M/S Bhavani Industries vs Union Of India on 31 August, 2023

Outcome**
The petition was allowed. The show-cause notice dated 16.02.2023, demanding IGST on ocean freight, was quashed and set aside, as it was deemed to be without jurisdiction.

2. Core Issue
The core issue was the validity and jurisdiction of a show-cause notice demanding IGST on ocean freight under the reverse charge mechanism for imported goods on a CIF (Cost, Insurance, Freight) value basis, particularly in light of the Supreme Court's pronouncement in Union of India vs. Mohit Minerals Pvt. Ltd.

3. Key Facts
* M/S Bhavani Industries, a GST-registered manufacturer of automobile parts, underwent an audit by the Assistant Commissioner of CGST, Rajkot.
* The final audit report dated 05.08.2022 raised points concerning alleged "short payment of IGST on ocean freight" for goods imported during FY 2017-18, 2018-19, and 2019-20 on CIF value. This pertained to situations where both the service provider (shipping line) and the service recipient (exporter abroad) for transportation were located outside India.
* A show-cause notice (SCN) dated 16.02.2023 was subsequently issued to the petitioner.
* The SCN, relying on Notification No. 10/2017 dated 28.06.2017, asserted that the petitioner, as the importer filing the import manifest, was liable to pay IGST on 'Ocean Freight' under reverse charge.
* The petitioner had previously responded to the audit report by citing the Supreme Court's decision in Union of India vs. Mohit Minerals Pvt. Ltd., which held that no IGST is payable on ocean freight under RCM for CIF contracts.

4. Arguments (Taxpayer vs Revenue)
* Taxpayer (M/S Bhavani Industries):
* Submitted that the issue of levy of IGST on ocean freight is no longer a matter of debate, given the definitive decision of the Supreme Court in Union of India vs. Mohit Minerals Pvt. Ltd.
* Implicitly argued that the show-cause notice, seeking to levy such a tax, was therefore without jurisdiction and contrary to settled law.
* Revenue (Union of India):
* Contended that the petition challenging a show-cause notice was not maintainable, as the SCN was yet to be adjudicated.
* Suggested that the petitioner could present its arguments, including the Mohit Minerals judgment, before the adjudicating authority.
* Incorrectly submitted that the Supreme Court had reversed the Gujarat High Court's judgment to the extent it termed Notification Nos. 8/2017 and 10/2017 as ultra vires the IGST Act, 2017.

5. Court’s Reasoning
* The High Court observed that the show-cause notice was predicated on Notification Nos. 8/2017 and 10/2017 dated 28.06.2017.
* The Court extensively referred to the Supreme Court's judgment in Union of India vs. Mohit Minerals Pvt. Ltd., particularly to its conclusions in para 148(v).
* The Supreme Court had held that the impugned levy imposed on the 'service' aspect of transportation in a CIF contract violates the principle of 'composite supply' enshrined under Section 2(30) read with Section 8 of the CGST Act.
* Since the Indian importer is already liable to pay IGST on the 'composite supply' comprising goods and services like transportation and insurance in a CIF contract, a separate levy on the importer for the 'supply of services' by the shipping line would contravene Section 8 of the CGST Act.
* Although the Supreme Court's reasoning for invalidating the levy differed slightly from the Gujarat High Court's earlier finding of ultra vires, the ultimate outcome was that no IGST is leviable on ocean freight under RCM in such CIF import transactions.
* Therefore, the High Court concluded that, in light of this clear and binding pronouncement from the Apex Court, the show-cause notice seeking to impose such a levy was issued "without jurisdiction."

6. Statutory References
* Constitution of India: Article 226, Article 246A, Article 279A, Article 279B (deleted)
* IGST Act, 2017: Section 2(11), Section 5(3), Section 5(4), Section 13(9)
* CGST Act: Section 2(30), Section 2(93), Section 8
* Notifications:
* Notification No. 8/2017-Integrated Tax (Rate) dated 28.06.2017
* Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017
* Other: Constitution Amendment Act, 2016

7. Precedents Cited
* Union of India vs. Mohit Minerals Pvt. Ltd. [2022 (61) GSTL 257 (SC)]