IGST on ocean freight is not permissible under law: Gujarat High Court

Ocean freight is the cost incurred through an agreement between two foreign parties to bring goods to India via ocean.

The Gujarat High Court has declared imposition of integrated goods and services tax (IGST) on ocean freight as violative of the Constitution. Ocean freight is the cost incurred through an agreement between two foreign parties to bring goods to India via ocean.

Allowing petitions against the tax, the court said the levy and collection of tax on ocean freight was not permissible under the law.

“The taxability dispute on ocean freight has been finally decided by the court to hold that taxing the ocean freight is ultra vires and leads to double taxation,” said Abhishek Rastogi, partner at Khaitan & Co. Petitions are also pending before the HCs in Delhi and Mumbai, in this matter.

Explaining the case, Rastogi said a provision in the Central GST Act permitted levy of both basic Customs duty and IGST on the cost, insurance and freight (CIF) value of goods brought into India, as well as an additional IGST component on ocean freight between two foreign parties for movement of such goods.

For instance, if goods come from Washington to London and are shipped further to Mumbai, there is an element of ocean freight between the parties in Washington and London. This could include steamship costs, broker commissions, duties and tariffs, vessel and port maintenance costs, and labour costs, etc.

The petitioners have raised questions on the additional tax levied on the ocean freight element, when the basic customs duty and IGST are already paid on the CIF value. This indicates double taxation, given the ocean freight element already includes CIF.