Relief to Polycab Wires: CESTAT Quashes Demand of service tax on Ocean Freight [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Ahmedabad bench in a ruling in favour of Polycab Wires Pvt Ltd, quashed the demand of service tax on ocean freight.

During audit of appellant, it was observed by the Audit Officers that the appellant has imported raw material from different foreign countries by sea and incurred expenses on ocean freight but they have not paid any service tax on the said expenses during the period from 23.04.2017 to 30.06.2017, under reverse charge.

A show cause notice dated 02.08.2018 was issued to the appellant demanding service tax of Rs.11,23,903/- (including cess) under Section 73 of the Finance Act, 1994 along with applicable interest and imposition of penalty. The said show cause notice was adjudicated by the Assistant Commissioner wherein, the vide order dated 30.01.2019 confirmed the charges against the appellant.

He also imposed an equal penalty of Rs.11,23,903/- under Section 78 of the Finance Act, 1994. The appellant filed an appeal before the Commissioner (Appeal) who vide impugned order dated 28.05.2019 upheld the order of the Assistant Commissioner and rejected the appeal filed by the party. Hence, the present appeal.

They had already paid service tax on ocean freight by the availing abatement of 70% but the department has wrongly issued show cause notice asking for service tax on 100% of the value of the ocean freight which is not sustainable as per law.

The Commissioner (Appeal) has not given any finding on the decision of High Court of Kerala in the case of GAC Shipping India Pvt. Ltd. Vs. Union of India as relied upon them. He has also not given any findings on the judgments cited in SCA No. 20785/2018, whereby, in identical facts and circumstances, further proceedings for the show cause notice have been stayed considering the said provisions as ultra vires.

The entire issue is pertaining to interpretation of notification and law and therefore, making charges of suppression of material facts and wilful violation of the Service Tax Rules is incorrect.

It is settled law that when there is a scope of interpretation of a notification, penalty is not imposable. In view of these submissions, the appellant prayed for allowing the appeal with consequential relief. Alternatively, the appellant prays for remanding the case to the lower authority.

During arguments, Advocate highlighted various case laws on the subject. He also pointed out that the High Court of Gujarat in their own case vide order dated 30.01.2020 had allowed their appeal on the identical matter. AR fairly agrees that the issue is no more res-integra and the levy of the service tax on ocean freight has been set aside by various decisions of the Tribunal and High Courts.

The High Court of Gujarat in the case of M/s. SAL Steel Limited Vs. Union of India has 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.”

A two member bench of Member (Judicial), Mr. Somesh Arora And Member (Technical), Mr. Satendra Vikram Singh relying in the decision allowed the appeal of the party with consequential relief if any.

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