In a recent decision, the Madras High Court addressed the issue of Integrated Goods and Services Tax (IGST) levied on ocean freight under the reverse charge mechanism. The case involved L.S. Mills Limited challenging specific notifications from 2017 that imposed IGST on ocean freight, arguing they were unconstitutional under Articles 245 and 269A of the Constitution and certain sections of the IGST Act, 2017.
The petitioner referenced the Supreme Court's ruling in Union of India v. Mohit Minerals Pvt. Ltd., which previously invalidated similar notifications. The main issue was whether the IGST levy on ocean freight, as stipulated in the challenged notifications, was constitutionally valid, especially considering the Mohit Minerals case.
The Madras High Court followed the Supreme Court's precedent, emphasizing that importers already pay IGST on the composite supply of goods and services, which includes freight and insurance under a Cost, Insurance, and Freight (CIF) contract. Imposing a separate IGST on freight was deemed a violation of Section 8 of the Central Goods and Services Tax (CGST) Act and the principle of composite supply. The court also noted that recommendations from the GST Council are not binding on the Union or the States.
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Ultimately, the court ruled that the levy of IGST on ocean freight was unconstitutional and beyond the legal authority, leading to the quashing of the show cause notice issued to L.S. Mills Limited. This decision reaffirms the legal position established in the Mohit Minerals case, ensuring consistency in the application of GST laws.
Case Title: L.S. Mills Limited v. Union of India & Ors.
Order Date: 13 October 2025
Facts:
- The petitioner, L.S. Mills Limited, challenged Sl. No. 10 of Notification No. 10/2017-IGST (Rate) and Sl. No. 9(ii) of Notification No. 8/2017-IGST (Rate), both dated 28.06.2017, and the consequent SCN dated 15.12.2021 issued by the Assistant Commissioner, Dindigul.
- The challenge was that the impugned notifications — imposing IGST on ocean freight under reverse charge — were ultra vires Articles 245 and 269A of the Constitution and Sections 1, 5(3), and 7(4) of the IGST Act, 2017.
- The petitioner relied on the Supreme Court decision in Union of India v. Mohit Minerals Pvt. Ltd. [2022 (61) GSTL 257 (SC)], which had struck down similar notifications.
Issue:
- Whether the IGST levy on ocean freight under reverse charge, through the impugned notifications, was constitutionally valid in light of Mohit Minerals?
Order:
- The Court followed the Supreme Court ruling in Mohit Minerals, reiterating that the importer already pays IGST on the composite supply of goods and services (including freight and insurance) under a CIF contract.
- A separate levy on freight would violate Section 8 of the CGST Act and the principle of composite supply. GST Council recommendations are not binding on the Union or States.
- Hence, the levy of IGST on ocean freight was held to be unconstitutional and ultra vires, and the show cause notice dated 15.12.2021 was quashed.
