In a significant relief for importers, the Karnataka High Court has set aside service tax demands on ocean freight, reaffirming that such levies are not sustainable under the law. The decision follows the landmark judgment of the Madras High Court, which had earlier struck down the levy of service tax on ocean freight under reverse charge for CIF (Cost, Insurance & Freight) imports.
The Karnataka High Court, while adjudicating a batch of petitions filed by various importers, held that the levy imposed through subordinate legislation could not override the scheme of the Finance Act, 1994. The Court observed that the Centre’s attempt to tax ocean freight—despite the fact that IGST was already being paid on the total CIF value of goods—resulted in double taxation.
Industry stakeholders have welcomed the decision, stating that it brings much-needed clarity and avoids repetitive tax burdens on importers. Tax experts also note that this ruling further strengthens the legal position across the country, reducing the likelihood of future litigation on the issue.
With two major High Courts now concurring on the matter, the spotlight shifts to whether the Central Government will escalate the issue before the Supreme Court or issue a clarification to settle the dispute definitively.