The Hon’ble Supreme Court in Union of India & Anr. v. M/s Mohit Minerals Pvt. Ltd. upheld the judgement pronounced by the Hon’ble Gujarat High Court and held that no IGST is payable on ocean freight under Reverse Charge Mechanism (RCM) on contracts of Cost, insurance, and freight (CIF) imports of goods by the Indian importers as it is a composite supply of goods on which IGST is liable to be paid under Section 5(1) of the IGST Act read with Section 20 of the IGST Act, Section 8 and Section 2(30) of the CGST Act.
There can be no separate levy of IGST under RCM on the Indian importer for the supply of services of transportation of goods by the shipping line since it would be in violation of Section 8 of the CGST Act, 2017.
Extract from the SC Judgement:
“The impugned levy imposed on the ‘service’ aspect of the transaction is in violation of the principle of ‘composite supply’ enshrined under Section 2(30) read with Section 8 of the CGST Act. 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 contract, a separate levy on the Indian importer for the ‘supply of services’ by the shipping line would be in violation of Section 8 of the CGST Act.”
Composite Supply: Under GST, a composite supply would mean 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.
Thus in a CIF contract for Import of goods, the supply of goods & supply of transportation service cannot be dissected & taxed separately. It is a composite supply & accordingly the Importer is not required to pay RCM on the ocean freight component.
Post this judgement, the Importers who had not paid RCM on CIF Imports of Goods need not pay the same & for those who have already paid can seek refunds from the department.