Importer wins service tax refund on ocean freight after notifications struck down as ultra vires

The CESTAT Allahabad allowed the appellant's appeal for refund of service tax wrongly paid on ocean freight under reverse charge mechanism. The revenue rejected the refund claiming the appellant was the service recipient since the bill of entry was filed in their name. However, the tribunal followed the Gujarat HC decision in SAL Steel Ltd. v. Union of India, which struck down Notifications 15/2017-ST and 16/2017-ST as ultra vires, making importers liable for service tax on ocean transportation services even in CIF contracts. Consequently, the appellant could not be held liable for service tax on ocean freight.

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Issues involved:
The appeal challenges the rejection of a refund claim on the grounds of limitation, relating to the payment of service tax on ocean freight under reverse charge mechanism.

Details of the judgment:

Issue 1: Refund claim rejected as barred by limitation
- The Appellant imported raw materials under a C.I.F basis agreement with a foreign supplier, who arranged the carriage of goods by sea to the port of destination.
- Following an audit, the Appellant was directed to pay service tax on ocean freight under reverse charge mechanism, which was paid under protest.
- The Appellant later discovered that, as per the C.I.F agreement, they were not the service recipient and hence not liable to pay service tax on ocean freight.
- The refund claim was rejected based on the argument that the bill of entry was filed in the name of the Appellant, making them the service recipient.
- The Appellant contended that they were not privy to the agreement between the foreign supplier and the shipping line, citing a decision of the Hon'ble Gujarat High Court.

Issue 2: Constitutional validity of service tax on ocean freight
- The constitutional validity of certain notifications making importers liable to pay service tax on ocean freight in C.I.F contracts was challenged before the Hon'ble Gujarat High Court.
- The High Court held that the impugned provisions were ultra vires certain sections of the Finance Act, as importers in C.I.F contracts are neither service providers nor receivers.
- The High Court further ruled that there was no machinery provision for valuation of the service, making the Rules and Notifications unenforceable.

Conclusion:
- The Tribunal, following the authoritative pronouncement of the Hon'ble Gujarat High Court, held that the Appellant cannot be held liable for service tax on ocean freight.
- The Tribunal noted that the Appellant's specific plea regarding the C.I.F nature of the agreement was undisputed by the revenue, leading to the allowance of the appeal.
- The Tribunal also highlighted that, despite the revenue's appeal against the High Court decision, the lack of a stay order meant that the High Court's ruling remained operative.
- The appeal was allowed, granting the Appellant consequential relief based on the principles established in the SAL Steel Ltd. case.

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