With effect from October 1, the government has exempted payments paid for items imported by ocean freight from the 5 percent integrated GST.

Changes to the IGST Act regarding the payment of integrated GST on “ocean freight” on imported products have been announced by the Finance Ministry and will take effect on October 1.

Under the Reverse Charge Mechanism, importers are now required to pay 5 percent GST.

Abhishek Jain, Head of Indirect Tax for KPMG, stated that the suggested changes are in line with the Supreme Court’s decision in the Mohit Minerals case and help expressly highlight the government’s alignment to the stance.

“While this has been issued prospectively, the industry has been seeking and successfully claiming refund of taxes already paid for the past period, where credit has not been availed,” Jain added.

Giving its ruling in the Mohit Minerals case, the Supreme Court in May last year had held that since the Indian importer is liable to pay IGST on the ‘composite supply’, comprising of supply of goods and supply of services of transportation, insurance, etc in a CIF (Cost Insurance Freight) contract, a separate levy on the Indian importer for the ‘supply of services’ by the shipping line would be in violation of the GST Act.

In the Mohit Minerals case, the business went to the Gujarat High Court to contest the legality of the CBIC announcement about the imposition of IGST on ocean freight. The High Court’s judgement was affirmed by the Supreme Court.