Ocean freight in CIF contracts not taxable from importers under reverse charge; demand failed under binding precedent.

Service tax was not leviable on ocean freight in CIF contracts from the importer under reverse charge. The governing High Court ruling held that, for transportation of goods by vessel from outside India to the customs station in India, the importer is neither the service provider nor the service recipient, and tax cannot be recovered from a third party. It further held that the relevant rule and notification framework was ultra vires the Finance Act, 1994, and that no machinery provision existed to value and recover the levy from importers. Lower authorities were required to follow that binding ruling, so the demand and impugned order could not be sustained.

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Issues: Whether service tax was leviable on ocean freight in CIF contracts from the importer under the reverse charge mechanism, and whether the impugned demand and order could be sustained in view of the binding Gujarat High Court decision.

Analysis: The dispute concerned levy of service tax on transportation of goods by vessel from a place outside India up to the customs station of clearance in India. The governing decision held that in CIF contracts the importer is neither the service provider nor the service receiver for such ocean transportation, that service tax cannot be recovered from a third party, and that the impugned rule and notification framework was ultra vires the Finance Act, 1994. It was also noted that the machinery provision for valuation was absent for recovery from importers and that the lower authorities were bound to follow the binding High Court ruling.

Conclusion: Service tax on ocean freight was not leviable on the importer, and the demand and impugned order could not be sustained.

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