2026 (2) TMI 18 - AT - Service Tax

Leviability of service tax on ocean freight under reverse charge rejected; departmental appeal dismissed and impugned order upheld

Leviability of service tax on ocean freight under the reverse charge mechanism was examined with focus on place of provision and destination-based ... Leviability of service tax on ocean freight under reverse charge - Place of provision of services and destination based consumption tax - Extra-territorial legislative competence and nexus with India - HELD THAT:- We find that CESTAT Delhi, in the case of Gravita India Ltd. Vs. Commissioner of Central Excise & Central GST [2024 (3) TMI 1107 - CESTAT NEW DELHI] held that assessee being neither service provider nor service recipient could not be made liable to pay service tax on ocean freight paid by foreign seller to a foreign shipping line. Accordingly, we dismiss the appeal filed by the department and uphold the impugned order of the Commissioner (Appeal). Cross Objection filed by the respondent also stands disposed of. Issues: Whether service tax under Notification No.15/2017-ST and related provisions is leviable on ocean freight paid under CIF contracts and whether the demand raised on the importer under reverse charge can be sustained.Analysis: The Tribunal examined the impugned demand raised under the proviso to Section 73(1) of the Finance Act, 1994 read with Section 74(1) of the CGST Act, 2017 and related provisions, in light of the decision of the Hon'ble Gujarat High Court in SAL Steel Ltd. which struck down Notification Nos.15/2017-S.T. and 16/2017-S.T. (and associated Service Tax Rules amendments and Explanation-V to Notification No.30/2012-S.T.) as ultra vires applicable provisions of the Finance Act, 1994. The Tribunal considered subsequent decisions including CESTAT and Supreme Court authorities addressing place of provision, destination-based taxation, extra-territorial legislative competence and the applicability of reverse charge where the service provider and recipient are outside taxable territory but the service has impact in India. The Tribunal also noted recent tribunal decisions following SAL Steel and related precedents rejecting levy of service tax on ocean freight where the importer is neither service provider nor service recipient and where the notifications/rules were struck down.Conclusion: The departmental appeal is dismissed and the order of the Commissioner (Appeal) setting aside the demand is upheld; the Department cannot sustain the service tax demand on ocean freight under the impugned notifications and reverse charge mechanism as applied in this case.Ratio Decidendi: Where notifications and rule amendments purporting to levy service tax on ocean freight in CIF contracts are struck down as ultra vires the Finance Act, the levy under reverse charge cannot be sustained against the importer who is neither service provider nor service recipient; consequently no service tax is leviable on such ocean freight under the impugned instruments.