax Act, 2017
• Section 2(26) of the Customs Act, 1962

Judgement

• The Rajasthan High Court disposed of the petition in terms of the Gujarat High Court’s decisions in Mohit Minerals Private Limited and M/s COMSOL Energy Private Limited.
• The court declared the impugned notifications (Notification No. 8/2017-Integrated Tax (Rate) and Entry 10 of Notification No. 10/2017-Integrated Tax (Rate)) as ultra vires and unconstitutional.
• The court directed the authorities to process the petitioner’s refund claim for IGST paid under these notifications, along with simple interest at 6% per annum.
• The court did not grant any other reliefs, as they were not pressed by the petitioner.

FAQs

Q1: What was the main legal issue in this case?

A: Whether the government could impose IGST on ocean freight services through notifications, even when both the service provider and recipient were outside India, and whether such notifications were constitutional.

Q2: What did the court decide?

A: The court followed the Gujarat High Court’s decision and held that the notifications were unconstitutional and beyond the powers granted by the IGST Act, 2017.

Q3: What does this mean for importers?

A: Importers who paid IGST on ocean freight under these notifications may be entitled to claim refunds, as the notifications have been declared ultra vires.

Q4: Are these decisions final?

A: The Gujarat High Court’s decision in Mohit Minerals is under challenge before the Supreme Court, but there is no stay on its operation as of the date of this judgment.

Q5: What legal precedents did the court rely on?

A: The court relied on the Gujarat High Court’s decisions in Mohit Minerals Private Limited vs. Union of India and M/s COMSOL Energy Private Limited vs. State of Gujarat.

Q6: What sections of law were discussed?

A: The court discussed Section 5(3) of the IGST Act, 2017, Section 2(93) of the Central Goods and Services Tax Act, 2017, and Section 2(26) of the Customs Act, 1962.