Levy of service tax on ocean freight under reverse charge challenged; appeal allowed following prior tribunal precedent.

Levy of service tax on ocean freight under the reverse charge mechanism was challenged as ultra vires Notification Nos. 15/2017-S.T. and 16/2017-S.T.; the Tribunal treated the issue as covered by an earlier CESTAT precedent, concluding the question is no longer res-integra and allowing the appeal. The decision notes that where a notification admits scope for reasonable interpretation, imposing penalty is inappropriate. Consequential relief will follow the allowance of the appeal, based on reliance on prior tribunal authority rather than fresh adjudication of the notifications' vires.

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Issues: Whether the levy and demand of service tax (including penalty) on ocean freight paid under CIF/import contracts by invoking reverse charge provisions and the Notifications/Service Tax Rules inserted by Notification Nos. 15/2017-S.T. and 16/2017-S.T. (including Rule 2(1)(d)(EEC), Rule 6(7CA) and Explanation-V to Notification No. 30/2012-S.T.) are sustainable or ultra vires statutory provisions, and whether consequential demands and penalties can be sustained.

Analysis: The issue involves interpretation of the reverse charge notifications and related Service Tax Rules as applied to ocean freight in CIF contracts and whether those notifications and rule insertions fall within the legislative competence under the Finance Act, 1994. The question required consideration of judgments and High Court/Tribunal decisions addressing the validity of Notification Nos. 15/2017-S.T. and 16/2017-S.T. and the insertion of Explanation-V to Notification No. 30/2012-S.T., and whether the department correctly treated ocean freight as taxable under reverse charge without applying the abatement and whether penalty is sustainable where interpretation of the notification was open to debate. Prior judicial decisions, including the Gujarat High Court striking down the said notifications as ultra vires Sections 64, 66B, 67 and 94 of the Finance Act, 1994, and Tribunal/High Court orders in identical factual matrices were applied to conclude that the matter is no longer res integra.

Conclusion: The notifications and rule insertions governing reverse charge liability for ocean freight are ultra vires and the demand of service tax (including the penalty) on ocean freight in the facts of this case cannot be sustained; the appeal is allowed with consequential relief, if any.

Ratio Decidendi: Notification Nos. 15/2017-S.T. and 16/2017-S.T., including the insertion of Explanation-V to Notification No. 30/2012-S.T. and the related Service Tax Rules, are ultra vires the Finance Act, 1994, and cannot validly impose reverse charge liability on importers for ocean freight in CIF contracts; consequential demands and penalties founded on those notifications are therefore not sustainable.

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