In a significant ruling, the Bombay High Court, in the case of M/S. AGARWAL COAL CORPORATION PVT. LTD. VERSUS THE ASSIST. COMMISSIONER OF STATE TAX, dated 5th March 2024, has invalidated a show cause notice (SCN) seeking GST on ocean freight for transportation of goods from outside India.

Case Background

The petitioner, AGARWAL COAL CORPORATION PVT. LTD., challenged the SCN issued by the Revenue Department concerning a Free on Board (FOB) Contract. The petitioner argued that the SCN lacked jurisdiction, citing the striking down of Notification No. 8/2017-Integrated Tax (Rate) by the Division Bench of the Gujarat High Court in the case of Mohit Minerals Pvt. Ltd. vs. Union of India. The Supreme Court upheld the Gujarat High Court’s decision in the case of Union of India vs. Mohit Minerals Pvt. Ltd.

In Mohit Minerals, the High Court of Gujarat ruled on cases involving both Cost, Insurance, and Freight (CIF) and FOB contracts, which was affirmed by the Supreme Court.

Court’s Decision

The Bombay High Court dismissed the department’s argument that the Mohit Minerals judgment applied only to CIF contracts, emphasizing that it covered both CIF and FOB contracts. Additionally, the court referred to the judgment in Liberty Oil Mills v. Union of India, where an SCN demanding IGST on ocean trade services under a FOB contract was set aside due to the Notification being deemed ultra vires.

Drawing from the Supreme Court’s ruling in M/s. Kusum Ignots & Alloys Ltd. v. Union of India and Anr., the court declared the Notification ultra vires, rendering it unavailable to the State authorities. Consequently, the application of the Notification for issuing the impugned SCN was deemed illegal.

The court directed the respondent to refund the tax amount deposited under protest by the petitioner, along with interest, upon the filing of a refund application.

Key Takeaway

This ruling by the Bombay High Court provides clarity on the applicability of GST on ocean freight for goods imported from abroad under FOB contracts. It underscores the importance of adhering to legal provisions and court judgments while issuing tax demands, ensuring fairness and compliance within the taxation framework.