Levy of Ocean Freight: Madras HC rules S. 68(2) Notifications Lacks Framework to Shift Service Tax Liability, quashes SCNs [ Read Order]

The High Court of Madras, held that the notifications issued under Section 68(2) of the Finance Act, 1994, to levy service tax on ocean freight were invalid due to the absence of a proper mechanism to shift the tax liability onto importers.

TVS Srichakra Limited, petitioner-assessee, had filed writ petitions challenging Notifications Nos.14/2017, 15/2017, and 16/2017 dated 13.04.2017 issued by the Ministry of Finance, contending that they exceeded the scope of Section 68(2) of the Finance Act, 1994, and violated Articles 14, 19(1)(g), 245, and 269A of the Constitution.

Related petitions were also filed seeking to quash the show-cause notices dated 10.12.2020 and 26.04.2022 for the period from April 2017 to June 2017.

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The Court heard arguments from the counsels representing both sides, including Mr. S. Muthuvenkataraman for the petitioners, Mr. C. Nandagopal for the first respondent, and Mr. N. Dilip Kumar for the second and third respondents.

All counsels had concurred that the relief sought deserved to be granted, as the issue had already been settled in favour of the petitioner by the Madras, Gujarat, and Bombay High Courts.

They relied on decisions in Eastman Spinning Mills (P) Ltd. vs. Secretary, Union of India (Madras HC, 09.04.2025), Sal Steels Ltd. vs. Union of India [2020 (37) GSTL 3 (Guj)], and Santhan Textile Pvt. Ltd. vs. Union of India [(2024) 25 Centax 225 (Bom)].

The Gujarat High Court in Sal Steels had struck down Notifications Nos.15/2017-ST and 16/2017-ST as ultra vires Sections 64, 66B, 67, and 94 of the Finance Act, 1994, and quashed the related proceedings for service tax collection on sea transportation services under CIF contracts.

The Madras High Court, in Chennai and Ennore Ports Steamer Agents Association vs. Union of India [(2023) 7 Centax 63 (Madras), dated 28.03.2023], had also dealt with the same issue and reached the same conclusion, though with a slightly different reasoning.

Read More: Madras HC Quashes Customs PublicNotice, Holds Dept Lacked Jurisdiction to Direct on GST Collection

Justice Dr. Anita Sumanth and Justice C.Kumarappan observed that the impugned notifications issued under Section 68(2) of the Finance Act, 1994, lacked a proper framework to transfer the service tax liability to the petitioners, as they were not recipients of the taxable service concerning the transportation of goods by vessels from outside India to Indian customs stations. Therefore, the petitioners were held not liable to pay the tax. The Court, however, found no need to declare the notifications ultra vires.

Relying on the decisions of the Gujarat and Bombay High Courts, which were already followed by the Madras High Court in Eastman Spinning Mills (P) Ltd., the Court quashed the impugned notifications and the corresponding show-cause notices. The writ petitions were allowed without costs, and the connected miscellaneous petitions were closed.

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