Andhra Pradesh High Court – Amravati
M/S Sembcorp Energy India Limited vs Union Of India on 5 February, 2025
Author: R Raghunandan Rao
Bench: R Raghunandan Rao
APHC010017442021
IN THE HIGH COURT OF ANDHRA PRADESH
AT AMARAVATI [3488]
(Special Original Jurisdiction)
WEDNESDAY,THE FIFTH DAY OF FEBRUARY
TWO THOUSAND AND TWENTY FIVE
PRESENT
THE HONOURABLE SRI JUSTICE R RAGHUNANDAN RAO
THE HONOURABLE SRI JUSTICE HARINATH.N
WRIT PETITION NOs: 1268 of 2021,28209 of 2022, 12570, 12576 & 12595
of 2023 and 14763, 14764, 14766, 14768, 14770, 14771, 14773, 14776,
14777, 14779, 14780 & 14782 of 2024
Between:
M/s Sembcorp Energy India Limited ...PETITIONER
AND
Union Of India and Others ...RESPONDENT(S)
Counsel for the Petitioner:
1. LAKSHMI KUMARAN SRIDHARAN
Counsel for the Respondent(S):
1. DEPUTY SOLICITOR GENERAL OF INDIA
2. SURESH KUMAR ROUTHU
The Court made the followingCommon Order:
(perHon‟ble Sri Justice R. Raghunandan Rao)
This batch of cases has been filed by the same petitioner. These cases
raise a common question of law. In the circumstances, all these are being
disposed of by way of this common order.
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2. Heard Sri Raghavan Ramabadran, learned counsel appearing for the
petitioner through virtual mode assisted by Ms. Maheswari Arika, learned
counsel and Sri Y.N. Vivekananda, learned Senior Standing Counsel
appearing for the respondents assisted by Sri Ravula Nagarjuna, learned
Junior Standing Counsel.
3. The petitioner is involved in the business of power generation and
sources coal and other goods from India and abroad. Whenever the petitioner
sources coal from abroad, the transport of the coal and other goods, from
outside India is done on C.I.F. basis or on F.O.B. basis. The petitioner, upon
import of the said coal or other goods, pays tax under the I.G.S.T. Act on the
value of the goods imported into India. Apart from this, the petitioner had also
paid tax under I.G.S.T. Act, on a reverse charge mechanism basis, on the cost
of freight in F.O.B. contracts. The petitioner, after such payments, had sought
refund of the tax paid under the I.G.S.T. Act, on the freight charges in F.O.B.
contracts.
4. The petitioner appears to have made such payments, even in cases
where C.I.F. contracts were involved. After making such payments, the
petitioner approached the Assistant Commissioner of Central Tax, Central
G.S.T. Division, Nellore, for refund of the tax paid under the I.G.S.T. Act, on
the freight charges incurred in the transportation of the goods. The Assistant
Commissioner, issued notices proposing to reject the refund tax. The
petitioner, after receipt of these notices,had filed its replies and had also set
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forth its case by way of a personal hearing. The Assistant Commissioner, after
completing the hearing of the matters, had rejected all the refund applications.
5. The details of the refund applications, orders of rejection and the Writ
Petitions challenging these orders of rejection are set out in the table herein
below.
Sl.No WP NO. Relevant Refund Application No Refund Refund Amount in Rs.
Period & Date rejection
Order No. CIF FOB
& Date
1. 1268/2021 June 2017 to AA370620020236O RFD-06 dt. 21294036 513590251
March 2020 dated 29.06.2020 and 32 10.08.2020
others
2. 28209/2022 April 2020 to AA370322035880E RFD-06 14554877 293932365
December dated 29.06.2020 and 19 dated
2021 others 30.05.2022
3. 12595/2023 January AA371222010297L dated RFD-06 Sanctioned 12584753
2022 13.12.2022 dated in OIO
4. 12576/2023 February AA371222010495L dated 10.02.2023 Sanctioned 8853678
2022 13.12.2022 in OIO
5. 12570/2023 March 2022 AA371222010833N - 12730517
dated 13.12.2022
6. 14764/2024 April 2022 AA370224022129J dated RFD-06 - 16541091
19.02.2024 dated
7. 14770/2024 May 2022 AA370224022124T dated 08.04.2024 - 14315225
19.02.2024
8. 14768/2024 June 2022 AA370224022126P - 28874410
dated 19.02.2024
9. 14763/2024 July 2022 AA370224022146N - 13253930
dated 19.02.2024
10. 14777/2024 August 2022 AA370224022139I dated - 20513286
19.02.2024
11. 14779/2024 September AA370224022136O - 16828692
2022 dated 19.02.2024
12. 14766/2024 October AA370224022160X - 9693821
2022 dated 19.02.2024
13. 14782/2024 November AA370224022157K - 6222448
2022 dated 19.04.2024
14. 14780/2024 December AA370224022142V - 5043282
2022 dated 19.02.2024
15. 14776/2024 January AA37 0224022152U - 4107177
2023 dated 19.02.2024
16. 14771/2024 February AA370224025067I dated - 12485476
2023 21.02.2024
17. 14773/2024 March 2023 AA370224025069E - 6212902
dated 21.02.2024
TOTAL 35848913 995783304
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6. As far as the orders of rejection relating to C.I.F. contracts are
concerned, the said orders would have to be set aside, in view of the
judgment of the Hon’ble Supreme Court in the case of Union of India &
another Vs. M/s. Mohit MineralsPvt. Ltd. 1 . To that extent, Writ Petition
Nos.1268 of 2021 & 28209 of 2022 are allowed, to the extent of the refunds
sought on C.I.F. contracts.
7. The case of the petitioner, before the Assistant Commissioner, was that
the cost of freight had been included in the cost of goods, on which tax had
been paid by the petitioner under the I.G.S.T. Act. The petitioner contended
that, a second collection of tax, under the I.G.S.T. Act, on a reverse charge
mechanism, by virtue of Notification No.8/2017-Integrated Tax (Rate), dated
28.06.2017 and Notification No.10/2017-Integrated Tax (Rate), dated
28.06.2017, requires to be refunded. The petitioner also contended that, this
would amount to double taxation on the same contracts of service and the
same was not permissible in view of the judgment of the Hon’ble Supreme
Court in the case of Union of India & another Vs. M/s. Mohit MineralsPvt.
Ltd.
8. The Assistant Commissioner, refuted this contention by holding that, the
judgment of the Hon’ble Supreme Court in the case of Union of India &
another Vs. M/s. Mohit MineralsPvt. Ltd. applied only to C.I.F. contracts and
1
2022 (5) TMI 968, (2022) 10 SCC 700
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the principles laid down by the Hon’ble Supreme Court in that case cannot be
extended to F.O.B. contracts.
9. Aggrieved by the aforesaid orders of rejections, the present set of Writ
Petitions have been filed by the petitioner before this Court.
10. Before going into the issues raised in the matters, it would be necessary
to consider the scheme of taxation, under the I.G.S.T. Act.
11. Section 5 of the I.G.S.T. Act, provides for levy and collection of tax on
import of goods into India, apart from such tax on inter-State supplies of goods
or services or both. The relevant portion of Section 5 is extracted herein
below:
“5. (1) Subject to the provisions of sub-section (2), there shall be levied a tax
called the integrated goods and services tax on all inter-State supplies of
goods or services or both, except on the supply of alcoholic liquor for human
3
consumption [and un-denatured extra neutral alcohol or rectified spirit used
for manufacture of alcoholic liquor, for human consumption], on the value
determined under Section 15 of the Central Goods and Services Tax Act and
at such rates, not exceeding forty per cent., as may be notified by the
Government on the recommendations of the Council and collected in such
manner as may be prescribed and shall be paid by the taxable person.
2
Provided that the integrated tax on goods [other than the goods as may be
notified by the Government on the recommendations of the Council] imported
into India shall be levied and collected in accordance with the provisions of
Section 3 of the Customs Tariff Act, 1975 (51 of 1975.) on the value as
determined under the said Act at the point when duties of customs are levied
on the said goods under Section 12 of the Customs Act, 1962 (52 of 1962.)
(2)……….
(3) The Government may, on the recommendations of the Council, by
notification, specify categories of supply of goods or services or both, the tax
on which shall be paid on reverse charge basis by the recipient of such goods
or services or both and all the provisions of this Act shall apply to such
recipient as if he is the person liable for paying the tax in relation to the supply
of such goods or services or both.
(4)……..
(5)……..”
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12. Section 5(1) requires the taxable person, who supplies goods and
services, to pay the tax levied under Section 5. Section 5(3) permits the
G.S.T. Council to specify categories of goods and services, or both, in which
the person responsible for payment of tax was to be the recipient of such
goods or services.
13. The proviso to Section 5(1) stipulates that, the value of the goods or
services, for the purpose of calculating the tax payable by the taxable person,
shall be calculated on the basis of Section 12 of the Customs Act, 1962.
14. Section 3 of the Customs Tariff Act, 1975 read with Section 12 of the
Customs Act, stipulates that, the valuation of the goods for the purpose of
calculation of goods, shall be done in the manner set out in Section 14 of the
Customs Act, 1962. Section 14 of the Customs Act, which reads as follows,
stipulates that the cost of transportation to the point of importation into India
shall be included into the cost of goods for the purpose of calculating the tax
payable by the person, who is liable to pay such tax.
15. Section 14 of Customs Act, 1962 reads as follows:
“[14. Valuation of goods.
(1) For the purposes of the Customs Tariff Act, 1975 (51 of
1975), or any other law for the time being in force, the value of the imported
goods and export goods shall be the transaction value of such goods, that
is to say, the price actually paid or payable for the goods when sold for
export to India for delivery at the time and place of importation, or as the
case may be, for export from India for delivery at the time and place of
exportation, where the buyer and seller of the goods are not related and
price is the sole consideration for the sale subject to such other conditions
as may be specified in the rules made in this behalf:
Provided that such transaction value in the case of imported goods
shall include, in addition to the price as aforesaid, any amount paid or
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payable for costs and services, including commissions and brokerage,
engineering, design work, royalties and licence fees, costs of transportation
to the place of importation, insurance, loading, unloading and handling
charges to the extent and in the manner specified in the rules made in this
behalf:
Provided further that the rules made in this behalf may provide for,-
(i). the circumstances in which the buyer and the seller
shall be deemed to be related;
(ii). the manner of determination of value in respect of
goods when there is no sale, or the buyer and the seller are related, or
price is not the sole consideration for the sale or in any other case;
(iii). the manner of acceptance or rejection of value
declared by the importer or exporter, as the case may be, where the proper
officer has reason to doubt the truth or accuracy of such value, and
determination of value for the purposes of this section:
1
[(iv). the additional obligations of the importer in respect of
any class of imported goods and the checks to be exercised, including the
circumstances and manner of exercising thereof, as the Board may specify,
where, the Board has reason to believe that the value of such goods may
not be declared truthfully or accurately, having regard to the trend of
declared value of such goods or any other relevant criteria:]
Provided also that such price shall be calculated with reference to
the rate of exchange as in force on the date on which a bill of entry is
presented under section 46, or a shipping bill of export, as the case may
be, is presented under section 50.
(2) Notwithstanding anything contained in sub-section (1), if the
Board is satisfied that it is necessary or expedient so to do, it may, by
notification in the Official Gazette, fix tariff values for any class of imported
goods or export goods, having regard to the trend of value of such or like
goods, and where any such tariff values are fixed, the duty shall be
chargeable with reference to such tariff value.
Explanation.-For the purposes of this section-
(a) “rate of exchange” means the rate of exchange-
(i) determined by the Board, or
(ii) ascertained in such manner as the Board
may direct, for the conversion of Indian currency into foreign currency or
foreign currency into Indian currency;
(b) “foreign currency” and “Indian currency” have the
meanings respectively assigned to them in clause (m) and clause (q) of
section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999).]”
16. As set out above, the liability for payment of such tax would be on the
person outside India. As levy and collection of taxes from persons who are
abroad would face statutory and practical difficulties, the G.S.T. Council, by
Notifications issued under Section 5 (3) of the I.G.S.T. Act, namely Notification
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No.8/2017-Integrated Tax (Rate), dated 28.06.2017 and Notification
No.10/2017-Integrated Tax (Rate), dated 28.06.2017, created a reverse
charge mechanism, whereby the person importing the coal and other goods or
obtaining services, would become liable to pay tax under the I.G.S.T. Act, in
relation to the freight charges/cost of transportation of such goods into India.
17. These Notifications were challenged before the Hon’ble High Court of
Gujarat, in the case of Mohit Minerals Pvt. Ltd. Vs. Union of India & 1
other2. The Hon’ble High Court of Gujarat, had held that, once the cost of
freight had already been included in the value of goods, on which I.G.S.T. tax,
had already paid, further payment of levy of tax on the cost of the freight
would amount to double taxation and as such, set aside the said levy of tax.
The Union of India, filed an Appeal against this judgment before the Hon’ble
Supreme Court. In Union of India & another Vs. M/s. Mohit Minerals Pvt.
Ltd. 3 , the Hon’ble Supreme Court, rejected the said Appeal. However, the
Hon’ble Supreme Court, had also noticed, the concession made by the
petitioner that the issue may be restricted to C.I.F. contracts. The Hon’ble
Supreme Court, after considering the various contentions raised before it, had
held that, in C.I.F. contracts, collection of tax on freight charges, on a reverse
charge mechanism basis was illegal and set aside the same.
18. After this judgment, a similar issue came before the Hon’ble High Court
of Bombay in the case of M/s.Agarwal Coal Corporation Pvt. Ltd. Vs. The
2
2020 (1) TMI 974, 2020 (33) G.S.TL. 321 (Guj.)
3
2022 (5) TMI 968
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Assistant Commissioner of State Tax4. The Hon’ble High Court of Bombay,
held that, the Notification No.8/2017-Integrated Tax (Rate), dated 28.06.2017
and Notification No.10/2017-Integrated Tax (Rate), dated 28.06.2017, had
been set aside by the Hon’ble Supreme Court and the same had been
affirmed by the Hon’ble Supreme Court, on the basis, the Hon’ble High Court
of Bombay, held that the question of levy or collection of tax from the importer,
on the cost of freight, in the absence of the aforesaid Notifications was not
valid.
19. In another proceeding, the Hon’bleHigh Court of Gujarat in the case of
B.L.A. Coke Pvt. Ltd. Vs. Union of India & Ors 5 , had considered the
question of levy and collection of I.G.S.T., on the freight charges, paid in
F.O.B. contracts and had held that, the same was not permissible even in the
case of F.O.B. contracts.
20. Before going into the submissions of the learned counsel, it would be
necessary to record our inability to agree with the Hon’ble High Court of
Bombay that, Notification No.8/2017-Integrated Tax (Rate), dated 28.06.2017
and Notification No.10/2017-Integrated Tax (Rate), dated 28.06.2017, stand
quashed by virtue of the judgments of the Hon’ble High Court of Gujarat and
the Hon’ble Supreme Court. A perusal of the judgment of the Hon’ble
Supreme Court would show that the validity of the Notifications has not been
disturbed and the said Notifications would still be applicable.
4
2024 (3) TMI 1265
5
2024-VIL-1076-GUJ
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21. In the light of the aforesaid judgments, it would now be necessary to go
into the question of whether tax, on freight charges, in F.O.B. contracts can be
collected under the said Notifications.
22. Notification No.8/2017-Integrated Tax (Rate), dated 28.06.2017, merely
sets out the rate of tax payable on the service provided. Notification
No.10/2017-Integrated Tax (Rate), dated 28.06.2017, creates a reverse
charge mechanism for payment of tax under the I.G.S.T. Act, on the cost of
the transportation, by the importer. The creation of such a reverse charge
would not automatically require every importer to pay such a tax unless it is
otherwise permissible.
23. The question that arises before this Court is whether there can be levy
and collection of I.G.S.T. on the cost of freight even after such I.G.S.T. tax has
already been collected on this service, as a component of the cost of goods,
which have been imported.
24. A conjoint reading of Section 5 (1) of the I.G.S.T. Act, 2017 with Section
3(7) of the Customs Tariff Act, 1975, Section 12 of the Customs Act, 1962 and
Section 14 of the Customs Act, 1962, makes it amply clear that the cost of
freight, involved in the movement of goods from abroad into India are included
on the cost of goods, while calculating the I.G.S.T. tax that is payable by the
importer. The petitioner in the present case, has already paid I.G.S.T. Tax on
the cost of freight as it has been included in the cost of goods on which the tax
was calculated and collected.
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25. This now raises a question of whether the petitioner can be called upon
to pay a second round of I.G.S.T. Tax, on the cost of the freight. The
respondents have taken the stand that such tax is leviable in view of the
reverse charge mechanism set out by Notification No.10/2017-Integrated Tax
(Rate), dated 28.06.2017.
26. To the mind of this Court, the said reverse charge mechanism comes
into play when the cost of freight can be taxed. In the normal course, such
levy of tax is permissible. However, the question is whether the said tax can
be levied twice by treating the initial importation of goods as a composite
supply and thereafter, treating the payment of freight as a separate contract of
services. The Hon’ble Supreme Court, in the case of Union of India &
another Vs. M/s.Mohit Minerals Pvt. Ltd., had considered a similar situation,
while deciding the issue in a C.I.F. contract. Paragraph 144 of the said
judgment, to our mind, makes it clear that, such taxation is not permissible.
Even though the said principle was set out in cases of C.I.F. contracts, it
would appear that the principle that there cannot be double taxation of the
same transaction by holding it as separate contracts of composite supply and
contract of supply of services. Paragraph-144 is extracted below.
“144. It is true that in this case, the first leg of the transaction
between the foreign exporter and the Indian importer is a composite
supply, while the second leg, between the foreign exporter and the
shipping line may, from a perspective, be regarded as a standalone
transaction. Both of them are independent transactions and ordinarily, the
IGST could be levied on both sets of transactions- one as supply of goods
(under the ambit of composite supply) and the other as supply of services.
However, the impugned notifications seek to tax the importer as the
deemed recipient of the supply of service. The ASG has advanced an
interpretation of Sections 5(3) and 5(4) of the IGST Act, read with Section
2(93) of the CGST Act to contend that the importer can be classified as
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the „recipient‟ of the services. On this interpretation, we have upheld the
validity of the impugned notifications under Sections 5(3) and 5(4) of the
IGST Act in Section D.2-D.5 of this judgment. The respondents as a
matter of fact urged that (i) the Indian importer is not privy to the contract
between the foreign exporter and the foreign shipping line; (ii) the Indian
importer does not pay consideration to the foreign shipping line; and (iii)
the Indian importer does not received any services from the foreign
shipping line since the transportation services are provided by the foreign
shipping line to the foreign exporter. The ASG, while advancing
arguments on behalf of the Union Government, has opposed these
submissions. The Union Government has urged that this Court must look
beyond the text of the contract between the foreign shipping line and the
foreign exporter to identify the Indian importer as the recipient of the
services. This Court has upheld the validity of the impugned notifications
on this ground. The Union Government is contradicting the main plank of
its submission now by contending that the two legs of the transaction are
separate standalone agreements. That would imply, that while on the one
hand the Union Government seeks to levy tax on the Indian importer by
going beyond the text of the contract between the foreign shipping line
and foreign exporter (for the purpose of identifying the Indian importer as
the recipient of services), on the other hand, as far as the submissions on
composite supply are concerned, the Union Government urges that the
contracts must be viewed as separate transactions, operating in silos. We
are unable to subscribe to this view. The Union of India cannot be heard
to urge arguments of convenience – treating the two legs of the
transaction as connected when it seeks to identify the Indian importer as a
recipient of services while on the other hand, treating the two legs of the
transaction as independent when it seeks to tide over the statutory
provisions governing composite supply.”
In addition to this, the Hon’ble Supreme Court at Paragraph-148 (v) had
held as follows:
“(v). The impugned levy imposed on the „service‟ aspect of the
transaction is in violation of the principle of „composite supply‟ enshrined
under Section 2(30) read with Section 8 of the CGST Act. 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 contract, a separate levy on the Indian importer for the „supply of
services‟ by the shipping line would be in violation of Section 8 of the
CGST Act.”
27. The aforesaid observations of the Hon’ble Supreme Court, are a
reiteration of the principle that taxation of supply of services, even after the
said cost of services had already been taxed, would not arise. We are alive to
the fact that the observations of the Hon’ble Supreme Court were made only
in the context of a C.I.F. contract. However, the basic principle that there
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cannot be double taxation of the same transaction, is a universal principle,
which would apply to both C.I.F. contracts and F.O.B. contracts.
28. In these circumstances, we are of the view that, the impugned orders of
rejection of refund are not in accord with the principles laid out above and the
same are hereby set aside.
29. Consequently, these matters are remanded to the authority for
reconsideration of the issues, after applying the principle laid down in this
judgment.
30. Needless to say, no fresh application for refund shall be required and
the concerned authority shall pass orders on the earlier refund applications,
which would now stand pending before the Authority.
31. Accordingly, Writ Petition Nos.1268 of 2021 & 28209 of 2022 are
allowed and all other Writ Petitions are disposed of. There shall be no order as
to costs.
As a sequel, interlocutory applications pending, if any shall stand
closed.
________________________
R. RAGHUNANDAN RAO, J
______________
HARINATH .N, J
Date:05.02.2025
KPV
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466
THE HONOURABLE SRI JUSTICE R. RAGHUNANDAN RAO
THE HONOURABLE SRI JUSTICE HARINATH.N
WRIT PETITION Nos:1268 of 2021, 28209 of 2022, 12570, 12576 & 12595
of 2023 and 14763, 14764, 14766, 14768, 14770, 14771, 14773, 14776,
14777, 14779, 14780 & 14782 of 2024
(perHon‟ble Sri Justice R. Raghunandan Rao)
05.02.2025
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KPV