Service Tax on Ocean Freight in CIF Imports is Illegal: Karnataka High Court

The Karnataka High Court has held that service tax cannot be levied on ocean freight for imports made on a CIF (Cost, Insurance and Freight) basis, as such transactions fall outside the scope of the Finance Act, 1994.

The Court ruled that transportation services under CIF contracts are rendered and consumed outside India, making them extraterritorial in nature.

It struck down Notifications No. 15/2017-ST and 16/2017-ST to the extent they sought to impose service tax on importers under the reverse charge mechanism.

Holding that an importer under a CIF contract is neither the service provider nor the recipient, the Court quashed the tax demand and allowed liberty to seek a refund, subject to unjust enrichment principles.