Facts of the Case

The petitioner, M/s Yentop Manickam Edible Oils Private Limited, had paid service tax under the Reverse Charge Mechanism (RCM) on ocean freight for the month of June 2017. Subsequently, the petitioner filed a refund application seeking refund of Rs.5,63,644, contending that the levy itself had become unsustainable in view of the Gujarat High Court judgment in SAL Steel Ltd. vs Union of India, wherein the relevant provisions imposing service tax on ocean freight were declared ultra vires the Finance Act, 1994.

The Assistant Commissioner rejected the refund application through Order-in-Original dated 13.10.2022 solely on the ground that the Gujarat High Court judgment had not attained finality because the Union of India had filed a Special Leave Petition before the Supreme Court.

The petitioner challenged the rejection order before the Madras High Court under Article 226 of the Constitution of India.

Issues Involved

  1. Whether refund of service tax paid on ocean freight under Reverse Charge Mechanism could be denied merely because the Gujarat High Court judgment was under challenge before the Supreme Court.
  2. Whether the refund authority failed to consider the binding judgment of the Supreme Court in Union of India vs Mohit Minerals Private Limited while rejecting the refund claim.
  3. Whether the impugned order suffered from non-application of mind warranting interference under Article 226. 

Petitioner's Arguments

  • The petitioner submitted that the levy of service tax on ocean freight was unsustainable in view of the Gujarat High Court decision in SAL Steel Ltd. declaring the relevant provisions ultra vires.
  • It was further argued that after the impugned order was passed, the Supreme Court in Union of India vs Mohit Minerals Private Limited (Civil Appeal No. 1390 of 2020 decided on 19.05.2022) affirmed the legal position concerning ocean freight.
  • Although the Supreme Court decision arose under the GST regime, the principles laid down therein had a direct bearing on the levy of service tax on ocean freight under the earlier regime.
  • Therefore, rejection of the refund claim without considering the Supreme Court judgment was legally unsustainable.

 Respondent's Arguments


  • The Revenue submitted that the refund claim had originally been rejected because the Gujarat High Court judgment had not attained finality at that time.
  • During the hearing, the Standing Counsel fairly submitted that the refund claim could be re-examined in light of the subsequent Supreme Court judgment in Mohit Minerals, which had affirmed the legal position concerning ocean freight.
  • The Department expressed willingness to reconsider the refund claim in accordance with law after taking into account the Supreme Court decision.

 Court's Findings / Order


The Madras High Court observed that the impugned order rejected the refund claim merely because the Gujarat High Court judgment had been challenged before the Supreme Court.

The Court held that by the time the writ petition was considered, the Supreme Court had already delivered its judgment in Union of India vs Mohit Minerals Private Limited, which directly dealt with the issue of ocean freight.

The Court found that the adjudicating authority had failed to examine the relevance and applicability of the Supreme Court judgment while rejecting the refund claim.

Accordingly, the Court held that the impugned order suffered from non-application of mind.

The Court:

  • Set aside the Order-in-Original dated 13.10.2022.
  • Directed the respondent to re-examine the refund claim.
  • Directed that such reconsideration shall specifically take into account the applicability of the Supreme Court judgment in Mohit Minerals regarding levy of service tax on ocean freight.
  • Directed completion of the exercise within eight weeks from receipt of the Court's order.

The writ petition was disposed of without any order as to costs.

Important Clarification

This judgment does not grant the refund directly.

Instead, it emphasizes that:

  • Authorities cannot reject refund claims merely because an earlier High Court judgment had been challenged.
  • Once the Supreme Court has settled the legal issue, refund authorities are duty-bound to consider the binding precedent.
  • Orders passed without considering applicable Supreme Court judgments are liable to be set aside for non-application of mind.
  • Ocean freight refund claims under the pre-GST service tax regime must be examined keeping in view the principles laid down in Union of India vs Mohit Minerals Private Limited.

Sections / Provisions Involved

  • Article 226 of the Constitution of India
  • Finance Act, 1994
  • Sections 64, 66B, 67 and 94 of the Finance Act, 1994
  • Reverse Charge Mechanism (RCM) relating to Ocean Freight
  • Refund provisions under the Finance Act, 1994
  • Service Tax on Ocean Freight
  • IGST/Ocean Freight jurisprudence under GST (Relevant Supreme Court precedent)
  • The High Court reaffirmed that administrative authorities must pass reasoned orders consistent with prevailing law.

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783943006_939compressed.pdf

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