Case Law Details
Sanathan Textile Pvt Ltd. Vs Union of India (Bombay High Court)
The Bombay High Court recently delivered a significant verdict in the case of Sanathan Textile Pvt Ltd. vs. Union of India, shedding light on the taxation of ocean freight in the context of CIF (Cost, Insurance, and Freight) contracts. The case revolved around the imposition of service tax on the importer for the transportation of goods in a vessel provided by a person located in a non-taxable territory to a person located in another non-taxable territory, from a place outside India up to the customs station for clearance in India.
Sanathan Textile Pvt Ltd., a prominent yarn manufacturing company in India, challenged the demand for service tax made by the authorities for the period from April 2017 to June 2017. The company contended that the amendments introduced by the Finance Act, 2016, and subsequent notifications issued under the IGST Act, 2017, were arbitrary and unconstitutional. They argued that the levy of service tax on the importer, who neither provides nor receives the service, is legally untenable.
The petitioner relied on previous judgments, notably the decision of the Gujarat High Court in SAL Steel Ltd. vs. Union of India, which held that importers in CIF contracts are neither service providers nor service receivers in respect of the transportation of goods by vessel from a place outside India. The court deemed the imposition of service tax on importers as ultra vires the relevant provisions of the Finance Act, 1994, and ruled in favor of the petitioners.
In its ruling, the Bombay High Court concurred with the principles established in the SAL Steel Ltd. case and held the impugned notifications to be illegal. It emphasized that the levy of service tax on importers for ocean freight in CIF contracts is not supported by the law and violates the principles of taxation. The court also directed that the petitioner is entitled to a refund of the service tax paid, subject to the filing of a refund application.
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