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June 28, 2023

GST Tax applicability for Ocean freight part of the contract between a Foreign Supplier in a nontaxable land v/s Buyer / Importer in a taxable land

by Admin in GST

GST Tax applicability for Ocean freight part of the contract between a Foreign Supplier in a nontaxable land v/s Buyer / Importer in a taxable land


In this Article we will discuss about Freight paid outside India with the help of an interesting Case law of Mohit Minerals Private Ltd. V/S Union of India. This case came up before the Gujarat High Court. The matter contested before the Honourable High Court was about the Freight Paid by the Supplier outside India as an exporter pays the freight charges for the goods supplied outside India which is no tax land as per the GST ACT as the act covers the Indian State only and not any other country.

What is Freight?

Freight is the physical process of transporting commodities and merchandise goods and cargo from one place to another by ship, aircraft, train, or truck.

Issue Involved:

The Honourable Court had to give a ruling on the ocean freight part of the contract between a Foreign Supplier / Exporter in a nontaxable land as far as India is concerned and the Indian Buyer / Importer in a taxable land i.e. India, as the laws like GST, CGST, IGST are all applicable in India as per the Statute or the Law.

Along with the above case which was central to the Writ Petition some other similar Petitions were also added or clubbed together of the Buyers / Importers. These Petitions were heard together as a common Writ Petition.

Plea or Petitions:

The Parties asked the Gujarat High Court to review this order about payment of tax on the ocean freight. The Petitioners prayed for the Writ of Certiorari or the Writ of Mandamus

What is a Writ of Certiorari & Writ of Mandamus?

The Writ of Certiorari means a Court process to seek review of a decision of a lower court or Government agency.

The Writ of Mandamus means a Judicial remedy in the form of an order from the court to any government, subordinate court, corporation or public authority, to do some specific act which that body is obliged under law to do, and which is nature of public duty, and in certain cases one of a statutory duty.

The following terms are required to be aware of for understanding the contract involved in importing goods. There are two types of contracts while importing the goods.

  1.  C I F : Cost, Insurance and Freight
  2. FOB: Free on Board

In the C I F CONTRACT: The responsibility moves to the buyer once the goods reach the point of destination.

In the FOB CONTRACT: The title, possession and liability shifts to the buyer when the shipment leaves the point of origin.

Buyers use FOB and sellers use CIF.  The CIF helps the sellers maintain Higher Profit

Observation:  The Honourable Gujarat High Court gave the ruling in favour of the Petitioners or the Buyers / Importers in this case with special reference to Mohit Minerals Private Limited which is right as the buyers would have to bear extra charges or tax for that part of contract which is done in a Foreign land with no basis of tax in India. The Freight is paid by the supplier and the supplier is not under the regime of GST act. Once the goods passes from the supplier to the Buyer then the Act comes into force.

The tax authorities at times give or pass orders which are outside their scope. The idea is to maximize the tax collection. It should not be an extra burden to the buyer as they are already taxed sufficiently by our tax enforcement authorities.

Judgement: The Honorable Gujarat High Court, after going through all the material placed before it and going through the provisions of the case, declared that the collection of tax on the Ocean Freight part of the contract was not in keeping with the principles of justice as it goes beyond the purview of the act and as such it was void.

The Honourable Court did not object to the Power of the Parliament in making or enacting the law. The Parliament is a Supreme Body for Enactment of laws. This power has been entrusted to them by the people by electing them and by the Constitution.

The Freight is paid by the Exporter / Suppler in a foreign land and the same cannot be subject to tax in India again to avoid double taxation.

The Advocate for the Respondents i.e. Union of India asked the Honorable High Court to stay the order passed to make an appeal but he was not given the stay as the order was final and the earlier order was not good in law.

The implication of this order by the Honorable High Court of Gujarat is a signal to the tax enforcement authorities to be in tune with the principles of natural justice, equity and fair play.

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