Mohit Minerals: ocean freight, composite supply, and the sentence that changed GST federalism

A refund case about ocean freight produced the most quoted paragraph in GST on whether Council recommendations bind anyone.

The levy that was struck down

On a CIF import, the foreign exporter contracts with the foreign shipping line and pays the freight. The Indian importer pays a single price that includes it. Customs duty and IGST are levied on the assessable value, which includes the freight.

Notifications issued in 2017 nevertheless made the Indian importer liable, under reverse charge, to pay IGST on the ocean freight component as a recipient of a transportation service supplied by a person located in a non taxable territory to another person located in a non taxable territory.

The Gujarat High Court struck the notifications down. The revenue appealed.

The reasoning

The Court held that the importer was not the recipient of the transportation service in any recognisable sense. The contract of carriage was between two foreign parties and the importer was not a party to it.

More fundamentally, the Court held that a CIF import is a composite supply of goods with transportation as an ancillary element, taxable as a supply of goods. Having taxed the composite value at import, the same freight cannot be taxed again as a separate service.

The Court upheld the general validity of the reverse charge mechanism and of the power to notify a class of recipients, but held the specific notification bad to the extent it taxed the CIF importer on ocean freight.

For FOB imports, where the Indian importer itself contracts with a foreign shipping line and pays the freight, the analysis is different and the levy has been treated as surviving.

The paragraph on the GST Council

The Court considered Article 246A, Article 279A and the structure of fiscal federalism, and held that the recommendations of the GST Council are the product of a collaborative dialogue and are recommendatory in nature. They are not binding on the Union or the States in the exercise of legislative power, though they carry persuasive value and both governments legislate in the light of them.

That holding is now cited in almost every challenge to a notification. It cuts both ways. It defeats a submission that a measure is valid merely because the Council recommended it. It equally defeats a submission that a notification is invalid merely because it departs from a Council recommendation.

The correct use of the paragraph is narrow and powerful: the source of validity is the statute and the delegation, not the minutes of a meeting.

Refunds, and the state of play

Following the judgment, importers who had paid IGST on ocean freight became entitled to refunds. The claims ran into limitation under Section 54, and into the objection that tax paid under a struck down notification is tax paid under a mistake of law.

The pattern that has emerged is that claims filed within the two year period, and claims where the tax was paid under protest or pending litigation, have generally been allowed. Older claims have turned on the doctrine of restitution and on whether the importer had itself challenged the levy.

Where credit of the IGST was availed and utilised, there is no loss and no refund. Where the importer was in an exempt or partially exempt line of business, the amount is a real cost and the claim is worth pursuing.

Authorities relied on

What to do on Monday

1. Separate your import population into CIF and FOB before assessing any ocean freight exposure or refund entitlement.

2. For amounts paid on CIF freight, check whether credit was availed and utilised; only the uncredited amount is worth a refund claim.

3. Where a notification is under challenge, frame the ground on the parent provision and the delegation, and use the Council paragraph only to close off the reverse argument.

4. Review contracts of carriage and Incoterms so that the tax position follows the commercial arrangement rather than being discovered after import.

Questions we are asked on this

Does the judgment cover FOB imports?

No. Where the Indian importer contracts and pays for the freight, it is the recipient of a service and the reverse charge analysis is different.

Can we still claim a refund of ocean freight IGST?

It depends on when it was paid, whether credit was taken, and whether Section 54 limitation has run. Where credit was availed and used, there is nothing to recover.

Does the Council paragraph mean notifications can be ignored?

The opposite. It means a notification stands or falls on the statute that authorises it, so the challenge must be to the delegation and its exercise, not to the Council.

Is the composite supply reasoning usable elsewhere?

Yes, and it is under-used. Wherever a single commercial transaction has already been taxed on its whole value, a second levy on a component invites the same objection.

What about IGST on ocean freight for high seas sales?

That turns on Schedule III and the point at which the supply occurs. Treat it as a separate analysis rather than an extension of Mohit Minerals.

In this cluster

• Place of supply under GST: the full decision tree
• Intermediary services: characterisation, exposure and structuring
• Export of services: the five conditions and where claims fail
• Dharmendra M. Jani: the constitutional attack on intermediary taxation, and where it stands
• Import of services and reverse charge under Section 5(3) of the IGST Act
• OIDAR services: registration, compliance and the 2023 amendment
• Bill to ship to transactions and Section 10(1)(b)
• High seas sales, bonded warehouse transfers and Schedule III
• Merchant trade and out and out supplies
• Goods transport agencies: reverse charge, the rate option and place of supply

GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.