Service tax demand on ocean freight unsustainable due to double taxation with customs duty

CESTAT Chennai held that service tax demand on ocean freight is not sustainable as it results in double taxation since ocean freight is already included in transaction value for customs duty and excise duty. The tribunal found the recovery legally unjustified. Regarding refund claims for service tax paid on ocean freight and license fees under reverse charge mechanism before July 1, 2017, CESTAT ruled that despite Section 148(8)(a) of CGST Act, appellants were entitled to refund as they could claim Cenvat credit under previous law but lost this benefit under GST regime. The impugned order was set aside and appeal allowed.

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Issues Involved:
1. Whether Service Tax demand made on Ocean freight paid is justifiedRs.
2. Whether the appellants are eligible for sanction of refund of Service Tax paid on Ocean freight prior to 01.07.2017, under Section 142(3) of CGST Act, 2017, and whether the said refund becomes inapplicable in view of section 148(8)(a) of CGST ActRs.

Summary:

Issue 1: Whether Service Tax demand on Ocean freight is justifiedRs.

The Tribunal analyzed whether the appellants were rightly called upon to pay service tax on Ocean Freight paid on imports during May and June 2017. It was noted that the appellant had voluntarily paid the service tax along with interest pursuant to audit findings. The Tribunal referenced the case of M/s. Asiatic Drugs and Pharmaceuticals Vs. Commissioner of CGST Alwar [2022 (67) GSTL 473( Tri.-Del.)], where it was held that paying service tax on Ocean Freight amounts to double taxation since the transaction value for Customs duty and Excise duty (CVD) includes Ocean Freight. Consequently, the Tribunal concluded that the recovery of Service Tax on Ocean freight is not legally justified and hence, the demand is not maintainable.

Issue 2: Whether the appellants are eligible for sanction of refund of Service Tax paid on Ocean Freight prior to 01.07.2017, under Section 142(3) of CGST Act, 2017, and whether the said refund becomes inapplicable in view of section 148(8)(a) of CGST ActRs.

The Tribunal examined whether the appellants are entitled to a refund of the service tax paid on Ocean Freight and on license fee paid to the Government under Reverse Charge Mechanism (RCM) for the period before 01.07.2017. The Commissioner (Appeals) had rejected the refund claim by resorting to Section 142(8)(a) of CGST Act, 2017. However, the Tribunal referred to several judicial pronouncements, including INDO TOOLING Pvt. Ltd. Vs. Commissioner, CGST & Central Excise, INDORE [2022 (61) G.S.T.L. 595 (Tri. - Del.)], which clarified that an assessee is entitled to claim a refund of service tax under RCM paid after the appointed day under the existing law. The Tribunal also cited the case of TEREX INDIA Pvt. Ltd. Vs. Commissioner of GST & C.E., Salem [2022 (63) GSTL 238(Tri-Chennai)], which held that Section 142(8)(a) deals with recovery of arrears under the erstwhile law after the implementation of the CGST Act, 2017, and does not apply to the present case where the tax was paid based on audit findings rather than an assessment or adjudication.

The Tribunal concluded that the rejection of the refund claim by referring to Section 142(8)(a) of CGST Act, 2017, is misplaced. The appellants are entitled to a refund under Section 142(3) of CGST Act, 2017, as the tax was paid under the erstwhile law. The Tribunal set aside the impugned order and allowed the appeal with consequential relief, if any, as per the law.

Conclusion:

The Tribunal ruled that the demand for Service Tax on Ocean freight is not legally justified and that the appellants are entitled to a refund of the service tax paid on Ocean Freight under Section 142(3) of CGST Act, 2017. The impugned order was set aside, and the appeal was allowed with consequential relief.

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