Gujarat High Court
M/S Bhavani Industries vs Union Of India on 31 August, 2023
Author: Biren Vaishnav
Bench: Biren Vaishnav, Bhargav D. Karia
NEUTRAL CITATION
C/SCA/6379/2023 ORDER DATED: 31/08/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 6379 of 2023
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M/S BHAVANI INDUSTRIES
Versus
UNION OF INDIA
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Appearance:
MR A S TRIPATHI(7613) for the Petitioner(s) No. 1
MR RAHUL L GAJERA(9399) for the Petitioner(s) No. 1
MR NIKUNT K RAVAL(5558) for the Respondent(s) No. 1,2,3
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CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 31/08/2023
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BIREN VAISHNAV)
1. Rule returnable forthwith. Mr. Nikunt Raval, learned Counsel appearing for the respondents waives service of notice of rule.
2. By way of this petition under Article 226 of the Constitution of India, the petitioner has prayed that a writ of prohibition or any other appropriate writ prohibiting respondents and their servants be issued against the show-cause notice dated 16.02.2023. Page 1 of 9 Downloaded on : Sun Sep 17 03:00:47 IST 2023
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3. Facts in brief indicate that the petitioner is engaged in the manufacture and outward supply of goods and services i.e. automobile parts. The petitioner holds a GST registration. The office of the Assistant Commissioner of CGST, Rajkot conducted an audit of the petitioner company and issued a final audit report dated 05.08.2022. In the audit report, certain points were raised which included the question of short payment of IGST on ocean freight on certain goods imported during the financial years 2017-18, 2018-19 and 2019-20 on CIF value wherein both the service provider and the service recipient in respect of transportation/ shipping of goods were located outside the territory of India. The petitioner filed a reply to the final order.
3.1 A show-cause notice was issued to the petitioner on 16.02.2023 indicating that the petitioner who was engaged in the manufacture and outward supply of goods and services was found to have imported goods for the financial years stated in the said notice. According to the Page 2 of 9 Downloaded on : Sun Sep 17 03:00:47 IST 2023 NEUTRAL CITATION C/SCA/6379/2023 ORDER DATED: 31/08/2023 undefined notice, there was a stipulation in the notification no. 10/2017 dated 28.06.2017 which made the petitioner liable to pay GST i.e. IGST on 'Ocean Freight'. As per the show-cause notice, since it appears that in case of transportation of goods by a vessel from outside India upto an Indian port where both the service provider and the service recipient are outside India, the liability to pay IGST under reverse charge would be on the person who files the import manifest. The petitioner therefore was called upon to pay IGST on ocean freight. 3.2 The petitioner filed a reply in response to the audit report wherein it was pointed out that in view of the decision of the Hon'ble Apex Court in the case of Union of India vs. Mohit Minerals Pvt. Ltd. [22 (61) GSTL 257 (SC)] whereby the Hon'ble Apex Court had upheld the decision of Gujarat High Court and held that no IGST is payable on ocean freight under reverse charge mechanism on contracts of costs, insurance and freight. However, the notice was so issued.
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4. Mr. A.S. Tripathi, learned counsel for the petitioner would submit that the issue of levy of IGST on ocean freight is no longer a matter of debate in light of the decision in the case of Mohit Minerals Pvt. Ltd. (supra).
5. Mr. Nikunt Raval, learned counsel appearing for the respondents would submit that the petition challenging the show-cause notice is not maintainable. The show- cause notice is yet to be adjudicated. He would submit that it is open for the petitioner to satisfy the adjudicating authority with regard to the decision of the Apex Court in the case of Mohit Minerals Pvt. Ltd. (supra). He would submit that the judgement of the Gujarat High Court to the extent of terming the notification no. 8/2017 dated 28.06.2017 and notification no. 10/2017 dated 28.06.2017 as ultra vires the IGST Act, 2017 has been reversed by the Apex Court. He would therefore submit that the petition deserves to be dismissed.
6. Having considered the submissions made by learned counsels for the respective parties, perusal of the show- Page 4 of 9 Downloaded on : Sun Sep 17 03:00:47 IST 2023
NEUTRAL CITATION C/SCA/6379/2023 ORDER DATED: 31/08/2023 undefined cause notice would indicate that reliance has been placed on the Notifications No. 8/2017 and 10/2017 dated 28.06.2017 indicating that a person liable to pay IGST on 'ocean freight' appears to be the person who has been the importer of the impugned goods in terms of entry made at Sr. No. 10 appended to the notification no. 10/2017. Essentially therefore the show-cause notice draws power from the Notifications No. 8/2017 and 10/2017. 6.1 Perusal of the judgement of the Apex Court in the case of Mohit Minerals Pvt. Ltd. (supra) would indicate that the Division Bench of this court held that the impugned notifications are unconstitutional for exceeding the powers conferred by the IGST Act and the CGST Act. One of the grounds on which it was so held unconstitutional was that since the importer pays customs duties on the goods which include the value of ocean freight, the impugned notifications impose double taxation through a delegated legislation, which is impermissible.
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NEUTRAL CITATION C/SCA/6379/2023 ORDER DATED: 31/08/2023 undefined 6.2 After extensively referring to the notifications and the provisions of the IGST and the CGST Act, in the concluding para, the Hon'ble Apex Court in agreement with the decision of this Court held that to the extent that a tax on the supply of a service which has already been included by the legislation as a tax on the composite supply of goods cannot be allowed. The conclusions recorded by the Apex Court in para 148 read as under:
"(E) Conclusion 148 Based on the above discussion, we have reached the following conclusion:
(i) The recommendations of the GST Council are not binding on the Union and States for the following reasons:
(a) The deletion of Article 279B and the inclusion of Article 279(1) by the Constitution Amendment Act 2016 indicates that the Parliament intended for the recommendations of the GST Council to only have a persuasive value, particularly when interpreted along with the objective of the GST regime to foster cooperative federalism and harmony between the constituent units;
(b) Neither does Article 279A begin with a non-obstante clause nor does Article Page 6 of 9 Downloaded on : Sun Sep 17 03:00:47 IST 2023 NEUTRAL CITATION C/SCA/6379/2023 ORDER DATED: 31/08/2023 undefined 246A state that it is subject to the provisions of Article 279A. The Parliament and the State legislatures possess simultaneous power to legislate on GST. Article 246A does not envisage a repugnancy provision to resolve the inconsistencies between the Central and the State laws on GST. The 'recommendations' of the GST Council are the product of a collaborative dialogue involving the Union and States. They are recommendatory in nature. To regard them as binding edicts would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST. It is not imperative that one of the federal units must always possess a higher share in the power for the federal units to make decisions. Indian federalism is a dialogue between cooperative and uncooperative federalism where the federal units are at liberty to use different means of persuasion ranging from collaboration to contestation; and
(c) The Government while exercising its rule-making power under the provisions of the CGST Act and IGST Act is bound by the recommendations of the GST Council.
However, that does not mean that all the recommendations of the GST Council made by virtue of the power Article 279A (4) are binding on the legislature's power to enact primary legislations;
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(ii) On a conjoint reading of Sections 2(11) and 13(9) of the IGST Act, read with Section 2(93) of the CGST Act, the import of goods by a CIF contract constitutes an "inter-state" supply which can be subject to IGST where the importer of such goods would be the recipient of shipping service;
(iii) The IGST Act and the CGST Act define reverse charge and prescribe the entity that is to be taxed for these purposes. The specification of the recipient - in this case the importer - by Notification 10/2017 is only clarificatory. The Government by notification did not specify a taxable person different from the recipient prescribed in Section 5(3) of the IGST Act for the purposes of reverse charge;
(iv) Section 5(4) of the IGST Act enables the Central Government to specify a class of registered persons as the recipients, thereby conferring the power of creating a deeming fiction on the delegated legislation;
(v) 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."
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7. In light of the aforesaid, it is held that the show- cause notice impugned in the petition dated 16.02.2023 is without jurisdiction and the same is therefore quashed and set aside. Petition is accordingly allowed. Rule is made absolute.
(BIREN VAISHNAV, J) (BHARGAV D. KARIA, J) DIVYA Page 9 of 9 Downloaded on : Sun Sep 17 03:00:47 IST 2023