Refund of Service Tax on Ocean Freight: Current Status
The refund of service tax on ocean freight is currently stayed, as the Supreme Court is yet to pronounce its final verdict on the constitutional validity of the levy. For many importers who paid service tax under protest between 2017 and 2020, this stay has put refunds on hold across the country.
Background: Why Ocean Freight Was Taxed
- Under reverse charge mechanism, Indian importers were made liable to pay service tax on ocean freight for CIF (Cost, Insurance, Freight) imports.
- The levy was introduced through Notification No. 15/2017-ST and 16/2017-ST, amending earlier exemption notifications.
- This was challenged in courts as double taxation, since importers already paid Customs Duty including CVD (which included freight).
Legal Battle So Far
- The Gujarat High Court in Mohit Minerals Pvt Ltd v. Union of India (2018) held the levy ultra vires the Finance Act, 1994.
- CBIC filed an appeal in the Supreme Court, which granted a stay on refunds pending final adjudication.
- The matter was later extended to GST-era levies, but the pre-GST service tax refund issue remains unresolved.
Who Is Affected by This Stay?
- Importers of goods on CIF basis between FY 2017–18 and June 30, 2017 (i.e. pre-GST).
- Assessees who paid service tax under protest and filed refund claims.
- Service tax refunds granted by some tribunals and High Courts are not being disbursed, citing the SC stay.
Government Position & Practical Impact
- CBIC has directed field officers not to process refunds until final SC judgment.
- Refunds already sanctioned are not being released, pending clarity.
- Taxpayers face working capital blockage despite favorable rulings.
Expert View: Practical Tip for Assessees
“Those who’ve paid under protest should retain all documents and ensure claims are kept alive. File reminder letters every 6 months to prevent time-bar.”
— CA S. Mehta, Indirect Tax Expert
CBIC Circulars and Notifications Involved
| Document | Summary |
|---|---|
| Notification No. 15/2017-ST | Imposed service tax on ocean freight on CIF imports |
| Notification No. 16/2017-ST | Reverse charge mechanism for freight |
| CBIC Instruction (2023) | Directed refund hold pending SC ruling |
What Should You Do Now?
- No need to refile refund applications if already filed.
- File a simple follow-up letter every 6 months to keep the claim active.
- Consult a tax professional to prepare a defense strategy in case SC rules in favour of the government.
FAQ: Refund of Service Tax on Ocean Freight
Q1. Can I still apply for refund of ocean freight service tax?
No new refund claims are being entertained. Only those filed within the prescribed time earlier are valid.
Q2. Will interest be paid if refund is allowed later?
Yes, as per Section 11BB of the Central Excise Act (applied to service tax), interest is payable if refund is delayed beyond 3 months after eligibility.
Q3. Is this issue connected to GST refund claims on ocean freight?
Yes, the Mohit Minerals matter under GST also involves similar legal issues, but this stay is specifically for service tax refunds.
Summary
Refund of service tax on ocean freight is currently stayed as the Supreme Court examines its validity. Importers who paid tax under protest must keep their claims alive by filing periodic reminders.
Conclusion
The refund of service tax on ocean freight remains blocked due to the Supreme Court’s stay. While the legal position may favour taxpayers eventually, till then, proactive documentation and follow-up is the only way to protect your refund claim.
Need help tracking your refund or filing reminders? Contact Efiletax — our team will guide you through every step.