The recent ruling by the Supreme Court, which is expected to bring relief to Indian importers is also set to change the way GST framework operates in the country. In a recent ruling the Supreme Court has announced that GST paid on ocean freight for import of goods is unconstitutional. Indian importers who have paid such tax are eligible for a refund. Further, importers who have not paid such tax on import of services will not be required to pay it because of this Supreme Court ruling.
The court further held that recommendations by the GST council are not binding either on the state or the union and it has persuasive value. “This judgement shall change the landscape of those provisions under GST which are subject to judicial review. As the court has gone ahead to categorically hold that the GST council recommendations have only persuasive value, there will be pragmatic approach to the provisions which are subject to judicial review by way of challenge to the constitutionality of such provisions based on GST council recommendations,” said Abhishek A Rastogi, Partner, Khaitan & Co., who argued for the petitioners before the High Court, Supreme Court and several other courts.
Parliament and state legislatures possess equal powers to legislate on GST, ruled Supreme Court. In most import cases, the ocean freight is paid by the seller (company) who is not based in India. If a European company is exporting goods to India, then the company enters into an agreement with the shipping lines and pays ocean freight. In such case, the tax department cannot charge GST to the European company, hence the tax department collects IGST from the Indian importer through a “Reverse Charge Mechanism.” The government had approached the Supreme Court against an earlier Gujarat High Court judgement that said that IGST (integrated GST) on ocean freight is unconstitutional.
