Importing goods into India involves coordinating physical transportation, customs clearance, and statutory tax assessments. Prior to May 2022, tax authorities mandated that Indian importers pay integrated tax under the reverse charge mechanism on ocean freight for all sea imports, even when goods arrived under Cost, Insurance, and Freight arrangements. This practice created ongoing disputes over double taxation. Businesses managing international freight also need to review related cross-border rules in our guide on export of services without payment of tax under LUT and our analysis of GSTR-2B reconciliation for freight forwarders.
Statutory basis of reverse charge on import of services
Under Section 5(3) of the Integrated Goods and Services Tax Act, the government specifies categories of supply of services where tax must be paid by the recipient on reverse charge basis. In addition, Section 5(4) empowers the government to notify registered persons who must pay tax on inward supplies received from unregistered suppliers. The statutory text is published on the official repository at Section 5, IGST Act.
To constitute an import of service under Section 2(11) of the IGST Act, three conditions must be satisfied concurrently: the supplier must be located outside India, the recipient must be located in India, and the place of supply must be in India. Where transportation services meet these criteria, tax liability falls directly on the Indian entity.
Common mistake: Continuing to deposit 5% IGST under reverse charge on CIF contracts because of legacy accounting configurations results in trapped working capital, while failing to discharge RCM on FOB foreign freight triggers interest notices under Section 50.
The landmark Supreme Court ruling in Mohit Minerals
On 19 May 2022, the Supreme Court of India delivered its judgment in Union of India vs Mohit Minerals Pvt. Ltd. (Civil Appeal No. 1390 of 2022). The court examined Notification No. 8/2017-Integrated Tax (Rate) and Notification No. 10/2017-Integrated Tax (Rate), which sought to impose 5% IGST on Indian importers for ocean freight provided by foreign shipping lines to foreign exporters on CIF terms.
The Supreme Court held that in a CIF contract, the transportation of goods by sea is an integral component of a composite supply of goods. Because customs duty and IGST are already paid on the full CIF value at the time of customs clearance under the Customs Act and Customs Tariff Act, levying an additional tax on the transportation element as a standalone service violates the composite supply framework under Section 8 of the CGST Act. The official judgment is recorded at Supreme Court Judgment in Civil Appeal No. 1390 of 2022.
CIF contracts versus FOB contracts: tax distinction
Determining whether reverse charge applies requires reviewing the Incoterms specified on your commercial purchase contract and commercial invoice:
- CIF (Cost, Insurance, and Freight): The foreign exporter is responsible for booking and paying the shipping line. The price paid by the Indian importer includes cargo value, insurance, and sea freight up to the Indian port of discharge. Customs duty and IGST are computed on the total CIF value on the Bill of Entry. No separate RCM liability arises on the ocean freight.
- FOB (Free on Board): The Indian importer is responsible for arranging ocean freight. If the Indian importer hires a foreign shipping line directly, the importer is the recipient of an import of service. Reverse charge under Section 5(3) applies, requiring the importer to pay 5% IGST in cash in Form GSTR-3B Table 3.1(d) and claim credit in Table 4(A)(3).
CBIC notifications aligning with the judgment
To bring tax notifications into full alignment with the Supreme Court decision, the Central Board of Indirect Taxes and Customs issued Notification No. 11/2023-Integrated Tax (Rate) and Notification No. 13/2023-Integrated Tax (Rate) dated 26 September 2023. These notifications omitted entry 9(ii) from Notification No. 8/2017 and entry 10 from Notification No. 10/2017, formally withdrawing the deemed reverse charge mechanism on ocean freight for CIF imports.
In addition, CBIC Circular No. 184/16/2022-GST clarified tax positions and procedural treatments for handling ongoing litigations and past assessments. In our practice assisting importers with customs assessments, importers who continued paying tax after the judgment can pursue statutory recovery through refund proceedings.
Worked numerical comparison: CIF versus FOB imports
The table below illustrates the exact tax computation for an Indian importer purchasing industrial components valued at ₹50,00,000 with associated ocean freight of ₹5,00,000:
| Transaction Parameter | CIF Import Contract | FOB Import Contract (Foreign Line) | Statutory Basis |
|---|---|---|---|
| Goods Value (FOB) | ₹50,00,000.00 | ₹50,00,000.00 | Commercial Invoice |
| Ocean Freight Billed | Included in CIF price | ₹5,00,000.00 (Direct Invoice) | Bill of Lading / Freight Invoice |
| Assessable Value for Customs | ₹55,00,000.00 | ₹55,00,000.00 | Section 14 Customs Act |
| Basic Customs Duty (Assumed 10%) | ₹5,50,000.00 | ₹5,50,000.00 | Customs Tariff Act |
| Social Welfare Surcharge (10% of BCD) | ₹55,000.00 | ₹55,000.00 | Finance Act 2018 |
| IGST on Bill of Entry (18%) | ₹10,98,900.00 | ₹10,98,900.00 | Section 3(7) Customs Tariff Act |
| RCM Ocean Freight Liability (5%) | ₹0.00 (Not Applicable) | ₹25,000.00 (Must Pay in Cash) | Section 5(3) IGST Act |
| Total GST Paid by Importer | ₹10,98,900.00 | ₹11,23,900.00 | Eligible ITC subject to Section 16 |
Under the CIF contract, the importer pays ₹10,98,900.00 at customs clearance and incurs zero additional reverse charge liability. Under the FOB contract, the importer must deposit an additional ₹25,000.00 under reverse charge via Form GSTR-3B Table 3.1(d), which can then be availed as input tax credit under Table 4(A)(3).
Step-by-step refund procedure for taxes paid under mistake
If your enterprise inadvertently deposited IGST under reverse charge on CIF ocean freight following the Mohit Minerals judgment, follow this recovery process:
- Verify two-year limitation: Confirm that the refund application is filed within two years from the date of payment of tax under Section 54(1) of the CGST Act.
- Compile supporting documents: Assemble the relevant Bills of Entry, commercial invoices showing CIF terms, packing lists, ocean bills of lading, and payment challans.
- File Form GST RFD-01: Log in to the GST portal, navigate to Services, select Refunds, and choose Application for Refund. Select the category "Excess payment of tax".
- Upload statement of invoices: Upload the transaction breakdown establishing that customs duty and IGST were paid on CIF assessable value, demonstrating that RCM payment constituted duplicate taxation.
- Submit declaration on unjust enrichment: Provide a certificate under Rule 89(2)(m) confirming that the incidence of tax has not been passed on to any other person, or that input tax credit was not claimed and utilised.
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Frequently asked questions
Is reverse charge applicable on ocean freight for CIF imports?
No. The Supreme Court in Union of India vs Mohit Minerals held that levying IGST on ocean freight under reverse charge for CIF contracts constitutes impermissible double taxation, because customs duty and integrated tax are already assessed on the total CIF value of imported goods under Section 12 and Section 3(7) of the Customs Tariff Act.
Does reverse charge apply to ocean freight under FOB import contracts?
Yes. When an Indian importer enters into a Free on Board contract and separately hires a foreign shipping line for international ocean transportation, the importer is the recipient of service located in India. Reverse charge liability under Section 5(3) of the IGST Act applies at 5%.
How did CBIC amend GST notifications after the Mohit Minerals judgment?
CBIC issued Notification No. 11/2023-Integrated Tax (Rate) and Notification No. 13/2023-Integrated Tax (Rate) to omit entry 9(ii) and entry 10 of Notification No. 8/2017-Integrated Tax (Rate) and Notification No. 10/2017-Integrated Tax (Rate), removing the deemed reverse charge levy on CIF imports.
What is the time limit for claiming refund of IGST erroneously paid on CIF ocean freight?
Under Section 54(1) of the CGST Act, a refund application for tax paid under mistake of law or excess payment of tax must be filed electronically in Form GST RFD-01 within two years from the relevant date of payment.
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Last checked: 18 October 2026. Sources: Section 5, IGST Act, Supreme Court Judgment in Civil Appeal No. 1390 of 2022.