CESTAT Ahmedabad: Importers Not Liable for Service Tax on Ocean Freight Under CIF Contracts

January 31, 2026 : The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal has ruled that importers cannot be fastened with service tax liability on ocean freight paid under CIF (Cost, Insurance and Freight) contracts once the relevant notifications imposing such liability have been struck down as ultra vires. Dismissing the appeal filed by the Revenue, the Tribunal upheld the order of the Commissioner (Appeals) granting relief to the assessee.

The Bench, comprising Dr. Ajaya Krishna Vishvesha (Judicial Member) and Satendra Vikram Singh (Technical Member), held that an importer who is neither the service provider nor the service recipient cannot be made liable to pay service tax on ocean freight paid by a foreign exporter to a foreign shipping line. The Tribunal observed that tax liability cannot be imposed merely by creating a legal fiction under the Finance Act, 1994.

The case arose from proceedings against Netafim Irrigation India Pvt. Ltd., which imports raw materials such as drippers, polyethylene resin and master batches for manufacturing drip irrigation systems. The imports were made on a CIF basis, under which the freight was paid by overseas suppliers. Relying on Notification No. 15/2017-ST dated 13 April 2017, the Department alleged that ocean freight was liable to service tax under the reverse charge mechanism with effect from 23 April 2017.

Following investigation, a show cause notice dated 11 October 2019 was issued demanding service tax of ₹84.31 lakh, including Swachh Bharat Cess and Krishi Kalyan Cess, along with interest and penalty under the Finance Act, 1994. The adjudicating authority confirmed the demand. On appeal, however, the Commissioner (Appeals) set aside the order, relying mainly on the Gujarat High Court’s decision in SAL Steel Ltd. v. Union of India.

Challenging this relief, the Revenue argued before the Tribunal that ocean transportation services are partly performed in India since delivery takes place at Indian ports, and that service tax, being a destination-based consumption tax, was rightly leviable. It was also contended that Parliament has extra-territorial legislative competence where a sufficient nexus with India exists, and that the SAL Steel ruling was under challenge before the Supreme Court.

Rejecting these submissions, the Tribunal held that the Gujarat High Court’s judgment in SAL Steel Ltd., which struck down Notifications No. 15/2017-ST and 16/2017-ST as ultra vires Sections 64, 66B, 67 and 94 of the Finance Act, 1994, continues to hold the field. The Bench noted that the said ruling has been consistently followed in subsequent decisions.

The Tribunal also relied on its earlier rulings in Polycab Wires Pvt. Ltd. and Balbir Metals & Power Pvt. Ltd., and referred to the Supreme Court’s decision in Union of India v. Mohit Minerals Pvt. Ltd., where the levy of IGST on ocean freight under the GST regime was held unconstitutional. The Bench observed that the principle laid down by the Supreme Court reinforces the position that an importer cannot be saddled with tax liability on ocean freight when it is neither the service provider nor the service recipient.

In view of the settled legal position, the CESTAT dismissed the Department’s appeal and upheld the order setting aside the service tax demand on ocean freight. The cross-objection filed by the assessee was also disposed of accordingly.

Case Title: Commissioner of C.E. & S.T.-Vadodara-II v. Netafim Irrigation India Pvt. Ltd.
Case No.: Service Tax Appeal No. 10712 of 2020-DB
Bench: Ahmedabad, CESTAT