2025 (8) TMI 95 - AT - Service Tax

Importer not liable to pay service tax on ocean freight under notifications dated 13.04.2017, appeal allowed

The CESTAT New Delhi held that service tax on ocean freight, as mandated by notifications dated 13.04.2017, is not payable by the importer. Relying on the ... Short payment of service tax on Ocean freight, which is liable to be paid by the importer in terms of N/N.15/2017-ST and 16/2017-ST, both dated 13.04.2017 w.e.f. 23.04.2017 - HELD THAT:- Reliance was placed on the decision of the Gujarat High Court in the case of [2019 (9) TMI 1315 - GUJARAT HIGH COURT] whereby the taxability of ocean freight was held ultra vires. The law has been well settled in terms of the decision of the Gujarat High Court and consistently followed by the Tribunal, the ocean freight is not liable to service tax and hence, no liability can be fastened on the appellant. The impugned order is, therefore, set aside. Appeal allowed. ISSUES: Whether service tax is leviable on 'Ocean Freight' paid by an importer under the provisions of the Finance Act, 1994 and related Notifications.Whether the levy of service tax on ocean freight constitutes an extraterritorial tax beyond the taxable territory of India.Whether the Notifications issued by the Central Government imposing service tax on ocean freight are intra vires the Finance Act, 1994. RULINGS / HOLDINGS: The levy of service tax on 'Ocean Freight' paid by the importer is not sustainable as the service of sea transportation occurs beyond the land mass of India and is thus extraterritorial in nature.The provisions of the Finance Act, 1994, specifically Section 66B, Section 65B(52), and Section 64(1), restrict service tax to services provided and consumed within the taxable territory of India, and do not empower the Central Government to levy service tax on extraterritorial events.The impugned Notifications Nos. 15/2017-ST and 16/2017-ST, which seek to levy service tax on ocean freight by way of reverse charge on importers, are declared ultra vires the Finance Act, 1994.Consequently, no service tax liability can be fastened on the importer for ocean freight, and the demand for service tax on ocean freight is set aside. RATIONALE: The Court applied the legal framework under the Finance Act, 1994, particularly the charging Section 66B, the definition of 'taxable territory' in Section 65B(52), and the territorial application under Section 64(1), which collectively limit service tax to events occurring within India.The Court relied on the constitutional principle that while Parliament may enact laws with extraterritorial effect subject to certain conditions, delegated legislation by the Executive (such as Notifications) cannot extend taxation beyond the territorial limits prescribed by the statute.The decision follows the precedent set by the Gujarat High Court, which held the Notifications imposing service tax on ocean freight as ultra vires, and is consistent with subsequent Tribunal and High Court rulings, as well as the Supreme Court's dismissal of Revenue's appeal in related matters.No dissenting or differing opinions were recorded; the judgment affirms a doctrinal position limiting service tax jurisdiction to within India's territorial boundaries and invalidating executive attempts to extend tax liability extraterritorially.