TaxTMI 
TaxTMI 
2026 (9) TMI 1120
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....ive of aforesaid, I observe that the constitutional validity of said amendments in the legislation was challenged before the Hon'ble High Court of Gujarat vide R/Special Civil Application No. 20785 of 2018 with R/S.C.A. Nos. 3123 of 2019, 20791 & 20796 of 2018 (Sal Steels Ltd., Vs. Union of India). The said R/Special Civil Application was disposed off by the Hon'ble High Court vide orders dated 6.9.2019. 15. In the said Orders dated 6.9.2019, Hon'ble High Court has observed that in the case on hand, indisputably, the overseas sellers/suppliers of the goods have made contracts with the shipping line/shipper for sea transportation of the goods, and such overseas sellers/suppliers have made payment of transportation charges to the shipping line; and admittedly there is no contract nor any arrangement between the Petitioners (who are Indian importers/buyers of the goods) and the shipping line for sea transportation. Thus, Ocean freight is admittedly paid by the overseas suppliers/sellers to the shipping line, and therefore the overseas suppliers, i.e., the sellers of the goods located in foreign country are the persons who have received service of sea transportatio....
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.... Section 94 also does not permit the Central Government to make rules for recovering service tax from a third party who is neither the service provider nor the service receiver. Therefore, the impugned provisions, i.e., Rule2(1)(d) (EEC) and Explanation-V to Notification No. 30/2012-S.T. are ultra vires Section 65B(44) defining "service" and Section 68, and also Section 94 of the Finance Act. 16. Operative part of the said judgment of Hon'ble High Court, Gujarat reads as under: "58. In view of the aforesaid discussion, the writ application succeeds and is hereby allowed. The Notification Nos. 15/2017-S.T. and 16/2017-S.T. making Rule 2(1)(d)(EEC) and Rule 6(7CA) of the Service Tax Rules and inserting Explanation-V to reverse charge Notification No. 30/2012-S.T. is struck down as ultra vires Sections 64, 66B, 67 and 94 of the Finance Act, 1994; and consequently the proceedings initiated against the writ applicants by way of show cause notice and enquiries for collecting service tax from them as importers on sea transportation service in CIF contracts are hereby quashed and set aside with all consequential reliefs and benefits." 17. In view of the afore....
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....fore the Hon'ble Apex Court and the revenue has succeeded to obtain either a favourable judgment or stay in their favour. Accordingly, in view of the aforesaid discussions, I conclude that as on date demand of service tax from the appellant on sea transportation service in CIF contract does not sustain and is liable to be quashed. However the department, if it so wishes, may issue a protective demand to the appellant on the subject matter to be adjudicated in the future in the eventuality of filing of appeal before Hon'ble Apex Court and subject to its outcome thereof." 2.3 Revenue has filed this appeal stating as follows:- "3. That, thus, as is apparent from the cited facts, the said Judgment dated 06.09.2019 of the Hon'ble High Court of Gujarat, in respect of Special Civil Application No. 20785 of 2018, 3123 of 2018, 20791 of 2018 and 20796 filed by M/s SAL Steel Limited and Others Versus Union of India[2020(37) GSTL 3(Guj.)], does not appear to be legal and proper and in respect of the same the Department has filed a Special Leave Petition before the Hon'ble Supreme Court on 09.12.2020 [SLP(C): Diary No. 27023/2020 filed on 09.12.2020] and as per the ....
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....in violation of the principle of 'composite supply' enshrined under Section 2(30) read with Section 8 of the CGST Act. Since the Indian importer is liable to pay IGST on the 'composite supply', comprising of supply of goods and supply of services of transportation, insurance, etc. in a CIF contract, a separate levy on the Indian importer for the 'supply of services' by the shipping line would be in violation of Section 8 of the CGST Act. 149 For the reasons stated above, the appeals are accordingly dismissed." 4.4 We note that in case of Sanathan Textile Pvt Ltd [2024-TIOL-405-HC-MUM-GST] Hon'ble Bombay High Court agreeing with the view taken by Hon'ble Gujarat High Court and Madras High Court has observed as follows: "7. We had heard the proceedings on the earlier occasion, when the learned Counsel for the Petitioner had contended that the notifications as impugned in the Petition were subject matter of adjudication before the Division Bench of the Gujarat High Court in the proceedings of SAL Steel Ltd. Vs. Union of India 2020 (37) G.S.T.I.. 3 (Guj.) = 2020-TIOL-163-HC-AHM-ST as also such decision of the division bench was considered by the Tribunal in the cas....
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.... respondents, instructions be taken on the contentions as urged on behalf of the petitioner as noted by us hereinabove. 7. Stand over to 12 February, 2024 (H.O.B.). 8. Parties are put to notice that on the adjourned date of hearing, the Court shall hear the parties on the present proceedings finally and an endeavour would be made to dispose of the petition." 8. It it on the above backdrop, the proceedings are before us today. We have heard learned Counsel for the parties. We have perused the record. 9. At the outset we may observe that the division bench of the Gujarat High Court in SAL Steel Ltd. (supra) had considered the challenge to the impugned notifications in the context of the service tax on transportation of goods by a vessel from a place outside India. The impugned provisions were held ultra vires of Section 64, 65(B), 44, 66(B), 67 and 68 and 94 of the Finance Act, 1994. It was held that importers in CIF contracts were neither service providers nor service receivers in respect of transport of goods by vessel from place outside India, and that service tax cannot be recovered from third party who is neither the service provider nor the s....
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....ntral Government has shifted the burden to pay service tax to the person receiving the service by virtue of Col. No. 4 of the table. Thus, the reverse charge system under Section 68(2) of the Finance Act permits the Central Government to collect or recover service tax from the receiver of service, though the primary charge is on the person providing taxable service by virtue of Sub Section (1) of Section 68. 38. But the importers in CIF contracts i.e. the writ applicants herein are neither service providers nor service receivers in respect of transportation of goods by a vessel from a place outside India upto the Customs station of clearance in India. Section 68(1) and also the reverse charge Notification under Section 68(2) permit the Central Government to collect and recover service tax only from the person providing the service or from the person receiving the service, and not from a third party. The rulemaking power of section 94 also does not permit the Central Government to make rules for recovering service tax from a third party who is neither the service provider nor the service receiver. 39. Therefore, the impugned provisions i.e. Rule 2 (1)(d)(EEC) and E....
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....ny service by way of making a rule or a notification, Rule 6 (7CA) of the Service Tax Rules is ultra vires the Rulemaking power. Secondly, it is an option under Rule 6 (7CA) to pay service tax on the amount calculated @1.5% of CIF value of the imported goods; but if the importer does not exercise this option, then there is void because actual value of this service i.e. ocean freight is not known even to the Revenue officers. Therefore, the scheme of taxation would fail and fall in absence of a machinery provision for valuation of the service when tax is proposed to be recovered from a third party not having any information about the value of such service. 58. In view of the aforesaid discussion, the writ application succeeds and is hereby allowed. The Notification Nos. 15/2017-S.T. and 16/2017-S.T. making Rule 2(1)(d)(EEC) and Rule 6(7CA) of the Service Tax Rules and inserting Explanation-V to reverse charge Notification No. 30/2012-S.T. is struck down as ultra vires Sections 64, 66B, 67 and 94 of the Finance Act, 1994; and consequently the proceedings initiated against the writ applicants by way of show cause notice and enquiries for collecting service tax from them as im....
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....wing the Hon'ble Gujarat High Court decision in the case of SAL Steel Limited, the impugned order is upheld and the Revenue's appeal is dismissed. Cross objection is also disposed of." 12. The aforesaid decision of the Tribunal was carried in Appeal by the Revenue before the Supreme Court. The Supreme Court in Commissioner of Service Tax, Ahmedabad (supra), dismissed the Civil Appeal filed by the Revenue by an Order dated 01.09.2023 passed on Civil Appeal Diary No.2146/2023. 13. We may observe that the similar issue as fell for consideration before the Madras High Court in the case of Chennai & Ennore Ports Steamer Agents Association Vs. Union of India (2023) 10 Centax 135 (S.C.) = 2023-TIOL-559-HC-MAD-ST, in such decision the Court had considered the decision of the Division Bench of the Gujarat High Court in SAL Steel Ltd. (supra) in considering the issue namely, whether the members of the Petitioner were liable to pay service tax on the service of ocean freight. Rejecting the case of the Revenue and accepting the case of the Assessee, the Madras High Court, making the following observations, allowed the Writ Petitions by setting aside the show cause not....
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....ranging transportation and insurance of the goods. The consideration for shipping the goods is payable by the foreign supplier in the case of CIF contracts to the foreign/Overseas Shipping Liner. 130. We therefore, hold that service tax cannot be demanded from these petitioners as neither the "steamer agents" nor the "importers" in India are the recipient of service. They are not liable to pay tax." 149. In Kusum Ingots and Alloys Ltd. Vs. Union of India, 2004 (168) E.L.T. 3 (S.C.) = 2004-TIOL-117-SC-CX-LB, it was held that an order passed on writ petition questioning the constitutionality of a Parliamentary Act whether interim or final keeping in view the provisions contained in Clause (2) of Article 226 of the Constitution of India, will have effect throughout the territory of India subject of course to the applicability of the Act. If that be so, the notices which have been challenged by the category II writ petitioner in Table 5 are also liable to be quashed. However, we would not go that far to hold all the notifications challenged as ultra-vires. 160. As far as refunds are concerned in Table No. 6, the petitioners will have to file appropriate refun....
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....clause (a) needs to succeed on the ground that the said notifications were set aside in the case of SAL Steel Ltd.(supra). 15. In so far as the impugned notification at Exhibit-F is concerned being subject matter of prayer (c) as also partly prayer clause (a), it appears that such challenge would stand covered by the decision in Union of India Vs. Mohit Minerals Pvt. Ltd 2022 (61) G.S.T.L. 257 (S.C.) = 2022-TIOL-49-SC-GST-LB in which the Supreme Court has held that the IGST and CGST define reverse charge and prescribe the entity that is to be taxed for those purposes. It was held that the specification of the recipient by Notification No. 10/2017 is only clarificatory and that the Government by notification did not specify a taxable person different from the recipient prescribed in Section 5 (3) of the IGST Act for the purposes of reverse charge. It was held that levy imposed, on the service aspect of the transaction was in violation of principles of 'composite supply' enshrined under Section 2(30) read with section 8 of the GST Act. Since the Indian importer is liable to pay IGST on the 'composite supply' comprising of supply of goods and supply of service....