Sanathan Textile Pvt Ltd. Vs Union of India (Bombay High Court)
The Bombay High Court has declared as illegal and unconstitutional the practice of levying service tax and Integrated Goods and Services Tax (IGST) on ocean freight for goods imported under a Cost, Insurance, and Freight (CIF) contract. The court’s decision was delivered in the case of Sanathan Textile Pvt. Ltd. vs. Union of India, where the petitioner challenged the validity of various notifications that imposed this tax liability on Indian importers through a reverse charge mechanism.
Sanathan Textile Pvt. Ltd., a yarn manufacturer, imported raw materials and spare parts under CIF contracts. Under these contracts, the foreign supplier was responsible for all costs up to the Indian customs station, including ocean freight. The petitioner was later compelled to pay service tax on this ocean freight, as demanded by an audit report. Following the implementation of the GST regime, the tax liability was replaced by IGST, also under a reverse charge system. The company challenged this levy, arguing that as the importer in a CIF contract, it was neither the service provider (the shipping line) nor the service receiver (the foreign supplier) and therefore could not be held liable for the tax.
