ALO Law Office- IDT Tax I Arbitration I Litigation
Date: 10.12.2025
Madras High Court Quashes Service Tax Notifications and IGST on Ocean Freight as Ultra Vires
This Article has been written by Shri Ravi Shekhar Jha, Advocate based in New Delhi. The views expressed are based on his interpretation of the law. He can be reached at his email id intelconsul@gmail.com or on his Mobile +91-9999005379.
In a significant judgment dated October 13, 2025, the Madurai Bench of the Madras High Court, comprising Honourable Justice, delivered a landmark ruling in the cases W.P. β(MD) Nos. β 1139 & 1143 of 2021 and 14856 & 14857 of 2022. β The court declared certain service tax notifications and the imposition of Integrated Goods and Services Tax (IGST) on ocean freight as ultra vires, providing relief to the petitioners.
Background of the Case
The petitions were filed by M/s. TVS Srichakra Limited and M/s. β Hitech Arai Private Limited, challenging Notifications No. β 14/2017, 15/2017, and 16/2017 issued by the Union Ministry of Finance on April 13, 2017. β The petitioners argued that these notifications exceeded the scope of Section 68(2) of the Finance Act, 1994, and violated Articles 14, 19(1)(g), 245, and 269A of the Constitution of India. β Additionally, the petitioners sought to quash show-cause notices issued for the collection of service tax and IGST on ocean freight for the period between April 2017 and June 2017. β
Courtβs Observations
The court noted that similar challenges had been addressed by the Madras, Gujarat, and Bombay High Courts in previous cases, including:
- M/s. Eastman Spinning Mills (P) Limited Vs. Union of India (Madras High Court, 2025) β
- Sal Steels Limited Vs. Union of India (Gujarat High Court, 2020) β
- Santhan Textile Private Limited Vs. Union of India (Bombay High Court, 2024) β
The Gujarat High Court, in the Sal Steels case, had struck down the impugned notifications, ruling that they were ultra vires Sections 64, 66B, 67, and 94 of the Finance Act, 1994. β The court held that the notifications lacked proper legal backing to impose service tax and IGST on ocean freight under CIF contracts. β Similarly, the Madras High Court in the Eastman Spinning Mills case followed the Gujarat High Court’s decision and quashed the notifications. β
Key Judgment
The Madurai Bench of the Madras High Court aligned with the earlier rulings and declared the impugned notifications as ultra vires. The court emphasized that the notifications failed to provide a proper mechanism under Section 68(2) of the Finance Act, 1994, to shift the burden of paying service tax and IGST on ocean freight to the petitioners, who were not the recipients of the taxable service. β Consequently, the court quashed the notifications and the related show-cause notices, granting relief to the petitioners. β
IGST on Freight
IGST on freight is applicable only when the importer directly pays the freight to the transporter, such as in FOB import contracts or domestic freight services. However, in CIF imports, where freight is included in the supplierβs invoice and paid by the foreign exporter, the importer is not liable to pay IGST under reverse charge. The Supreme Court in Union of India vs. Mohit Minerals (2022) declared the levy of IGST on ocean freight under RCM as unconstitutional and resulting in double taxation. Therefore, no IGST is payable on ocean freight in CIF imports as per the settled legal position.
Implications of the Judgment
This judgment is a significant development for businesses involved in import transactions under CIF contracts. β The ruling reinforces the position that service tax and IGST on ocean freight cannot be imposed without proper legal authority. β It also highlights the importance of adhering to constitutional provisions and ensuring that tax notifications do not exceed the scope of the enabling legislation. β
Conclusion
The Madurai High Courtβs decision is a welcome relief for businesses, as it sets a precedent for similar cases across the country. By declaring the service tax notifications and IGST on ocean freight as ultra vires, the court has upheld the principles of constitutional validity and provided clarity on the scope of taxation under the Finance Act, 1994. β This judgment is expected to have far-reaching implications for the interpretation of tax laws in India.
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Source: Madras High Court
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