Chennai And Ennore Ports Vs Union of India (Madras High Court)
Madras High Court, in Chennai & Ennore Ports Steamer Agents Association vs. Union of India, addressed the issue of whether members of the petitioner association were liable to pay service tax on ocean freight under Cost, Insurance, and Freight (CIF) import contracts. The Court relied significantly on the Gujarat High Court’s decision in Sal Steel Ltd. vs. Union of India (2020) 37 G.S.T.L. 3 / [2020] 117 taxmann.com 619, and allowed the writ petitions, setting aside the impugned show cause notices issued to the petitioners.
The Court observed that, in CIF contracts, the service of transporting goods by vessel is provided by foreign exporters or overseas suppliers through foreign vessel owners, operators, or shipping liners. The cost of such transportation, along with all incidental services consumed during the import process, is included in the import value on which customs duty is already paid. Consequently, levying service tax again on the same value would result in double taxation.
Under Section 14 of the Customs Act, 1962, the transaction value for customs duty purposes—along with additional customs duty equivalent to excise duty—already includes the value of ocean freight. The Court found no justification to impose service tax either directly or indirectly on the same freight amount in CIF contracts. It was noted that the cost of such intermediate services availed by shipping liners is ultimately passed on to foreign shippers and eventually to importers, meaning the value is already taxed in customs assessments.
In Free on Board (FOB) contracts, importers must also include the value of ocean freight under Section 14, making a second levy equally unjustified. The Court held that in CIF contracts, computing service tax is practically impossible since neither the importer in India nor the steamer agents acting on behalf of shipping liners have knowledge of the cost of such freight, which is negotiated and paid overseas by the foreign supplier.
Citing Sal Steel Ltd., the Court reiterated that no tax can be demanded from importers on ocean freight when they are not the service recipients. In CIF arrangements, the foreign exporter engages the overseas shipping liner and pays the freight consideration, making the Indian importer a non-recipient for service tax purposes.
The Court also referred to Kusum Ingots and Alloys Ltd. vs. Union of India (2004) 168 E.L.T. 3 (SC), holding that an order on a writ petition challenging the constitutionality of a Parliamentary Act applies across India, subject to the Act’s applicability. However, it refrained from declaring all notifications ultra vires.
Regarding refunds, the Court directed that petitioners claiming refunds must file applications in line with the Supreme Court’s ruling in Mafatlal Industries Pvt. Ltd. vs. Union of India (1997) 89 E.L.T. (SC), within 30 days of receiving the order, if not already filed. Refund claims are to be processed within 60 or 90 days, as applicable.
Final Decision:
