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96 The analysis of whether import of goods under CIF contracts constitutes a valid import of service has to be answered on two prongs: (i) whether classification of imports as a specific category of supply of shipping service is valid under Section 5(3) read with Section 5(1) of the IGST Act; and (ii) whether the recipient of the  PART D imported goods is also a recipient of shipping services in CIF transactions under Section 5(3).

D.4.(a) Do imported goods procured on a CIF basis constitute an inter-state supply or is it an extra-territorial tax?

97 Notification 8/2017 specifically delineates the service that is accompanied with the transportation of goods from a non-taxable territory as a specified category of service under Section 5(3) of the IGST Act. This categorization taxes the recipient of such transportation service on a reverse charge basis. The respondents have argued that the supply of service of shipping in a CIF contract is from the foreign shipping line to the foreign exporter. It is alleged that this transaction has no territorial nexus to India and does not constitute “supply” that can be taxed within the meaning of the CGST Act and IGST Act.

108 The impugned levy on the supply of transportation service by the shipping line to the foreign exporter to import goods into India has a two-fold connection: first, the destination of the goods is India and thus, a clear territorial nexus is established with the event occurring outside the territory; and second, the services are rendered for the benefit of the Indian importer. Thus, the transaction does have a nexus with the territory of India.

109 As an alternative, the respondents submitted that though the levy may have a nexus with the Indian territory, the levy of tax extra-territorially must be provided by Parliament through statute and not by the Union Government through delegated legislation. We do not find any applicability of this submission to the facts at hand. As stated above, the IGST Act under Section 13(9) recognises the place of supply of services as the destination of goods when the supplier is located outside India. Since the destination of goods is India, the statute itself is broad enough to cover a taxable event that has extra-territorial aspects, which bears a nexus to India.  PART D 110 In determining the vires of the impugned notifications, the only question that falls for determination is whether the importer of goods can be considered as the recipient of the service of shipping in CIF contracts. D.4.(b) Are importers service recipients under CIF contracts? 111 The impugned notification 8/2017, inter alia, identifies several categories of supply of services such as hotels, restaurants, transportation by rail/road/air and legal and accounting services. The respondents, as importers of goods under CIF transactions, are aggrieved by the following categorization:

(c) where no consideration is payable for the supply of a service, the person to whom the service is rendered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied;” (emphasis supplied) Thus, the language employed in Section 2(93)(a) of the CGST Act clearly stipulates that when a consideration is payable for the supply of services, the recipient would mean the person who is liable to pay that consideration. However, when no consideration is payable for the supply of a service, Section 2(93)(c) states that the recipient shall be the person to whom the service is rendered. Further, Section 2(93) provides that “any reference to a person to whom supply is made shall be construed as a reference to the recipient”. Hence, where the statute refers to a person to whom a supply is made, it has to be construed as a reference to the recipient of service.  PART D 113 In a CIF transaction, the foreign exporter contracts with a foreign shipping line. The service of shipping is rendered by the foreign shipping line to the foreign exporter and the consideration is accordingly payable by the latter to the former. The cost of such shipping may form a component of the price that is eventually charged to the importer, based on the negotiated terms. If an FOB contract were to be negotiated, the importer would independently avail of the service of shipping and pay for the consideration. The Union Government has argued that import of goods on a CIF basis would be construed as import of services where sub-clause (c) of Section 2(93) applies to determine the recipient. The respondents have argued that the importer in a CIF contract can be considered as a recipient of the service only in a colloquial sense. The mere destination of the service of shipping would not convert it into a service vis-à-vis the importer without any elements of a contract. Hence, they urge that in the absence of specific deeming provisions in the statute, over- arching principles of privity of contract are relevant for interpreting the term “recipient” deployed in Section 5(3) of the IGST.