2024 (8) TMI 17 - AT - Service Tax

Service tax on ocean freight for importers set aside after authorities ignored binding precedent on CIF contracts

The CESTAT New Delhi set aside service tax levy on ocean freight imposed on an importer, following the Gujarat HC decision in Sal Steel Ltd. The tribunal ... Affirming levy of service tax on the ‘Ocean Freight’, as proposed in the show cause notice, contrary to the decision of the Gujarat High Court in the case of MESSRS SAL STEEL LTD. & 1 OTHER (S) VERSUS UNION OF INDIA [2019 (9) TMI 1315 - GUJARAT HIGH COURT] - HELD THAT:- Considering the decision in Sal Steel Ltd.it is found that the law has been categorically settled. Taking the view that as per the scheme of the Finance Act and the Service Tax Rules, there is no power conferred upon the Central Government for charging and collecting the tax on extra territorial events for the services rendered and consumed beyond the “taxable territory” i.e. beyond India, the Court held that since the Act is not applicable to the territories other than India, therefore, the Executives cannot have any power to make rules for territories beyond India - the High Court laid down that the person receiving the services of sea transportation in CIF Contracts is the seller/supplier of the goods located in a foreign territory and the Indian importers are not the persons receiving sea transportation services for the simple reason that they receive the “goods” contracted by them and they have no privity of contract with the shipping line nor does the Indian importer make any payment of ocean freight to the service provider. Therefore, the Court was of the view that the impugned provisions making the “importer” liable to pay service tax, is ultra vires the statutory provisions of the Act as it amounts to recovering the service tax from a third person. The decision of the Gujarat High Court in Sal Steels Ltd. was rendered on 06.09.2019 and the show cause notice in the present case was issued on 08.09.2020, which is subsequent to the judgement of the High Court of Gujarat and so were the orders passed by the lower authority, i.e. Order-in-Original on 25.02.2022 and Order-in-Appeal on 26.04.2023. Perusing the show cause notice and these orders, it is found that the appellant had categorically relied on the decision of the Gujarat High Court in Sal Steel Ltd., however, the Asstt. Commissioner issuing the show cause notice and the authorities below failed to appreciate or follow the said decision, which was binding on them. In fact, the contention of the appellant on the basis of the decision of the High Court of Gujarat that they have not paid the Ocean Freight to the shipping company as they are neither the service provider nor the service receiver was rejected by the Asstt. Commissioner issuing show cause notice on the ground that it did not seem tenable in the light of the Rule 2(1)(d)(EEC) of Service Tax Rules, 1994. The authorities below have acted in complete disregard of the principle of judicial propriety. The impugned order deserves to be set aside and the appeal is allowed. The Appellate Tribunal CESTAT NEW DELHI upheld the appeal of a manufacturing company engaged in the production of Soya Lecithin against the levy of service tax on 'Ocean Freight'. The appellant had imported goods through transportation by vessel from a location outside India, and the Department claimed that the appellant had not paid the service tax liability of Rs.1,88,490 on the imported material valued at Rs.1,25,66,009. The Department issued a show cause notice, invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994. The Tribunal found that the issue at hand was the liability of the appellant to pay service tax on 'Ocean Freight'. The learned counsel for the appellant argued that the issue had been settled by the High Court of Gujarat in Sal Steel Ltd., which held that the Act did not apply to territories outside India. The Tribunal noted that the High Court ruled that the importer was not liable to pay service tax on the sea transportation services in CIF Contracts. The Tribunal also observed that the lower authorities had failed to follow the decision of the High Court of Gujarat, which was binding on them. Consequently, the impugned order was set aside, and the appeal was allowed. The order was pronounced on 30th July, 2024.The High Court's decision in Sal Steel Ltd. (supra) was crucial in determining that the Act did not apply to territories outside India, and the impugned provisions making the importer liable to pay service tax were considered ultra vires the statutory provisions of the Act. The Tribunal referenced several other decisions that disallowed service tax on ocean freight, emphasizing the importance of following higher forum decisions. The authorities below were criticized for disregarding the principle of judicial propriety in this case. Overall, the Tribunal's decision was influenced by the High Court's ruling and the failure of the lower authorities to adhere to binding legal precedents.