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TMI Blog2023 (5) TMI 899X X X X Extracts X X X X X X X X Extracts X X X X ..... n W.P.Nos.15394, 15395 & 15398 of 2021 : Mr.Hari Radhakrishnan For the Petitioner in W.P.No.14929 of 2020 : Mr.T.Ramesh For the Petitioner in W.P.Nos.2147 to 2151 of 2017 : Mr.P.Giridharan For the Petitioner in W.P.Nos.35435 & 35445 of 2019 : Mr.M.N.Bharathi For the R1 in W.P.Nos.141 of 2021 and 15394 of 2021 : Mr.S.Diwakar Senior Panel Counsel For the R2 to R4 in W.P.No.141 of 202, For R1 and R2 in W.P.No.9120 of 2019, For R1 and R4 in W.P.Nos.12976 of 2021, 15395 of 2021, 15398 of 2021, W.P.No.15394 of 2021,For Respondents in W.P.Nos.19009 of 2019 & 19011 of 2019, & For R1 to R4 in W.P.No.12467 of 2021 : Mr.V.Sundareswaran Senior Panel Counsel For the R1 & R2 in W.P.No.9118 of 2019, For Respondents in W.P.No.13476 of 2021, For R2 to R4 in W.P.No.400 of 2021, & For Respondents in W.P.Nos.2147 to 2151/2017 : Mr.Hema Muralikrishnan Senior Standing Counsel For the R1 and R2 in W.P.No.8809 of 2020, For Respondent in W.P.No.14929 of 2020, & For R2 in W.P.Nos.35435 and 35445 of 2019 : Mr.A.P.Srinivas Senior Standing Counsel and Mr.K.S.Ramasamy For the R1 in W.P.No.400 of 2021 : Mr.K.Subbu Ranga Bharathi For the R1 in W.P.Nos.35435 & 35445 of 2019 : Mr.Venkataswamy Babu Senior Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 12.01.2017, Notification Nos.14/2017-ST, 15/2017-ST & 16/2017-ST, all dated 13.04.2017. 5. Some of the Writ Petitioners have also challenged show cause notices issued to them while some of them have called upon the respondent to refund the service tax paid by them. The details of the writ petitions filed by these petitioners are in Table Nos.4, 5 and 6. Table No.4: Challenge to the Notification. Sl. No. W.P.No. Notifications 30/2012 dt. 20.6.12 03/2017 dt.12.01.17 14/2017 dt.13.04.17 15/2017 dt.13.04.17 16/2017 dt.13.04.17 7 141/2021 - * - * * 8 9118/2019 - * - * * 9 9120/2019 - * - * * 10 400/2021 - * - * * 11 12467/2021 - * - * * 12 19009/2019 - * * * * 13 15394/2021 - - - * * 14 35445/2019 - - * * * 15 15395/2021 * - - - - [* represents the challenge to the respective Notifications] Table No.5 : Challenge to Show Cause Notice Show Cause Notice Sl. No. W.P.No. S.C.N.No. Date 16 19011/2019 S.C.N.No.03/2019-ST 30.01.2019 17 13476/2021 S.C.N.No.03/2021 26.02.2021 18 12976/2021 S.C.N.No.03/2021 (Audit-I) 21.01.2021 19 14929/2020 S.C.N.No.10/2020-21 10.06.2020 20 35435/2019 S.C.N.No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Tax is unknown. Further, the importer pays Customs Duty on the CIF value of the goods imported. vii. It is submitted that, the attempt to make the steamer agent as the person liable to pay 'Service tax', who has no rational connection with the service transaction is discriminatory, violative of Article 14 of the Constitution and contrary to all established tenets of Service tax law. viii. It is submitted that, in case of FOB (Free on Board), the duty to pay freight is on the importer, who is merely recipient of the service. Hence the importer pays Service Tax directly to the vessel owner. ix. It is submitted that, the Steamer Agent is not the receiver of the service and only acts as an agent for the Vessel Owner and facilitates in vessel berthing and co-ordination with the Customs House Agents of the Consignee. The Steamer Agents already incurs the liability of paying service tax on the Steamer Agent Services provided. x. It is submitted that, the receiver of the service of carriage of goods by sea (for sale of goods on CIF basis), is the shipper. Reverse Charge mechanism normally contemplates that the receiver of the service is liable to pay the tax directly to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore service tax is leviable and payable in India as Sec.66B, Sec.66C and 68 read with Sec.64 does not restrict the levy and payment of service tax to only the service provider and service recipient. vi. The steamer agents are attempting to artificially bifurcate a single transaction of transportation of goods into two different transactions for the purpose of contending that the services provided by them are restricted to steamer agent service as defined in Sec.65(97), 65(100) and Sec.65(105(i) as they existed prior to 01.07.2012. vii.It is submitted that the service of transportation of goods /by sea is complete only when the goods cross the customs frontiers of the country and all the services provided by the steamer agents before the goods cross the customs frontiers of the country. viii.The steamer agents collect service fees alongwith service tax from the Shipping Line for services provided by them. In addition the steamer agents have to collect service tax on transportation services from the shipping lines and pay the same to the Government. ix. It is submitted that Customs Duty is levied in order to protect the domestic industry. When goods manufactured in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Notifications makes an attempt to levy tax on a transaction which does not have any nexus with the Indian importer and also seeks to levy tax twice on the cost of freight. iii. It is submitted that the levy on the importer who is not even privy to the service between two foreign entities is violative of the law. iv. It is submitted that the levy of service tax on the importer through impugned notifications is violative of Section 65B(52) and 68(2) of the Finance Act, 1994 since there is no import of service and the importer is not the recipient of the service of transportation of goods by vessel. v. It is submitted that Section 66B provides for forward charge whereby a service provider in the taxable territory is liable to pay service tax on the consideration received for the services provided by him to another person. vi. It is submitted that Section 94 of the Finance Act provides for "power to make rules". None of the items enumerated under the Central Government is empowered to fix the tariff value of any services. Therefore the impugned Notification No. 16/2017 dated 13.04.2017 which provides for an option to pay the amount calculated at the rate of 1.4% of sum of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the person receiving the service' was replaced by the wordings 'Percentage of Service Tax payable by any person liable for paying Service Tax other than the service provider.' iv. It is submitted that the respondent has the authority to tax when both Service Provider and Service Recipient are located outside the taxable territory since the CIF Value includes the Cost, Insurance & Freight of the Goods imported by the taxpayer. v. It is submitted that the consideration paid to the supplier of goods by the importer on the terms of CIF includes the freight charges collected by the Foreign Liner for transportation of goods by a vessel from a place outside India up to the customs station of clearance in India. vi. It is submitted that the freight Charge is collected by the Supplier of the goods included in the Invoice Value. The importer makes payment as per the agreed CIF Rate. Hence the cost of freight included in the CIF is borne by the importer indirectly. vii. It is a kind of import of Service received from Non-taxable Territory to Taxable Territory. Hence, the liability of paying the Service Tax under RCM is with the importer of the goods though the petitioner has contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Government to issue notification to give effect to the provisions of the Act. 18. Section 64 of the Finance Act, 1994, limits the extent of the application of the provisions of Chapter V of the Finance Act, 1994. Section 64 sets the contour for Application of Chapter V of the Finance Act, 1994. As per Section 64 of the Finance Act, 1994, the Chapter Vof the Finance Act, 1994, extends to the whole of India except to the State of Jammu and Kashmir. 19. Though, Section 64 of the Finance Act, 1994 of Chapter V of the Finance Act, 1994 applies to the whole of India of other than State of Jammu and Kashmir, as a thumb rule, service tax was initially levied only on those services which were provided and consumed within India. 20. However, over a period of time, there was a dilution to the above restrictions by periodical amendments to the provisions of the Finance Act, 1994, the Rules thereunder and Notifications issued thereunder. 21. Over a period of time, import of service from outside the territory of India for being consumed in India for business was made liable to tax. The liability to pay service tax was however on the recipient of service on reverse charge basis as it was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "transaction in money or actionable claim" shall not include - (i) any activity relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged; (ii)any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out - (a) by a lottery distributor or selling agent on behalf of the State Government, in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner, in accordance with the provisions of the Lotteries (Regulation) Act, 1998; (b) by a foreman of chit fund for conducting or organising a chit in any manner. Explanation 3. - For the purposes of this Chapter,- (a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; (b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ient of a taxable service under a notification issued under Section 68(2) of the Finance Act,1994. 30. The provisions of the Finance Act, 1994 are flexible. Wide powers were vested with the Central Government to levy service tax not only on those services which are actually provided and consumed in India but also on those which are provided outside India but had territorial nexus with activities in India. 31. Service provided outside the land mass of India, for being consumed in India is ordinarily a zero rated in the country from where it is provided. Such services are not ordinarily taxed in the country from where such services are provided as most of the countries want their exports not to be burdened with tax as they bring in much desired foreign exchange into their country. 32. However, such services are taxed in the country of their consumption like custom duty on import of the goods. Since such services are consumed in India both directly and indirectly, they are taxed in India under the scheme of the Finance Act, 1994. 33. The philosophy to impose service tax on import of service is to tax it at the place of its consumption i.e. at the destination of its consumption. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n No.1/2017-ST dated 12.01.2017 with effect from 22.01.2017. 41. Under Section 66C(1) of the Finance Act, 1994, the Central Government framed "The Place of Provisions of Service Rules, 2012" vide Notification No.28/2012-ST dated 20.06.2012. 42. When the Place of Provisions of Service Rules, 2012 is read in conjunction with Service Tax Rules Act, 1994 and the notifications issued under Section 68(2) the Finance Act, 1994, service tax could be levied and collected from any person other than the provider of service. 43. As mentioned above, services rendered by way of transportation of goods in a vessel from a place outside India up to the customs station of clearance in India were specifically made taxable for the first time with effect from 22.01.2017 in view of withdrawal of exemption under Mega Exemption Notification No.25/2012-ST dated 20.06.2012 vide impugned Notification No.1/2017-ST dated 12.01.2017 with effect from 22.01.2017. 44. Though the petitioners have challenged several notifications in these Writ Petitions, they are really aggrieved by the impugned Notification No.1/2017-ST dated 12.01.2017 with effect from 22.01.2017 withdrawing exemption under Sl.No.34(c) to Mega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of 'service' in Section 65B(44) of the Finance Act, 1994 with effect from 01.07.2012 was intended to fulfil the avowed object of the Parliament to impose tax on every service consumed whether directly and/or indirectly in India and on the premises that the service sector had surpassed the manufacturing sector and contributed to the Gross Domestic Product (GDP) of the country and therefore should be taxed. 49. However, the broad definition of 'service' in Section 65B(44) of the Finance Act, 1994 with effect from 01.07.2012 made every activity for consideration by one person to another person under the sun as "service". Therefore, to reduce to the vigour of the broad definition of "service" in Section 65B(44) of the Finance Act, 1994, Mega Exemption Notification No.25/2012-ST dated 20.6.2012 was issued in public interest. Sl.No.34(c) of the Mega Exemption Notification No.25/2012-ST dated 20.6.2012 exempted services rendered by way of transportation of goods in a vessel from a place outside India up to the customs station of clearance in India. 50. As mentioned above, even prior to the changes brought in the Finance Act, 2012 to Chapter V of the Finance Act, 1994, Section 64 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Finance Act, 1994. They shifted the burden on these petitioners to pay service tax during the respective period. Thus, an attempt was made to shift the burden on these two categories of writ petitioners during the respective period. 57. The Place of Provisions of Services Rules, 2012 which was issued under Notification No.28/2012-S.T., dated 20.06.2012 with effect from 01.07.2012 was intended to implement the object of Section 66C(1) of the Finance Act, 1994. 58. There has been no amendment to the Place of Provision of Services Rules, 2012 since its introduction. The Place of Provision of Services Rules, 2012 has been challenged in W.P.No.2148 of 2017 by Category I Writ Petitioners. 59. Neither Section 66C of the Finance Act, 1994 nor the Place of Provision of Services Rules, 2012 issued by the Central Government under Section 66C(1) read with Section 94(2)(hhh) of the Finance Act, 1994 with effect from 01.07.2012 vide Notification No.28/2012-ST dated 20.06.2012 can be challenged. They are generic provisions. They are attracted and come into play once an activity satisfies the definition of "service" in Section 65B(44) of the Finance Act,1994 and exemption given is withdr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arance in India ceased to be excluded from the negative list and would have became liable to service tax under Section 66B of the Finance Act, 1994. In these writ petitions, we are not concerned with amendment to Section 66D of the Finance Act, 1994 vide Section 149 (b)(ii) of the Finance Act, 2016. 67. It will be useful refer to changes in the following Table which gives the position as on 01.07.2012 after the amendment to Finance Act, 1994 vide the Finance Act, 2012 came into force with effect from 01.07.2012 before the impugned amendment to the Notification:- Table No. 9 Section 66D(p)(ii) of the Finance Act,1994 prior to its deletion vide Section 149 of the Finance Act 2016. Amendment to Sl.No.34(c) of the Mega Exemption Notification No.25/2012-ST dated 20.6.2012 after impugned Notification No. 1/2017ST dated 12.01.2017 with effect form 22.01.2017 (p) services by way of transportation of goods- (i) by road except the services of- (A) a goods transportation agency; or (B) a courier agency; (ii)by an aircraft or a vessel from a place outside India up to the customs station of clearance in India; or (iii)by inland waterways; Provided that the exemption shall not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of clearance in India which was exempted from 1.7.2012 became liable to pay service tax under Section 66B of the Finance Act, 1994, in view of the above amendment. 74. Thus, intermediate services provided and consumed in the course of import of goods through a vessel or a Shipping liner in connection with transportation of goods from outside the territory of India into India was made liable to service tax in view of the changes. Thus, the collateral notifications impugned in these writ petitions were issued. 75. At best, the petitioners can be said to be aggrieved by the withdrawal exemption in Sl.No.34(c) of Mega Exemption Notification No.25/2012-ST dated 20.06.2012 vide the impugned Notification No.1/2017-ST dated 12.01.2017 with effect from 22.01.2017. However, the law on the subject is well settled against the petitioner. 76. The Hon'ble Supreme Court in the case of Kasinka Trading Vs. Union of India, 1995 (1) SCC 274 : 1994 (74) E.L.T.782 (S.C.) has clarified the position. The power to grant exemption implies power to withdraw the exemption. A reference is made to some of the paras from the said judgment which is extracted under:- 20. The power to grant exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intended to create a legal relationship and that it was acted upon as such by the party to whom the same was made. A Notification issued under Section 25 of the Act cannot be said to be holding out of any such unequivocal promise by the Government which was intended to create any legal relationship between the Government and the party drawing benefit flowing from the said Notification. It is, therefore, futile to contend that even if the public interest so demanded and the Central Government was satisfied that the exemption did not require to be extended any further, it could still not withdraw the exemption. ..... 23.It needs no emphasis that the power of exemption under Section 25(1) of the Act has been granted to the Government by the Legislature with a view to enabling it to egulate,control and promote the industries and industrial productions in the country. Where the Government on the basis of the material available before it, bona fide, is satisfied that the "public interest" would be served by either granting exemption or by withdrawing, modifying or rescinding an exemption already granted, it should be allowed a free hand to do so. We are unable to agree with the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India vs. Bharat Commerce & Industries Limited, 1999 (107) E.L.T.582 (S.C.). viii.Union of India vs. Indian Charge Chrome, 1999 (112) E.L.T.753 (S.C.); ix. Union of India vs. Unicorn Industries, 2019 (368) E.L.T.202 (S.C.); x. Hero Motocorp Limited vs. Union of India, 2022 (66) G.S.T.L.129 (S.C.). 78. Therefore, challenge to notification No.1/2017-ST dated 12.01.2017 w.e.f 22.01.2017 in W.P.No.2149 of 2017 also has to fail. 79. Service tax would have been payable right from inception i.e. from 1.7.2012 either on the Steamer Agents or on the importer as the case may be but for the concession given by the parliament under the negative list in Section 66D and by the Central Government vide Sl.No.34(c) to Mega Exemption Notification 25/2012 ST dated 20.06.2012. 80. It cannot be said that the Place of Provision of Services Rules, 2012 issued vide Notification No.28/2012-ST dated 20.12.2012 was invalid, merely because exemption that was earlier granted vide Sl.No.34(c) to Mega Exemption Notification 25/2012 ST dated 20.06.2012 was withdrawn vide Notification No.1/2017-S.T., dated 12.01.2017. 81. The petitioners in W.P.No.2147 of 2017 (Category I) had no occasion earlier to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that it is envisaged under our constitutional scheme that Parliament in India may make laws which operate extraterritorially. Art. 245(1) of the Constitution prescribes the extent of laws made by Parliament. They may be made for the whole or any part of the territory of India. Art. 245(2) declares that no law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation. Therefore, a Parliamentary statute having extra-territorial operation cannot be ruled out from contemplation. The operation of the law can extend to persons, things and acts outside the territory of India. The general principle, flowing from the sovereignty of States, is that laws made by one State can have no operation in another State. The apparent opposition between the two positions is reconciled by the statement found in British Columbia Electric Railway Company Limited v. The King, [1946] A.C. 527: "A legislature which passes a law having extraterritorial operation may find that what it has enacted cannot be directly enforced, but the Act is not invalid on that account, and the courts of its country must enforce the law with the machinery available to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under:- Table No.10 Entry 34 Mega Exemption Notification No.25/2012-ST, dated 20.06.2012, w.e.f. 01.07.2012 34. Services received from a provider of service located in a nontaxable territory by - a. Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession; b. an entity registered under section 12AA of the Income Tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities; or c. a person located in a non-taxable territory; Provided that the exemption shall not apply to online information and database access or retrieval services received by persons specified in clause (a). Provided that the exemption shall not apply to - i. online information and database access or retrieval services received by persons specified in clause (a); or ii. services by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India. Note: The above Proviso as it read when Mega Exemption Notification No.25/2012-ST, dated 20.06.2012 was introduced w.e.f. 01.07.2012 Note: The above Proviso as amended by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on: 3. Introduces and later substitutes Rule 2(1)(d)(EEB) to STR, 1994. Person Liable to pay Tax. The person who complies with the provision of Section 29,30 or 38 of the Customs Act, 1962. ie. Steamer Agents. The person who imports i.e. importer. 2 30/2012-ST dated 20.6.2012-with effect form 1.7.2012. 3/20170ST dt dt12.1.2017 with effect from 22.1.2017. 15/2017-ST dt 13.4.2017 with effect from 23.4.217 W.P.No.2151 of 2017 W.P. at Sl.Nos.7 to 14 of Table 4 The parent notification 30/2012-ST dated 20.6.2012-with effect form 1.7.2012 was issued under Section 68(2) of the Finance Act, 1994 to shift the burden. Impugned Notifications 3/20170ST dt dt12.1.2017 with effect from 22.1.2017 15/2017-ST dt 13.4.2017 with effect from 23.4.217 give effect to the above amendments in the Notification in Column C &D as above to parent Notification No.30/2012-ST dated 20.6.2012-with effect form 1.7.2012 issue under notification issued under Section 68(2) of the Finance Act, 1994 by shifting the burden to pay service tax. Person Liable to pay Tax The person who complies with the provision of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23.04.2017 2(1) In these rules, In these rules, unless, the context otherwise requires:- (d) " person liable for paying service tax" :- (i) in respect of the taxable services notified under sub-section (2) of Section 68 of the Act, means;- (EEC) in relation to services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, the person in India who complies with Sections 29, 30 or 38 read with Section 148 of the Customs Act, 1962 (52 of 1962) with respect to such goods; (EEC) in relation to services provided or agreed to be provided by a person located in non-taxable territory to a person located in nontaxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, the importer as defined under clause (26) of Section 2 of the Customs Act, 1962 (52 of 1962) of such goods; 101. A further amendment was also made to the Service Tax Rules, 1994 vide impugned Notification No.16/2017-ST, dated 13.04.2017 by inserting sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after the impugned Notification No.3/2017-ST dated 12.01.2017 during the period in dispute reads as follows:- Notification No.30/2012- ST, dated 20.06.2012 I.The taxable services,- In exercise of the powers conferred by subsection (2) of section 68 of the Finance Act, 1994 (32 of 1994) and in supersession of (i) notification of the Government of India in the Ministry of Finance (Department of Revenue), No.15/2012-Service Tax, dated the 17th March, 2012, published in the Gazette of India, Extraordinary, Part Ii, Section 3, Sub-Section (i) vide number G.S.R 213(E) dated the 17th March, 2012 and (ii) notification of the Government of India in the Minsitry of Finance (Department of Revenue) No.36/204, Service Tax, dated the 31st December, 2004, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R.849(E) dated the 31st December, 2004, except as respects things done or omitted to be done before such supersession, the Central Government hereby notifies the following taxable services and the extent of service tax payable thereon by the person liable to pay service tax for the purposes of the said subsection namely:- (A) (i)... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace outside India up to the customs station of clearance in India, person liable for paying service tax other than the service provider shall be the person in India who complies with sections 29, 30 or 38 read with section 148 of the Customs Act, 1962 (52 of 1962) with respect to such goods.". Explanation IV.- For the purposes of this notification, "non-assesse online recipient" has the same meaning as assigned to it in clause (ccba) of subrule 1 of rule 2 of Service Tax Rules, 1994. Explanation V.- For the purposes of this notification, in respect of services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, person liable for paying service tax other than the service provider shall be the importer as defined under clause (26) of section 2 of the Customs Act, 1962 (52 of 1962) of such goods.". 110. Section 29 of the Customs Act, 1962 refers to the obligations of the person-in charge of a vessel or an aircraft entering India from any place outside India. Section 30 of the Customs Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice tax or value of a taxable service or rate of exchange, as the case may be, in force or as applicable at the time when the taxable service has been provided or agreed to be provided. For the purposes of this section, "rate of exchange" means the rate of exchange determined in accordance with such rules as may be prescribed. (2) The time or the point in time with respect to the rate of service tax shall be such as may be prescribed. Determination of point of taxation in case of services provided by a person located in non-taxable territory to a person in non-taxable territory. - Notwithstanding anything contained in these rules, the point of taxation in respect of services provided by a person located in non-taxable territory to a person in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, shall be the date of bill of lading of such goods in the vessel at the port of export.". 117. Prior to amendment to the Point of Taxation Rules, 2011 vide impugned Notification No.14/2017-ST dated 13.04.2017 with effect from 23.04.2017, the point of taxation was:- ● the time when the invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue gets taxed in the case of CIF Contract. In the case of FOB contracts, the importers have to in any event include the value under Section 14 of the Customs Act, 1962. Thus, to tax, the overseas freight twice is also uncalled. 124. Such cost of such transportation is factored into the price of the shipment and such cost of such shipment gets built into the transaction value of the import goods at the time and place of importation. Computation of service tax in CIF contract is impossible. That apart, in view of the Division Bench of the Gujarat High in Sal Steel Ltd Vs. Union of India, (2020) 37 GSTL 3, no tax can be demanded on an ocean freight or importers. 125. Neither the importer in India who imports the goods at the place of destination in India will have an idea as to the cost of such services which are in built and borne by the foreign shipping liners nor the steamer agents who book cargo for and behalf of a shipping liner. 126. Further, in the case of contracts on a CIF (Cost, Freight and Insurance), the foreign supplier-exporter engages the services of the Overseas Shipping Liner and is responsible for arranging transportation and insurance of the goods. The considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.4.2017 for the respective period. Those amendments vide the impugned notifications were intended to declare these petitioners as "persons liable to pay tax". 134. Thus, a statutory framework for shifting the burden to pay tax was made. However, the Notification No.3 of 2017-ST, dated 12.01.2017 had defects right from the time of its inception. 135. The other collateral notifications which have been challenged in these writ petitions are merely incidental and only consequential to withdrawal of exemption in Mega Exemption Notification No.25/2012- ST dated 20.06.2012 vide impugned No.1/2017-ST dated 12.01.2017 with effect from 22.01.2017. They have been issued with a view to implement the changes on account of withdrawal of exemption under impugned No.1/2017-ST dated 12.01.2017 with effect from 22.01.2017. 136. Although, Notification No.30/2012-ST dated 20.06.2012 issued under Section 68(2) of the Finance Act, 1994 has been amended by Notification No.3/2017- ST, dated 12.01.2017 with effect from 22.01.2017 and later by Notification No.15/2017-ST dated 13.04.2017, it is evident that as per Sl.No.12 to the above notification, it is only the "recipient of service" who can be made l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 2 of the Customs Act, 1962 of such goods between 23.04.2017 and 30.06.2017. 140. The demand are incapable of being enforced in view of the above defects pointed out in the amendment to Notification No.30/2012- ST dated 20.06.2012 issued under Section 68(2) of the Finance Act, 1994 vide the impugned Notification No.3/2017, dated 12.01.2017 under the scheme of the Act, the Rules made thereunder and the Notifications issued. 141. We are therefore of the view that there is no scope for shifting the burden on these two categories of writ petitioners to pay service tax as things stand. Therefore, these collateral notifications which have been challenged need not be declared ultra vires as such. 142. Further, there is no privity of contract between the petitioners and the ancillary service providers of the shipping liner who provide services to the Overseas Shipping Liners. Although the goods are exported by the foreign supplier-exporter who engages the service of the Overseas Shipping Liners, it is the overseas shipping liners who engages the service of ancillary service providers. The enroute petitioners cannot be construed as the recipients of service to make them liable to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppliers of the goods have made contracts with the shipping line/shipper for sea transportation of the goods, and such overseas sellers/suppliers have made payment of transportation charges to the shipping line; and admittedly there is no contract nor any arrangement between the Petitioners (who are Indian importers/buyers of the goods) and the shipping line for sea transportation. Thus, Ocean freight is admittedly paid by the overseas suppliers/sellers to the shipping line, and therefore the overseas suppliers i.e. the sellers of the goods located in foreign country are the persons who have received service of sea transportation from the shipping line, and the value of such service i.e. ocean freight is also paid by such overseas suppliers/sellers for receiving such service. ...... 30. All the three impugned provisions are made by the Central Government by way of amending Service Tax Rules, but there is no power conferred upon the Central Government under Section 94 of the Finance Act for charging and collecting tax on extraterritorial events. The impugned provisions allowing the Central Government to recover service tax on sea transportation occurring upto the land mass of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statutory provisions of the Finance Act, as discussed below. ..... 38. But the importers in CIF contracts i.e. the writ applicants herein are neither service providers nor service receivers in respect of transportation of goods by a vessel from a place outside India upto the Customs station of clearance in India. Section 68 (1) and also the reverse charge Notification under Section 68(2) permit the Central Government to collect and recover service tax only from the person providing the service or from the person receiving the service, and not from a third party. The rule making power of section 94 also does not permit the Central Government to make rules for recovering service tax from a third party who is neither the service provider nor the service receiver. 39. Therefore, the impugned provisions i.e. Rule 2(1)(d)(EEC) and Explanation V to Notification No. 30/2012-ST are ultra vires Section 65B(44) defining "service" and Section 68, and also Section 94 of the Finance Act. Strict Interpretation of the charging Section: It is not the case of the Respondents that importers like the Petitioners have received services of sea transportation from the shipping lines. The Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice as laid down under the machinery provision of Section 67 of the Finance Act, no service tax can be assessed and charged from third parties like the Indian importers in CIF contracts, because "value" of sea transportation service is not available with them in CIF contracts. 46. In the present cases, since the value of ocean freight is not available, Sub Rule (7CA) is inserted in Rule 6 of the Service Tax Rules thereby giving an option to the importer to pay service tax on 1.4% of CIF value of imported goods. But this insertion of Sub Rule (7CA) in Rule 6 is also ultra vires the machinery provision of Section 67, and also rule making power of Section 94. 47. There is no power conferred upon the Central Government under Section 94 to fix value of any service, the way such power is conferred upon the Board under Section 14(2) of the Customs Act, 1962. In absence of any power vested in the Central Government to fix value of any service by way of making a rule or a notification, Rule 6 (7CA) of the Service Tax Rules is ultra vires the Rule making power. Secondly, it is an option under Rule 6(7CA) to pay service tax on the amount calculated @1.5% of CIF value of the imported go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 was issued in the background of withdrawal of exemption for services provided by a person located in a non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India vide impugned Notification No. 1/2017-S.T., dated 12.1.2017 with effect from 22.1.2017. 153. Para 4 and 4.1 of Circular No. 206/4/2017-ST dated 12.4.2017 read as under:- Table No.17 4. It is pertinent to point out here that under notification No. 26/2012- S.T., dated 20-6-2012 (Sl. No. 10), there is an exemption on 70% of value of services of transportation of goods in a vessel subject to the fulfillment of the condition that Cenvat credit on inputs and capital goods used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. This conditional exemption has been extended for the reason that out of the full value of such services, the exempted value of service has already suffered taxes (Central Excise) which would have been available as Cenvat credit to set off service tax on full value of service. In effect, service tax is levied on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50 Same as above*. * CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. 155. Though, Notification No.26/2012-ST dated 20.06.2012, was in force from 01.07.2012, it did not impact these petitioners earlier as service provided outside the territory of India in relation to import of the goods through vessel till the customs port, was exempted vide Sl.No.34 (c) Mega Exemption Notification No.25/2012-ST dated 20.12.2012. 123. If it is the case of the petitioners that the clarification in Para 4 and 4.1 of Circular No. 206/4/2017-ST dated 12.4.2017 is incorrect, these petitioners are only questioning the denial of abatement in the above notification. 156. Further, in view of Notification No.16/2017-ST dated 13.04.2017, a compounded scheme for payment of service tax has been provided at 1.4% of the (CIF) value of the imported goods. Thus, these petitioners have thus tacitly admitted that the levy of service tax was valid save that they have not been given abatement under Notification No.26/2012-ST dated 20.06.2012 since the overseas service providers could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date of receipt of a copy of this order, if such refund applications have not been already filed. Such refund applications shall be disposed of in accordance with the decision of the Hon'ble Supreme Court in Mafatlal Industries Private Limited vs. Union of India, 1997 (89) E.L.T.(S.C.). within a period of 60 days thereafter. Wherever refund applications have already been filed, they shall be disposed of in terms of the above decision of the Hon'ble Supreme Court, within a period of 60 days from the date of receipt of a copy of this order. 164. In the result, it is held as follow:- i. The challenges to Section 66(2) of the Finance Act, 1994, impugned Circular No.206/4/2017 - Service Tax, dated 13.04.2017 and impugned Notifications issued by the Central Government under the provisions of the Finance Act, 1994 fail. Therefore, Writ Petitions in Table, 1,2,3 4 are liable to be dismissed and are accordingly dismissed. ii. These petitioners are however not the recipient of service for the purpose of the impugned Notification No.3/2017- ST dated 12.01.2017 amending Notification No.30/2012- ST dated 20.06.2012 issued under Section 68(2) of the Finance Act,1994. iii. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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