Reverse charge on ocean freight invalidated where importer lacks receipt or payment; notifications quashed and refunds permitted.

Reverse charge on ocean freight in CIF imports was held beyond enacted charging and rulemaking powers because sea-transport services are received by the foreign exporter and importers lack privity or payment to the overseas carrier; therefore notifications and show-cause notices purporting to transfer service tax/IGST liability to importers were quashed. The court applied limits on rulemaking under the indirect tax statutes, the composite supply doctrine to preclude a separate levy on service elements where IGST on the import already applies, and directed availability of refund claims subject to law and unjust enrichment.

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Issues: (i) Whether the letters dated 14th February 2018, 26th April 2018, 25th September 2018 and 24th December 2018 and the show-cause notice dated 14th May 2019, insofar as they seek to recover Service Tax/IGST from the importer on ocean freight under the reverse charge mechanism in CIF contracts, are liable to be quashed.

Analysis: The Court applied the legal framework governing levy and rulemaking under the Finance Act, 1994 and the IGST Act, 2017 together with the structure of reverse charge mechanism. It examined the scope of taxing power as confined to service providers and service recipients, the limits of rulemaking under Section 94 of the Finance Act, and the interaction between levy provisions and the valuation/collection machinery. The Court relied on precedents holding that in CIF contracts the service of sea transportation is received by the foreign exporter (seller) and that importers have no privity of contract with the overseas shipping line nor make payment of ocean freight; thus the impugned rules and notifications that seek to shift liability to importers amount to attempting to tax a third party beyond the statutory charging and rulemaking powers. The Court further applied the principle that a separate levy on service elements of a composite supply (where the importer is already liable for IGST on the composite import) is inconsistent with the composite supply doctrine under the GST framework. The Court considered prior decisions (including Sanathan Textiles, Sal Steel, Chennai & Ennore Ports, and Union of India v. Mohit Minerals) and concluded that the impugned executive notifications and consequential demands lack legislative authority, and that any amounts paid may be claimed by refund subject to law and unjust enrichment principles.

Conclusion: The letters dated 14th February 2018, 26th April 2018, 25th September 2018 and 24th December 2018 and the show-cause notice dated 14th May 2019 are quashed and set aside; the petitioner is entitled to seek refund, if any, by filing a refund application to be decided in accordance with law including principles of unjust enrichment.

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