In such a case, if ocean freight is paid to a foreigner for the service of transportation of goods to India, then the service recipient will be the Exporter of goods rather than the Importer located in India.
As per Entry 10 of Notification No. 10/2017, such service of goods transportation is covered under RCM. Moreover, the importer has been made responsible for the payment of IGST thereon.
For further discussion, reference is made to Entry 10 of Notification No. 10/ 2017- Integrated Tax (Rate) and Section 5(3) of IGST Act.
| Entry 10 | Section 5(3) of IGST Act, 2017 |
| Services supplied by a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India to a person located in non-taxable territory will be subject to Reverse Charge and the importer located in taxable territory will be liable to pay the same. | Section 5(3) of the IGST Act delegates power to government to specify by notification the goods or service on which the tax will be paid on reverse charge basis by the recipient of goods or services or both and all the provisions of this GST Law shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. |
On comparing the notification and Section 5(3), it is apparent that Entry 10 of Notification is contradictory in so far as it provides for payment of tax by the importer of goods who is neither the supplier nor the recipient of service of transportation of goods. The same was held by Gujarat High Court in the case of Mohit Minerals Pvt Ltd dated 23.01.2020, and Entry 10 of the Notification was declared ultra vires the IGST Act, 2017. It was decided that such notification in relation to ocean freight is not permissible in law since the delegated legislation by way of Notification cannot override the statutory provision as per which only a recipient of goods or service is liable to pay tax. Thus, reverse charge is not attracted on Ocean Freight (paid to a foreigner) for import of goods on CIF basis.
