Asiatic Drugs & Pharmaceuticals Pvt Ltd Vs Commissioner CGST (CESTAT Delhi)
Issue Involved
The issue before the CESTAT Delhi was whether Asiatic Drugs & Pharmaceuticals Pvt Ltd was entitled to refund of service tax, interest and penalty paid on ocean freight under the reverse charge mechanism, when the ocean freight had already formed part of the transaction value on which customs duty and CVD had been paid.
Facts of the Case
Asiatic Drugs & Pharmaceuticals Pvt Ltd, engaged in the manufacture of Cefadroxil Monohydrate Trihydrate, had imported raw materials and paid service tax under reverse charge on ocean freight for transportation of goods by vessel from a place outside India up to the customs station in India.
For the period April 2017 to June 2017, the appellant deposited service tax of Rs. 11,31,601, comprising service tax of Rs. 10,56,161, Swachh Bharat Cess of Rs. 37,720 and Krishi Kalyan Cess of Rs. 37,720. It also paid interest of Rs. 2,91,590 and penalty of Rs. 1,69,740, aggregating to Rs. 15,92,931.
The appellant subsequently realised that the customs duty and CVD had already been paid on the import value, which included the ocean freight. According to the appellant, payment of service tax again on the ocean freight resulted in double taxation.
The appellant therefore filed a refund application on 06.04.2018, seeking refund of the service tax, interest and penalty.
Department’s Stand
A show cause notice dated 11.06.2018 was issued proposing rejection of the refund claim. The Department observed that the appellant had deposited the tax along with interest towards settlement of an audit objection and had not initially claimed that the service tax was not payable or that it had been paid erroneously.
The Department also noted that the appellant had sought refund under Section 142(8) of the CGST Act, 2017, but had not produced sufficient documents to establish that the amount had not been taken as credit.
The adjudicating authority observed that, pursuant to the relevant service tax notifications, the importer was liable to pay service tax under reverse charge on ocean freight during the relevant period. The refund claim was consequently rejected.
The Commissioner (Appeals) also rejected the appellant’s appeal by order dated 03.10.2019.
Appellant’s Contention
Before the Tribunal, the appellant contended that service tax could not effectively be charged twice on the same ocean freight component. The ocean freight was already included in the value of the imported goods on which customs duty and CVD had been paid.
The appellant submitted that the subsequent payment of service tax on the same ocean freight resulted in double taxation.
It was also contended that, since the service tax had been paid after the introduction of GST and the appellant could not avail the corresponding CENVAT credit or transition the credit through FORM GST TRAN-1, there was no question of the appellant having retained any credit benefit.
CESTAT Delhi’s Findings
CESTAT Delhi considered the rival submissions and examined the treatment of ocean freight for customs purposes.
The Tribunal found that the transaction value for customs duty and CVD included the ocean freight. Therefore, when service tax was subsequently paid on the same ocean freight under reverse charge, the appellant had suffered double taxation.
The Tribunal accordingly accepted the appellant’s contention that the amount paid on account of service tax on ocean freight was refundable.
Decision
CESTAT Delhi allowed the appeal and set aside the impugned order passed by the Commissioner (Appeals).
The Tribunal held that the appellant was entitled to refund of:
