Legal principle

Under notifications issued under Section 68(2) of the Finance Act, 1994, only the 'recipient of service' can be saddled with service tax on transport of goods by a vessel from a place outside India up to the customs station of clearance in India, and since neither steamer agents nor importers are such recipients, service tax cannot be demanded from them even though the notification itself is not ultra vires the Constitution.

Court decision

The writ petition was allowed and disposed of in terms of the Madras High Court's judgment in The Chennai and Ennore Ports Steamer Agents Association v. Union of India (28.03.2023, W.P. Nos. 2147-2151/2017). Per that adopted judgment: the challenges to Section 66C(2) of the Finance Act, 1994, Circular 206/4/2017-ST and the impugned notifications failed (those writ petitions were dismissed), and the challenge to Notification 1/2017-ST failed per Kasinka Trading; however, neither steamer agents nor importers are recipients of the service, so there is no scope for demanding service tax from them under Notification 3/2017-ST as it stands — the impugned show cause notices stand quashed, and the respondents are barred from issuing fresh show cause notices to importers and steamer agents for the period 22.01.2017 to 30.06.2017 for similar activity. Refund claims were to be filed within 30 days and disposed of within 60/90 days per Mafatlal Industries. The petitioner thus succeeded on the demand/SCN front while its constitutional and Customs Act validity challenges failed.

Facts

The petitioner, an association of steamer agents at Mangalore (through W.P. No. 32835/2017 under Articles 226/227), challenged the levy of service tax on transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, i.e., ocean freight on imported goods. After the Mega Exemption Notification No. 25/2012-ST was withdrawn by Notification No. 1/2017-ST with effect from 22.01.2017, the department issued Notifications No. 2 and 3 of 2017, No. 15/2017-ST and Circular No. 206/4/2017-ST, which made persons in India (importers/steamer agents) liable for 100% of the service tax, and show cause notices were issued to the petitioners demanding the tax. The petitioner sought declarations that Section 66C(2) of the Finance Act, 1994, Rule 10 of the Place of Provision of Service Rules, 2012, and the notifications/circular were ultra vires the Constitution and, in the case of Notifications 2 and 3 of 2017, contrary to Section 14 of the Customs Act, 1962 read with Rule 10(2) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 2007.

Key provisions

• Section 14, Customs Act, 1962 — Valuation of goods
• Section 29, Customs Act, 1962 — Arrival of vessels and aircrafts in India
• Section 148, Customs Act, 1962 — Liability of agent appointed by the person in charge of a conveyance
• Section 38, Customs Act, 1962 — Power to require production of documents and ask questions
• Section 2, Customs Act, 1962 — Definitions
• Section 30, Customs Act, 1962 — Delivery of arrival manifest or import manifest or import report
• Section 94, Customs Act, 1962 — Clearance of coastal goods at destination