Court annuls service tax demand on freight under reverse charge mechanism, grants consequential benefits

The Court set aside the service tax demand of Rs. 86,185 on freight under the reverse charge mechanism. The appellant's arguments regarding the calculation error in the air freight amount and the liability of the freight services provider in India were accepted. As a result, the Court allowed the appeal, annulled the demand, and granted consequential benefits to the appellant.

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Issues:
- Whether service tax demand on freight under reverse charge mechanism has been rightly confirmedRs.
- Calculation error in the amount sustained for air freight.
- Liability of the amount on account of freight services provider being located in India.
- Demand pertaining to air freight to be dropped.

Analysis:
1. Service Tax Demand on Freight under Reverse Charge Mechanism:
The issue revolved around the confirmation of service tax demand of Rs. 6,86,185 on freight (ocean/air) under the reverse charge mechanism. The appellant, a manufacturer, had imported raw materials during a specific period but failed to discharge the service tax liability on ocean/air freight under reverse charge mechanism. The Revenue contended that as per relevant provisions, the appellant was liable to pay service tax on services provided by a person located outside India for transportation of goods. A show cause notice was issued demanding the service tax amount, including penalty under Section 78.

2. Calculation Error in Air Freight Amount:
The appellant argued that out of the total demand of Rs. 86,185, Rs. 75,401 pertained to air freight, and due to a calculation error, this amount was sustained incorrectly. The appellant contended that this error was evident from the records and should be rectified.

3. Liability of Amount on Account of Freight Services Provider in India:
Another contention raised was regarding the amount of Rs. 7,456, which the appellant argued was not liable as the freight services provider was located in India and had already paid the necessary service tax. Therefore, the demand on this amount was considered unjustifiable.

4. Demand Pertaining to Air Freight to be Dropped:
The appellant further urged that the balance demand of Rs. 3,328 also pertained to air freight and should be dropped. The total of the three demands, including the corrected amount for air freight, summed up to Rs. 86,185. The appellant sought for the appeal to be allowed, and the demand along with the penalty to be set aside.

5. Judgment and Decision:
After considering the arguments from both sides, the Court found merit in the appellant's contentions regarding the amounts related to air freight and the liability of the service tax on the freight services provider in India. Consequently, the Court set aside the impugned order, allowed the appeal, and annulled the demand of Rs. 86,185. The appellant was granted consequential benefits as a result of the appeal being allowed.

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