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 consumption tax and whether extra-territorial legislation can tax transactions lacking a territorial nexus. The tribunal relied on precedent holding that an entity that is neither service provider nor service recipient cannot be saddled with reverse-charge liability for ocean freight paid by a foreign seller to a foreign carrier; consequently the departmental appeal was dismissed and the impugned appellate order upheld, with the respondent's cross objection disposed of.

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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.

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