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2024 (3) TMI 241 - HC - Service TaxExemption from service tax - ocean freight - Services by way of transportation of goods - reverse charge mechanism - It is the case of the Petitioner that transportation of goods in a vessel provided by a person located in non-taxable territory to the person located in non-taxable territory was exempted from service tax available vide Sl. No. 34 of the Notification No. 25/2012-ST and the same was made inapplicable w.e.f. 22nd January 2017, vide Notification No. 1/2017-ST dated 12.01.2017 - HELD THAT - The division bench of the Gujarat High Court in SAL Steel Ltd. 2019 (9) TMI 1315 - GUJARAT HIGH COURT 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 service receiver. 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 (5) TMI 899 - MADRAS HIGH COURT , in such decision the Court had considered the decision of the Division Bench of the Gujarat High Court in SAL Steel Ltd. 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 notices issued to the respective Petitioners. The impugned Notifications at Exhibits-A and F are held to be illegal as held by the Gujarat High Court in SAL Steel Ltd - Petitioner would accordingly be entitled to the refund of duty, however, subject to the Petitioner filing the refund application which would be required to be decided in accordance with law including on the principles unjust enrichment - Petition disposed off.
Issues Involved:
1. Levy of service tax/IGST on ocean freight under reverse charge mechanism. 2. Constitutionality and legality of the impugned notifications under Finance Act, 1994 and IGST Act, 2017. 3. Entitlement to refund of service tax/IGST paid under protest. Summary: Issue 1: Levy of Service Tax/IGST on Ocean Freight under Reverse Charge Mechanism The Petitioner, a yarn manufacturing company, imports raw materials and spare parts under CIF contracts, where transportation costs are borne by the foreign supplier. An audit demanded service tax for the period April to June 2017. The Petitioner contended that the levy of service tax on the importer, who is neither the service provider nor the service receiver, is unconstitutional. The Court referenced the Gujarat High Court decision in SAL Steel Ltd. vs. Union of India, which ruled that importers in CIF contracts are neither service providers nor service receivers and thus cannot be liable for service tax. The Court agreed, stating that the impugned provisions are ultra vires and cannot recover service tax from third parties. Issue 2: Constitutionality and Legality of the Impugned Notifications The Petitioner challenged the notifications under the Finance Act, 1994, and the IGST Act, 2017. The Court noted that the Gujarat High Court in SAL Steel Ltd. had declared similar notifications ultra vires, as they imposed service tax on importers who are not service recipients. The Madras High Court in Chennai & Ennore Ports Steamer Agents Association also ruled similarly, stating that importers in CIF contracts cannot be taxed for ocean freight. The Supreme Court in Union of India vs. Mohit Minerals Pvt. Ltd. further held that a separate levy on the Indian importer for the supply of services by the shipping line would violate the principles of 'composite supply' under the GST Act. The Court found these precedents applicable and declared the impugned notifications illegal. Issue 3: Entitlement to Refund of Service Tax/IGST Paid Under Protest The Petitioner sought a refund of the service tax/IGST paid under protest. The Court rejected the Respondent's contention that the Petitioner voluntarily deposited the amount, stating that any such deposit without authority in law is violative of Article 265 of the Constitution. The Court directed the Petitioner to file a refund application, which should be decided on its merits, including considerations of unjust enrichment. Order: 1. The impugned Notifications at Exhibits-A and F are held illegal. 2. The Petitioner is entitled to a refund of the duty, subject to filing a refund application to be decided per law. 3. The Petition is disposed of with no costs.
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