GST ruling on ocean freight RCM and furniture input tax credit
Importers must pay IGST on ocean freight under reverse charge, while input tax credit is allowed for furniture but not sanitary fittings.
- Ruling
- Ruling No 03/2018-19 dated 04.05.2018
- Dated
- 04 May 2018
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- The company asked about GST liability on ocean freight for CIF imports.
- The ruling confirmed importers must pay IGST under reverse charge on freight.
- Credit is allowed on office furniture, fixtures, and air conditioning plants.
- Credit is blocked on sanitary fittings as part of the building structure.
In short
In order 03/2018-19, the Uttarakhand Authority for Advance Ruling (AAR) addressed two key questions for a paper mill. First, whether an importer buying goods on CIF terms must pay Integrated Goods and Services Tax (IGST) on ocean freight under the Reverse Charge Mechanism (RCM). Second, whether a business constructing an office can claim Input Tax Credit (ITC) on furniture, air conditioning plants, and sanitary fittings.
What has changed
How it worked before
Importers previously assumed that ocean freight was outside Indian GST when both the seller and shipping company were based abroad. Businesses also faced confusion over which items installed in a new office building qualified for input tax credit.
What has changed
The authority decided that importers are required to pay IGST on ocean freight under reverse charge and can claim input tax credit using the tax payment challan. For building construction, it ruled that sanitary fittings form an integral part of the civil structure, blocking credit under Section 17. However, credit is allowed on office furniture, fixtures, and AC plants if the business does not claim income tax depreciation on the GST amount.
Who this affects
Businesses importing goods under CIF contracts, as well as companies setting up new office premises with installed furniture, central AC, and sanitary fittings.
An example
A manufacturing company builds a new office and buys central air conditioning plants, office desks, and sanitaryware for the washrooms. Following this ruling, the firm can claim input tax credit on the AC plant and office desks if it skips income tax depreciation on the tax component. It cannot claim credit on the sanitaryware because those fittings are considered part of the building structure.
What you should do
An advance ruling binds only the business that applied for it and its local tax authority. Review your construction expenses to separate civil structure items from machinery and furniture. Consult a tax professional before taking credit or deciding not to pay RCM on ocean freight.
If you do nothing
Assuming an advance ruling automatically applies to your business can lead to tax demands during an audit. If a tax officer disallows your credit on structural fittings or finds unpaid RCM on ocean freight, you will have to pay the short tax along with interest and penalties.
The terms explained
- Reverse Charge Mechanism
- A process where the buyer pays GST directly to the government instead of paying it to the supplier.
- Input Tax Credit
- The GST a business pays on its purchases, which it can deduct from the GST it collects on sales.
- CIF Basis
- A shipping term where the seller covers the cost of goods, ocean freight, and insurance up to the destination port.
The ruling in detail
Authority for Advance Ruling
M/s Bahl Paper Mills Ltd., 5 KM Stone, Aliganj Road, Kashipur, Uttrakhand
Ruling No 03/2018-19 dated 04.05.2018 · Uttarakhand
Questions before the authority
- Whether under Reverse Charge Mechanism, IGST should be paid by the importer on ocean freight in case of CIF basis contract, when service provider and service recipient both are outside the territory of India.
- If point no. answer is yes, then what will be the supporting document for importer under RCM to take the credit of IGST paid on ocean freight under CIF basis contract.
- Whether credit will be available in GST of office fixtures & furniture, A.C. plant & sanitary fittings on newly constructed building on its own account for furtherance of business and accounting entry is capitalized in books of account.
Facts
The applicant imported goods on a CIF basis where both the shipping service provider and recipient were located outside India, raising questions on RCM liability for ocean freight. Additionally, the applicant constructed a building on its own account for business furtherance, capitalized office fixtures, furniture, A.C. plant, and sanitary fittings in its books of account, and sought clarification on the availability of input tax credit (ITC) for these items.
Ruling
| Question | What the authority ruled |
|---|---|
| IGST liability under RCM on ocean freight for CIF imports | Yes, importer must pay IGST Mandated under Notification No. 8/2017-IT(Rate) and 10/2017-IT(Rate) regardless of pending High Court challenges. |
| Supporting document to claim ITC on RCM ocean freight | Invoice/challan issued Documentary proof of tax payment under RCM. |
| ITC on office fixtures, furniture, A.C. plant, and sanitary fittings for newly constructed building | Allowed for fixtures, furniture, and A.C. plant; disallowed for sanitary fittings Provided depreciation on the tax component has not been claimed under the Income-Tax Act, 1961. |
The authority held that importers are **liable to pay IGST on ocean freight** under RCM in CIF contracts, and the credit of such tax can be claimed based on the **invoice or challan issued**. Furthermore, ITC is **not available on sanitary fittings** as they form an integral part of the building/civil structure under Section 17, but ITC is **admissible on office fixtures, furniture, and A.C. plant** provided depreciation on the tax component is not claimed under the Income-Tax Act, 1961.
Reasoning
Under Notification No. 8/2017-Integrated Tax (Rate) and Notification No. 10/2017-Integrated Tax (Rate), an importer is statutorily required to pay IGST on ocean freight under RCM, and mere challenge before a High Court does not render a notification ultra vires until struck down. Regarding ITC, explanation to Section 17 of the CGST Act, 2017 restricts credit on land, building, or civil structures, making sanitary fittings ineligible as they are integral to the civil structure. However, relying on CBIC Circular No. 943/04/2011-CX and precedent from CESTAT (M/s Balkrishna Industries Ltd), office furniture and A.C. plants used in factory offices qualify as capital goods used in relation to business, making ITC admissible under CGST/SGST Act, 2017 if depreciation on tax is not claimed.
Provisions relied on
- Section 17 of CGST Act, 2017
- Section 97 of CGST Act, 2017
- Notification No. 8/2017-Integrated Tax (Rate) dated 28.06.2017
- Notification No. 10/2017-Integrated Tax (Rate) dated 28.06.2017
- CBIC Board Circular No. 943/04/2011-CX dated 29.04.2011
- Income-Tax Act, 1961
For the practitioner
Confirms the obligation of importers to pay RCM on ocean freight under CIF contracts based on existing notifications despite legal challenges. It also establishes a clear boundary under Section 17 for immovable property exclusions: **sanitary fittings are blocked as civil structures**, whereas **severable office equipment, furniture, and A.C. plants qualify for ITC** if depreciation on tax is not claimed.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/03-2018-19_dtd_04-05-18_uttrakhand.pdf
Legibility of the scan, as read: high.
Prepared 17-10-2026.
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