The Delhi High Court recently directed the Revenue to refund Service Tax paid on Ocean Freight as per the Cost, Insurance and Freight (CIF) Contract, observing that no levy may be ascribed following the declaration of invalidity of the service tax.
Writ Petitioners Tavrur Oils And Fats Pvt. Ltd. and South India Krishna Oils and Fats Pvt. Ltd., sought refund of the service tax paid on ocean freight during the period between April 2017 and June 2017. It was submitted that when the subject matter is a Cost, Insurance and Freight contract, the overseas supplier would engage a vessel owner for transportation of goods to India (commonly known as ocean freight).
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Petitioner contended that the imposition of service tax on CIF transactions may be undertaken when freight charges are borne by the overseas supplier to be contrary to the statutory framework and declared unconstitutional by the Gujarat High Court in M/s Sal Steel Ltd. & Anr. vs. Union of India (2019).
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Rajat Mittal, Suprateek Neogi and Priyanshu appearing for the Petitioners argued that the levy of service tax on ocean freight would result in a double taxation conundrum owing to the existing levy of Integrated Goods and Services Tax (IGST) on the value of freight under the Customs Valuation Rules, 2007. Referring to the Supreme Court decision in Union of India and Anr. vs Mohit Minerals Pvt. Ltd. (2022)
Senior Standing Counsel, R. Ramachandran, appearing for the Respondents, resisted the Petitioner’s arguments on procedural grounds, citing limitations under Section 11B of the Central Excise Act, 1944, and the Limitation Act, 1963.
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The Division Bench constituted by Justice Yashwant Varma and Justice Dharmesh Sharma observed that once a levy has been declared unconstitutional, it cannot be enforced or retained by the authorities. Reference was made to the judgment of the Constitution Bench in Mafatlal Industries Ltd. vs. Union of India (1997) where the Bench held that a refund claim based on such a declaration is outside the purview of the statutory enactment and may only be pursued under constitutional provisions.
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Noting that the declaration of invalidity nullifies the levy, the Bench directed the authorities to process and refund the service tax paid by the petitioners along with applicable interest, reaffirming the supersedence of constitutional mandates against double taxation and unlawful levies
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