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2021 (8) TMI 630 - AT - Service TaxReverse charge mechanism - service tax on Ocean Frieght - who is liable to pay Service Tax - CIF contract or FOB contract - whether the contract was CIF or it was on FOB basis makes any difference as far as the payment of service tax liability is concerned/ - service tax rightly paid under N/N.15 and 16 of 2017 or not - entitlement for refund even in terms of section 142 of CGST Act. CIF contract or FOB contract - HELD THAT - FOB (i.e. Free on Board) is a contract of sale between the foreign supplier and the local importer, where the importer would engage the vessel/ship owner or operator for importing goods into India. In the FOB contract, the service of transportation of goods by ship or vessel is received by the importer in India, whereas such service is rendered by the owner/operator of the foreign going vessel - In the case of CIF contract, the overseas supplier would engage the vessel owner/operator for the transportation of goods to India. The hiring of the vessel/ship and also payment of the transportation charges i.e. ocean freight of such vessel owner/operator are made by the overseas supplier in the CIF contract. The service of transportation of goods by vessel is thus received by the overseas supplier from the foreign going vessel owner/operator in the CIF contract. The title of Section 26 shows that the rule provided thereunder is the prima facie rule subject to the agreement otherwise between the parties. This is clearly indicated by the expression unless otherwise agreed with which the section begins. The parties to the contract are, thus, free to by-pass the prima facie rule provided in Section 26 by making agreement otherwise. The prima facie rule in Section 26 is that the goods remain at the seller s risk until the property in the goods is transferred to the buyer. But when the property in the goods is transferred to the buyer the goods are at the buyer s risk whether delivery has been made or not. When the Respondents have admitted that the importers in India are not persons receiving service of sea transportation, and that it is the Respondent s case that the Indian importers were indirectly receiving such service and hence were persons liable to pay service tax on such service; it is clearly a case where the Respondents propose to charge service tax from the third parties i.e. the Indian importers by implication, and not by clear words of the charging section - Even if it is assumed that service tax can be recovered from a third party like the Indian importers in CIF contracts, there is no machinery provided for valuation of such service, and therefore also the impugned Rules and Notifications are unenforceable. It is an admitted position of fact that the Petitioners do not have any information about the actual amount of ocean freight paid by the overseas sellers/suppliers to shipping lines. Notifications of year 2017 under which the payment of Service Tax has been made in October, 2018 - HELD THAT - 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 - Since the Notification under which the payment was made have as such been struck down, any payment made pursuant thereto no more remains under the scope of the charging section, i.e. it cannot be called as duty. Still retaining the said amount will therefore unjustly enrich the Department. The consequence, accordingly, is that the appellant is entitled for the refund of the said amount. The duty, which was paid by the petitioner, which was otherwise not payable on the exported goods and therefore, rebate of such duty was not admissible in terms of Rule 18 of the Central Excise Rules. However, the duty, which was paid by the petitioner is held to be treated as voluntary deposit. As per Section 142(3) of the GST Act, every claim for the refund filed by any person before, on or after the appointed day i.e. 1-7-2017 for refund of any amount of Cenvat credit, duty, tax, interest or any other amount paid under the existing law, should be disposed of in accordance with the provisions of existing law and any amount eventually accruing to such person should be paid in cash - in view of this clear provision, the Respondent No. 2 ought to have directed the sanctioning Authority to refund the amount of the duty refundable to the petitioner in cash instead of credit in Cenvat Account. Appeal allowed.
Issues Involved:
1. Liability to pay Service Tax on ocean freight. 2. Impact of CIF (Cost, Insurance, and Freight) vs. FOB (Free on Board) contracts on service tax liability. 3. Validity of payments made under Notification Nos. 15/2017 and 16/2017-S.T. 4. Entitlement for refund under Section 142 of the CGST Act, 2017. Detailed Analysis: Issue 1: Liability to Pay Service Tax on Ocean Freight The appellant argued that they were not liable to pay service tax on ocean freight as they imported goods on a CIF basis, meaning they were not the service recipient of the shipping company. This argument was supported by several judicial decisions indicating that such tax was not payable. Issue 2: CIF vs. FOB Contracts and Service Tax Liability The judgment elaborated on the distinction between CIF and FOB contracts. Under a CIF contract, the overseas supplier arranges and pays for the transportation of goods, making the supplier the recipient of the transportation service, not the importer. This distinction is crucial because, under FOB contracts, the importer engages the vessel for transportation, making them liable for service tax. Issue 3: Validity of Payments Under Notification Nos. 15/2017 and 16/2017-S.T. The appellant paid the service tax under these notifications, which were later declared unconstitutional by the Gujarat High Court in the case of Mohit Minerals Pvt. Ltd. The court found that the notifications lacked legislative competency and were ultra vires the Integrated Goods and Services Tax Act, 2017. Consequently, any payments made under these notifications were not valid. Issue 4: Entitlement for Refund Under Section 142 of the CGST Act, 2017 The appellant sought a refund under Section 142(3) and 142(6)(a) of the CGST Act, 2017. The court noted that the service tax paid was not legally due, and retaining the amount would unjustly enrich the department. The court also discussed the transitional provisions under Section 140(1) of the CGST Act, 2017, and noted that the restrictive amendments regarding Krishi Kalyan Cess (KKC) had not been operationalized. Conclusion: The court concluded that the appellant was entitled to a refund of the service tax paid on 17.10.2018. The order under challenge was set aside, and the appeal was allowed with consequential benefits. The judgment emphasized that the tax was not payable in the first place, and thus, the refund should be granted. Key Takeaways: - The appellant was not liable to pay service tax on ocean freight under a CIF contract. - Notifications 15/2017 and 16/2017-S.T. were declared unconstitutional, making any payments under them invalid. - The appellant was entitled to a refund under Section 142 of the CGST Act, 2017, as retaining the amount would unjustly enrich the department.
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