CESTAT Rules in Favor of Polycab Wires, Quashes Service Tax Demand

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) in Ahmedabad has ruled in favor of Polycab Wires Pvt Ltd by quashing a demand for service tax on ocean freight. This decision addresses a notable case where the company was audited and found to have imported raw materials by sea without remitting the required service tax during the period from April 23, 2017, to June 30, 2017.

During the audit, authorities discovered that Polycab had incurred expenses related to ocean freight but had not paid service tax under the reverse charge mechanism. Consequently, a show cause notice was issued on August 2, 2018, demanding service tax of ₹11,23,903 (including cess) as stipulated under Section 73 of the Finance Act, 1994. Following this, an Assistant Commissioner upheld the demand and imposed an equal penalty on January 30, 2019, further complicating the financial burden on the company.

Polycab subsequently appealed to the Commissioner (Appeals), which upheld the Assistant Commissioner’s decision on May 28, 2019. This prompted Polycab to escalate the matter to CESTAT, arguing that they had already paid service tax on ocean freight by availing of a 70% abatement. They contended that the department’s demand for service tax on the full value of ocean freight was legally unsustainable.

The case highlights underlying issues regarding the interpretation of relevant notifications and the legal framework surrounding service tax. The appellant pointed out that the Commissioner had not addressed the findings of the High Court of Kerala in the case of GAC Shipping India Pvt. Ltd. vs. Union of India, which supported their stance on similar grounds. They argued that the charges of suppression of material facts were unfounded, emphasizing that penalties should not be imposed when there is room for interpretation.

During the hearing, the Advocate for Polycab cited several cases, including a ruling from the Gujarat High Court on January 30, 2020, which had previously allowed a similar appeal concerning ocean freight service tax. The CESTAT bench, comprising Member (Judicial) Mr. Somesh Arora and Member (Technical) Mr. Satendra Vikram Singh, recognized that the issue had been addressed by multiple Tribunal and High Court decisions, ultimately siding with Polycab.

In its ruling, CESTAT emphasized that the notifications related to service tax on ocean freight were struck down as exceeding the bounds of the Finance Act, 1994. The Tribunal’s decision not only quashes the demand but also sets a precedent that could benefit other importers facing similar charges.

This outcome provides significant relief to Polycab Wires and reinforces the importance of clear legal interpretations in tax regulations. As the landscape of service tax continues to evolve, businesses will be watching closely for further developments and clarifications from regulatory bodies.