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

M/s. Process Agrochem Industries Pvt. Ltd. Versus Commissioner of Central Goods, Indore

M/s. Process Agrochem Industries Pvt. Ltd. Versus Commissioner of Central Goods, Indore - TMI 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.