The Supreme Court ruling in the sea freight case, which will provide relief to several Indian companies and importers, could also change how the Goods and Services Tax (GST) works in the country, legal experts say.

The Supreme Court on Thursday ruled that GST on ocean freight paid upon importation of goods is unconstitutional. Indian importers who have paid such tax are also eligible for a refund.

Furthermore, importers who had not paid the import tax on services now do not have to pay tax because of this Supreme Court ruling.

The court also said GST council recommendations are not binding on the union or the state and have compelling value.

GST ruling: SC ruling could change ‘one nation, one tax’ concept

On Thursday, the Supreme Court ruled that GST on ocean freight paid upon importation of goods is unconstitutional. While the ruling in the case of ocean freight will ease some Indian companies, it could also change how the Goods and Services Tax (GST) framework works in the country. Here’s how.


“This ruling could change the landscape of those GST provisions subject to judicial review. Since the court has categorically held that the GST Council’s recommendations have only persuasive value, there will be a pragmatic approach to the provisions subject to judicial review by challenging the constitutionality of such provisions based on the recommendations of the GST Council” Abhishek A Rastogi, partner at Khaitan & Co, who advocated for the petitioners before the Gujarat High Court, the Supreme Court, and several other courts.

Parliament and state legislators have equal powers to legislate on GST, SC ruled.

Experts say it will be interesting to see if this will affect some ongoing controversies between the state and downtown.

ET first reported on the controversy in 2017, when the IRS began issuing the notices.

The fundamental problem is that, in most cases, the sea freight is paid by the seller or companies not based in India. For example, if a European company exports goods to India, it tends to enter into an agreement with shipping companies and pay ocean freight.

In such cases, the tax authorities cannot reclaim the GST from the European company. The tax authorities hope to recover the IGST from importers or companies based in India through a ‘reverse charge mechanism’.

The government had approached the Supreme Court against a previous ruling by the Gujarat High Court that IGST (Integrated GST) on ocean freight is unconstitutional.

In the past few months, the IRS has started issuing new tax requests and has been making notices to companies about GST for ocean freight.

Some companies had even approached several courts and failed to file petitions against the tax authorities’ decision to issue tax assessments.


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