Desk of CA. Praveen Sharma – 929 Series (CAPS)

The Calcutta High Court recently delivered an important ruling in the case of Sunrise Timply Company Pvt. Ltd., providing relief on the long-standing issue of levy of IGST on ocean freight under reverse charge mechanism in CIF imports.

In this case, the taxpayer had challenged an order passed under Section 74 of the CGST/WBGST Act, whereby IGST on ocean freight for the period July 2017 to March 2018 was demanded, along with rejection of a rectification application. The dispute arose from a show cause notice alleging non-payment of IGST on ocean freight, to which the taxpayer had consistently replied by relying on settled judicial precedents.

Throughout the proceedings, including written submissions filed after the hearing, the taxpayer relied upon the landmark judgment of the Supreme Court in Mohit Minerals Pvt. Ltd. v. Union of India, which had categorically held that IGST on ocean freight in CIF imports is not leviable. Despite being apprised of this binding judgment, the Proper Officer proceeded to confirm a tax demand of ?18.61 lakh, taking the view that the Supreme Court decision did not expressly clarify whether it applied retrospectively.

The department further attempted to justify the demand by referring to the amendment to Notification No. 10/2017, whereby Entry 10 was deleted with effect from 01.10.2023, and argued that such deletion was prospective in nature. The High Court found this reasoning to be legally untenable.

The Court held that judgments of constitutional courts operate retrospectively unless the judgment itself specifically restricts its operation. It was further clarified that subordinate legislation, including notifications, cannot override statutory provisions or binding judgments of the Supreme Court. The High Court reiterated that the Supreme Court had already treated Notification No. 10/2017 as merely clarificatory and incapable of creating a new tax liability.

Accordingly, the High Court quashed both the adjudication order as well as the order rejecting rectification and allowed the writ petition, without any order as to costs.

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Regards
CAPS