IGST is not payable under RCM for services in Free-on-Board and Cost Insurance Freight Contract

The Bombay High Court has ruled that Integrated Goods and Services Tax (IGST) is not payable under the Reverse Charge Mechanism (RCM) for services related to Free-on-Board (FOB) contracts. This decision follows previous rulings by the Gujarat High Court and the Supreme Court, which declared the relevant tax notification ultra vires. Consequently, the court set aside a Show Cause Notice issued to a company for non-payment of IGST on FOB contract services.

The Hon'ble Bombay High Court in the case of M/s. Agarwal Coal Corporation Pvt. Ltd. v. Union of India [Writ Petition No. 15227 of 2023 dated March 05, 2024] set aside the Show Cause Notice issued by the Revenue Department based on the Notification No. 08/2017-Integrated Tax (Rate) dated June 28, 2017 ("the Notification") which has been held ultra vires as per the judgment of Division Bench of Hon'ble Gujarat High Court in the case of Mohit Minerals Pvt. Ltd. v. Union of India [Special Civil Application No. 726 of 2018 dated January 23, 2020] which was further affirmed by the Hon'ble Supreme Court in the case of Union of India and Anr. v. Mohit Minerals Pvt. Ltd. [Civil Appeal No. 1390 of 2022 dated May 19, 2022] ("Mohit Minerals case"). The Hon'ble High Court further held that SCN should not have been issued for payment of IGST on reverse charge basis concerning the Free-on-Board ("FOB") contract-related services as the Notification, which includes payment of IGST on reverse charge basis on services concerning Cost, Insurance, and Freight ("CIF") and FOB Contract, has been held as ultra vires.

Facts

M/s. Agarwal Coal Corporation Pvt. Ltd. ("the Petitioner") filed a writ petition before the Hon'ble Bombay High Court against the Show Cause Notice dated September 26, 2023 ("the Impugned SCN")issued concerning FOB Contract by the Revenue Department ("the Respondent") on the ground that, the Impugned SCN has been issued without jurisdiction as the Respondent Officer has relied upon the Notification which has been stuck down by the Division Bench of Hon'ble Gujarat High Court which was further affirmed by the Hon'ble Supreme Court in Mohit Minerals case.

Issue

Whether IGST is payable under RCM for services in Free-on-Board Contract?

Held

The Hon'ble Bombay High Court in the case of Writ Petition No. 15227 of 2023 held as under:

• Observed that, the Hon'ble Bombay High Court relying upon its judgement in the case of Liberty Oil Mills v. Union of India [Writ Petition No. 5191 of 2021 dated January 27, 2023] wherein the Hon'ble High Court set aside the Show Cause Notice issued by the Department by placing reliance upon the Notification, for non-payment of IGST on Ocean Trade Services.
• Noted that, in the cases filed by the Petitioner before the Hon'ble Delhi High Court Agarwal Coal Corporation Pvt. Ltd. v. Union of India and Anr. (Writ Petition (C) No. 8720/2017 dated August 24, 2022) and Hon'ble Madhya Pradesh High Court in the case of M/s. Agarwal Fuel Corporation Pvt. Ltd. v. Union of India &Anr. [Writ Petition No. 19382 of 2017 dated January 30, 2023] which involved both CIF and FOB Contracts, wherein the Hon'ble High Courts relying upon the judgment of the Hon'ble Supreme Court in Mohit Minerals case, quashed the Notification and related entries thereto, thereby holding that, the Petitioner is not liable to pay IGST on ocean freight for services supplied by a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India upto the customs station of clearance of India.
• Further Noted that, the contention made by the Respondent that the decision in Mohit Minerals case is only applicable in the case of CIF contracts only and not FOB Contract is not tenable as the whole Notification has been held ultra vires.
• Relying upon the judgement of the Hon'ble Supreme Court in the case of M/s. Kusum Ignots& Alloys Ltd. v. Union of India and Anr. [Civil Appeal No. 9159 of 2003 dated April 28, 2004], the Notification, being ultra vires, is not available with the State authorities and the application of Notification for issuance of Impugned SCN would be illegal in nature.
• Opined that, the Impugned SCN has been rendered without jurisdiction.
• Held that, the writ petition is allowed.
• Directed that, the Petitioner is entitled to refund of the tax amount deposited under protest along with interest after the filing of refund application by the Petitioner.

OFFICIAL JUDGMENT COPY HAS BEEN ENCLOSED BELOW