Service Tax Demand Can't Be Sustained On Ocean Freight Under RCM: CESTAT

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the service tax demand is not sustainable as the appellant has purchased fertilisers, which are their inputs, at cost, insurance, and freight (CIF) value, which includes the ocean freight element.

The appellant has paid custom duty on CIF value, which includes ocean freight, according to the single bench of Anil Choudhary (Judicial Member). Thus, there can be no demand for service tax on the purchase price of goods, even under the reverse charge mechanism.

The appellant/assessee is a manufacturer of zinc sulphate and is also a trader of calcium nitrate. The assessee imported fertilisers via a Bill of Entry. The appellant paid IGST on ocean freight along with customs duty at the time of import.

The Show Cause Notice was issued to the appellant by the Assistant Commissioner, CGST Audit, Circle Kashipur, demanding the service tax of Rs. 91,110 alleged to be short-paid on the services viz. ocean freight services, paid by the appellant.

It was alleged that the Exemption Notification No. 25/2012-ST dated 20.06.2012 was amended vide Notification No. 1/2017-ST dated 12.01.2017 and a proviso was inserted in entry no. 34. The exemption provided to the services of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India (Ocean Freight) was withdrawn. With effect from April 23, 2017, the importer was designated as the person responsible for paying service tax on a reverse charge basis.

In Notification No. 14/2017-ST dated 13.04.2017, a new Rule 8B was inserted into the Point of Taxation Rules, 2011 and the point of taxation in respect of the services was made to be the date of the Bill of Lading of such goods loaded into the vessel at the port of export.

The appellant had paid the IGST on ocean freight and demanded service tax on the ocean freight under the Reverse Charge Mechanism, alleging that the Bills of Entry had been filed on 22/05/2017 and 14/06/2017 (during the service tax regime). The demand was confirmed to be Rs. 91,110 along with interest and penalty under Section 78. The appellant had preferred an appeal before the Commissioner (appeals), whose vide order in the appeal had been pleased to dismiss the appeal.

The appellant urged that the appellant has paid custom duty on CIF value which includes ocean freight element. Thus, there can be no demand for service tax on the purchase price of goods, even under the reverse charge mechanism.

The tribunal found that the show cause notice is also based on wrong facts as the date of filing of two Bills of Entry on 6/7/2017 and 14/7/2017, but it was wrongly alleged that these had been filed on May and June 2017.

"The show cause notice is also erroneous on this score. In view of my findings and observations, I allow this appeal and set aside the impugned order. The appellant shall be entitled to consequential benefits in accordance with the law. The appeal is allowed," the CESTAT.

Case Title: M/s Universal Industries Versus Commissioner, CGST- Dehradun

Citation: Service Tax Appeal No. 51202 of 2022

Date: 14.10.2022

Counsel For Appellant: Rajeev Singhal, General Manager

Counsel For Respondent: Authorised Representative Ishwar Charan

Click Here To Read Order