Legal principle

A charging provision and notification may survive challenge, but service tax cannot be demanded from a person who is neither the provider nor the recipient of the taxable service where the notification under Section 68(2) of the Finance Act, 1994 contains no machinery to shift the liability onto him.

Court decision

Partly for the petitioners, partly for the Union. The challenges to the vires of Section 66C(2) of the Finance Act, 1994, Circular No.206/4/2017-ST and the impugned notifications failed and the writ petitions in Tables 1 to 4 were dismissed (the challenge to Notification No.01/2017-ST failing on the strength of Kasinka Trading vs. Union of India). However, the court held the petitioners were not recipients of the taxable service and, in view of defects (absence of machinery under Section 68(2)) in Notification No.3/2017-ST amending Notification No.30/2012-ST, no service tax could be demanded from them; the show cause notices in Table 5 were quashed, the respondents were restrained from issuing similar show cause notices for the period 22.01.2017 to 30.06.2017, and refund claims were to be filed within 30 days and disposed of within 60/90 days per Mafatlal Industries vs. Union of India.

Facts

Steamer agents (represented by the Chennai and Ennore Ports Steamer Agents Association) and importers of goods transported by sea filed a batch of 22 writ petitions against the Union of India. The dispute concerned levy of service tax on ocean freight on import of goods by vessel, earlier exempt under Sl.No.34(c) of Mega Exemption Notification No.25/2012-ST but brought to charge from 22.01.2017 via Notification No.30/2012-ST as amended by Notification No.03/2017-ST, with a compounded scheme at 1.4% of CIF value under Notification No.16/2017-ST. The department issued Notifications Nos.1, 2 and 3/2017-ST and 14, 15 and 16/2017-ST, a Circular No.206/4/2017-ST denying abatement, and show cause notices demanding service tax from the petitioners, prompting the present challenges to the vires of Section 66C(2) of the Finance Act, 1994, the notifications and the circular, plus refund claims.

Key provisions

• Section 30, Customs Act, 1962 — Delivery of arrival manifest or import manifest or import report
• Section 29, Customs Act, 1962 — Arrival of vessels and aircrafts in India
• Section 38, Customs Act, 1962 — Power to require production of documents and ask questions
• Section 148, Customs Act, 1962 — Liability of agent appointed by the person in charge of a conveyance
• Section 2(26), Customs Act, 1962 — Definitions
• Section 14, Customs Act, 1962 — Valuation of goods
• Section 94, Customs Act, 1962 — Clearance of coastal goods at destination