Chambal Fertilisers And Chemicals ... vs Union Of India on 3 May, 2019

Here's a summary of the judgment:

1. Outcome
The High Court issued notice to the respondents, returnable by July 10, 2019, and passed an interim order directing that no coercive steps be taken against the petitioner in the meanwhile.

2. Core Issue
The core issues before the High Court were:
* The constitutional validity of the composition of the Authority for Advance Ruling (AAR) and Appellate Authority for Advance Ruling (AAAR) under the CGST Act and RGST Act, challenging the absence of judicial members in bodies performing judicial functions.
* The legality and constitutional validity of a notification dated 28.06.2017, particularly Entry 10, which imposes Integrated Goods and Services Tax (IGST) on ocean freight on a reverse charge mechanism on importers for CIF transactions. This was challenged on grounds of:
* Double taxation on transportation services.
* The notification being ultra-vires Section 5(3) of the IGST Act for illegally designating the 'importer' as the 'recipient' of service in CIF transactions, contrary to the definition of 'recipient' under the CGST Act.

3. Key Facts
* The petitioner, Chambal Fertilisers And Chemicals Limited, imports goods into India.
* The imports involve availing transportation services from foreign shipping companies, leading to potential IGST liability on ocean freight.
* The petitioner challenged specific provisions of the CGST Act and RGST Act regarding the composition of the AAR and AAAR.
* The petitioner also challenged a notification (28.06.2017, Entry 10) which levies IGST on importers for transportation services received in case of imports on a CIF basis under a reverse charge mechanism.

4. Arguments

• Taxpayer (Chambal Fertilisers And Chemicals Limited):

  • AAR/AAAR Composition: Sections 96(2) of the RGST Act, 96 of the CGST Act, Rule 103 of CGST/RGST Rules, and Section 99 of the CGST/RGST Act are arbitrary and unconstitutional. AAR/AAAR are empowered to determine tax liability, have powers of a civil court, and their proceedings are deemed judicial. Citing Union of India Vs. R. Gandhi and Others, the petitioner argued that such authorities, discharging judicial functions, must include members with a judicial background.
  • Double Taxation on Transportation Services (FOB Imports): In FOB imports, the petitioner, as a recipient of transportation services, is liable for IGST on a reverse charge basis. However, the 'cost of transportation to the place of importation' is already included in the 'transaction value' of imported goods for customs valuation (under Section 14(1) of the Customs Act and Rule 10 of Customs Valuation Rules), upon which IGST is already levied at the import stage. Levying IGST again on these transportation services amounts to double taxation.
  • Ultra Vires Notification re. Recipient (CIF Imports): The impugned notification dated 28.06.2017 (Entry 10) is ultra vires Section 5(3) of the IGST Act. While Section 5(3) empowers the Government to notify categories for reverse charge, it does not allow defining the 'recipient of service'. As per Section 2(93) of the CGST Act, the 'recipient' is the person liable to pay consideration. In CIF transactions, the exporter/supplier contracts and pays the foreign shipping company for transportation services, making the exporter the 'recipient'. The notification illegally shifts the IGST liability to the 'importer', who is not the actual recipient of the transportation services, thereby exceeding the powers conferred by Section 5(3).

• Revenue (Union of India):

  • The judgment only indicates that notice was issued to the respondents, and no substantive arguments from the Revenue were recorded at this interim stage.

5. Court’s Reasoning
The Court, at this preliminary stage, did not delve into the merits of the arguments or provide a detailed reasoning for a final decision. It found the issues raised by the petitioner sufficiently substantial to warrant a response from the Union of India and other respondents. Therefore, it issued notice and granted interim protection to the petitioner by restraining any coercive action.

6. Statutory References
* Central Goods and Services Tax Act, 2017 (CGST Act):
* Section 96 (Composition of AAR)
* Section 97 (Application for Advance Ruling)
* Section 99 (Composition of AAAR)
* Section 105 (Powers of AAR/AAAR as Civil Court)
* Section 2(93) (Definition of 'recipient')
* Rajasthan Goods and Service Tax Act, 2017 (RGST Act):
* Section 96(2) (Composition of AAR)
* Section 99 (Composition of AAAR)
* Central Goods and Services Tax Rules:
* Rule 103
* Rajasthan Goods and Services Tax Rules:
* Rule 103
* Integrated Goods and Services Tax Act, 2017 (IGST Act):
* Section 5(1) Proviso (Levy and collection of integrated tax on imported goods)
* Section 5(3) (Power to notify categories of supply for reverse charge)
* Customs Tariff Act, 1975:
* Section 3 (Levy of additional duty on imported goods)
* Customs Act, 1962:
* Section 14(1) (Transaction value for imported goods)
* Section 2(26) (Definition of 'importer')
* Customs Valuation (Determination of Value of Imported Goods) Rules, 2007:
* Rule 10 (Determination of transaction value including transportation costs)
* Code of Civil Procedure (referred to in the context of AAR/AAAR powers)
* Notification dated 28.06.2017, Entry 10 (specifically challenged)

7. Precedents Cited
* Union of India Vs. R. Gandhi and Others, (2010) 11 SCC 1 (Supreme Court) - Cited by the petitioner regarding the requirement of judicial members in tribunals performing judicial functions.
* Mohit Minerals Pvt Ltd. Vs. Union of India, Special Civil Application No.726/2018, dated 09.02.2018 and 12.12.2018 (Gujarat High Court) - Cited by the petitioner's counsel.