GST | Delhi HC Orders Refund Of Service Tax Paid On Ocean Freight, Cites Gujarat HC Judgment Declaring It Unconstitutional

In doing so, a division bench Justices Yashwant Varma and Dharmesh Sharma cited the Gujarat High Court's judgment in M/s Sal Steel Ltd. & Anr. vs. Union of India (2019) where it was declared that levy of service tax on ocean freight is unconstitutional.

The Gujarat High Court had rendered the decision in connection with 2017 amendments to the Customs Act, 1962 and its decision is pending challenge before the Supreme Court but, no interim orders have yet been passed staying the operation of the judgment.

The division bench also relied on judgment rendered by the Ahmedabad Bench of the CESTAT in Commissioner of Service Tax vs. Kiri Dyes and Chemicals Limited (2023) where it was held,

“the issue whether Ocean Freight/ Sea Transportation service is liable to service tax or otherwise has been decided by jurisdictional High Court of Gujarat in the case of SAL Steel Limited. As regards the Revenue's appeal pending before the Hon'ble Supreme Court against the aforesaid decision, I find that there is no stay against the said High Court judgment. In view of this position, I find no infirmity in the impugned order…”

Significant to note that Kiri Dyes (supra) travelled up to the Supreme Court, which dismissed the Service Tax Commissioner's appeal.

Petitioners had sought refund of service tax paid by them on ocean freight during the period April 2017 to June 2017.

They relied on the Supreme Court's decision in Union of India and Anr. vs Mohit Minerals Pvt. Ltd. (2022) to contend that collection of Integrated Goods and Services Tax on ocean freight would violate the provisions of the Central Goods and Services Tax Act, 2017.

The Respondents on the other hand contended that the prayer is barred in light of the limitation as erected in terms of Section 11B of the Central Excise Act and provisions of the Limitation Act, 1963.

They also relied on Mafatlal Industries Ltd. vs. Union of India (1997) which held that it is not open to any person to make a refund claim on the basis of a decision of a court or tribunal rendered in the case of another person.

Disagreeing, the High Court pointed that Mafatlal Industries (supra) in unequivocal terms held that where the refund is claimed consequent to a declaration of invalidity having been rendered, it would clearly fall outside the purview of the principal enactment and could be claimed either by way of suit or by way of a writ petition.

It said,

“Once it is held that the statutory provisions envisaging a levy of service tax on ocean freight had come to be declared unconstitutional, the levy itself would be liable to be viewed as invalid and thus not maintained under the principal enactment. The reliance on Section 11B of the Central Excise Act is thus clearly misconceived.”

It also relied on Comsol Energy (P) Ltd. vs. State of Gujarat (2020) where the Gujarat High Court held that Article 265 of the Constitution provides that no tax shall be levied or collected except by authority of law and Revenue is obliged to refund IGST erroneously collected by the Central Government without authority of law.

Accordingly, the petitions were allowed with a direction to the Respondents to dispose of Petitioners' refund claims forthwith.

Appearance: Mr. Rajat Mittal, Mr. Suprateek Neogi & Mr. Priyanshu, Advs. for Petitioner; Mr. R. Ramachandran, SSC for Dept

Case title: Tavrur Oils And Fats Pvt Ltd v. Commissioner Central Goods And Service Tax & Anr.

Case no.: W.P.(C) 17146/2022

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