Refund of Service Tax on Ocean Freight stayed pending SC’ decision on ocean freight levy’s validity

The Hon’ble Supreme Court in the case of COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX AHMEDABAD Versus ADANI POWER MUNDRA LIMITED - 2025 (7) TMI 1079 - SC Order held that compliance with the CESTAT Ahmedabad’s order granting refund of service tax on ocean freight under reverse charge must await the final outcome of the pending appeal in MESSRS SAL STEEL LTD. & 1 Other (S) Versus UNION OF INDIA - 2019 (9) TMI 1315 - GUJARAT HIGH COURT which questions the constitutional validity of that levy.

Facts:

The Commissioner of Central Excise & Service Tax, Ahmedabad (“the Appellant”) challenged the CESTAT West Zonal Bench’s order dated November 21, 2024 (STA No. 10307/2023) = ADANI POWER MUNDRA LIMITED Versus Commissioner of Central Excise and Service Tax - AHMEDABAD-I - 2024 (11) TMI 1080 - CESTAT AHMEDABAD, which allowed Adani Power Mundra Ltd. (“the Respondent”) to claim a refund of service tax paid on ocean freight under reverse charge for input services used in SEZ-authorized operations.

The CESTAT’s reasoning was that “irrespective of the constitutional validity of the levy of service tax on ocean freight, which is before the Supreme Court in SAL Steel Ltd. v. Union of India,” the Respondent remained entitled to the refund under the applicable SEZ notification.

The Appellant sought to stay compliance with the refund order until the Supreme Court determined whether the ocean freight levy itself was constitutional.

Issue:

Whether the Respondent must defer compliance with the CESTAT’s refund order until the Supreme Court decides the pending SAL Steel appeal on the levy’s constitutional validity?

Held:

The Supreme Court in COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX AHMEDABAD Versus ADANI POWER MUNDRA LIMITED - 2025 (7) TMI 1079 - SC Orderhascondoned the delay and issued notice to the Respondent:

• The Court directed that “any compliance with the impugned order would be subject to the decision of this Court in the aforesaid case” (SAL Steel appeal).
• Until the Supreme Court’s final ruling in Diary No. 2723/2020 (SAL Steel Ltd.), the Appellant need not execute the CESTAT refund order.

Our Comments:

This order postpones the actual refund until the Supreme Court finally decides whether service tax on ocean freight is valid at all. If the levy is ultimately upheld, SEZ units will not get money back they’re not entitled to but if it is struck down, they will receive the refund without further delay.

 (Author can be reached at [email protected])