Calcutta High Court: Assessment Order Ignoring Supreme Court Verdict on Ocean Freight IGST Set Aside

Introduction

The Calcutta High Court in Sunrise Timply Company Pvt. Ltd. vs. Union of India & Ors has clarified a crucial principle on the retrospective operation of judicial decisions under GST. The Court held that when a Constitutional Court, including the Hon’ble Supreme Court, declares the correct position of law, such declaration ordinarily applies retrospectively, unless the judgment itself clearly restricts its operation to the future.

In the context of IGST on ocean freight under reverse charge, the High Court found that the adjudicating authority acted contrary to settled legal principles by refusing to apply the Supreme Court decision in Mohit Minerals (P.) Ltd. on the ground that the judgment did not expressly mention whether it was retrospective or prospective. The Court therefore quashed both the original assessment order and the order rejecting rectification, restoring the assessee’s position in line with the law as settled by the Supreme Court.

This ruling has significant implications for ongoing and past GST proceedings where departmental authorities have ignored binding precedents of higher courts.

Background of the Dispute

Initiation of Proceedings under Section 74

  1. A proceeding was initiated against the assessee under Section 74 of the Central Goods and Services Tax Act, 2017 (hereinafter “the Act of 2017”).
  2. A show cause notice was issued alleging that the assessee had failed to discharge IGST on ocean freight under the reverse charge mechanism (RCM).
  3. The proceedings emanated from a departmental audit, pursuant to which an audit observation was communicated to the assessee highlighting the alleged non-payment of IGST on ocean freight.

Assessee’s Response and Reliance on Judicial Precedent

  • The assessee submitted a detailed reply to the show cause notice.
  • In its response to both the audit observation and during adjudication, the assessee specifically referred to the judgment of the Hon’ble High Court of Gujarat in Mohit Minerals (P.) Ltd. (supra), which had held that the levy of IGST on ocean freight under RCM was not valid in law.
  • While the adjudication proceedings were still pending, the Hon’ble Supreme Court affirmed the view of the Gujarat High Court in Mohit Minerals (P.) Ltd. (supra), thereby finally settling the legal position on the issue of ocean freight IGST.

Adjudication Order Ignoring Binding Supreme Court Ruling

  • After the judgment of the Hon’ble Supreme Court in Mohit Minerals (P.) Ltd. (supra), the assessee filed a written submission before the Proper Officer, drawing attention to the final pronouncement and reiterating that the very levy in dispute stood invalidated.
  • The Proper Officer acknowledged that the assessee had relied on the Supreme Court judgment but nonetheless confirmed the demand by passing an Order-in-Original under Section 74.
  • The Proper Officer’s reasoning was that the Supreme Court in Mohit Minerals (P.) Ltd. (supra) had “not highlighted the retrospective or prospective effect” of its judgment, and therefore, according to the officer, the decision was to be applied only prospectively.
  • On that basis, the officer refused to extend the benefit of the Supreme Court ruling to the assessee’s case and sustained the levy of IGST on ocean freight under RCM.

Rectification Application and Its Rejection

  1. Aggrieved by the Order-in-Original, the assessee invoked the rectification mechanism and filed an application for rectification of the said order.
  2. In support of rectification, the assessee again relied upon:
    • The judgment of the Hon’ble Supreme Court in Mohit Minerals (P.) Ltd. (supra), and
    • Other subsequent judgments affirming the same legal principle.