Image Source: Slideserve
In a major legal and financial win, Shipping Corporation of India Ltd (SCI) has announced a ₹1.46 billion reduction in its contingent liabilities following a favorable verdict from the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai. The ruling pertains to a long-standing dispute over service tax on demurrage income, and it marks a significant milestone in SCI’s ongoing efforts to streamline its financial obligations and enhance shareholder value.
Key Developments and Financial Impact
SCI will reduce ₹1.46 billion from its contingent liabilities, comprising ₹494.4 million in principal demand and ₹965.6 million in accrued interest as of June 30, 2025.
The dispute centered around service tax applicability on demurrage income earned between July 2012 and September 2015.
CESTAT dismissed the appeal filed by the Commissioner of Central Excise & Service Tax (LTU), Mumbai, thereby upholding an earlier favorable order from October 2016.
The liability had been disclosed in SCI’s financial statements as a contingent exposure, and its reversal will improve the company’s balance sheet metrics.
This ruling not only strengthens SCI’s legal standing but also provides immediate relief to its financial position, potentially improving its credit profile and investor sentiment.
Operational and Earnings Context
SCI’s first-quarter FY2025 results reflect a mixed performance, with profitability improving despite revenue pressures:
Net profit rose 22.8% year-on-year to ₹3.66 billion, up from ₹2.98 billion in Q1 FY2024.
Revenue declined 13.1% to ₹13.16 billion, compared to ₹15.14 billion in the same period last year.
EBITDA fell slightly by 3.8% to ₹4.89 billion, but EBITDA margin expanded to 37.2%, up from 33.6% a year ago.
The margin expansion suggests improved cost control and operational efficiency, even as topline growth remains subdued due to global shipping headwinds.
Strategic Implications and Legal Precedent
The CESTAT ruling sets a precedent for similar service tax disputes in the maritime sector:
Demurrage income, typically earned when cargo stays beyond the allotted free time, has long been a grey area in service tax applicability.
SCI’s successful defense could influence future litigation and tax assessments for other shipping companies.
The tribunal’s dismissal of the department’s appeal reinforces the validity of SCI’s earlier tax treatment and accounting disclosures.
This legal clarity could reduce compliance uncertainty and litigation costs across the industry.
Market Reaction and Investor Sentiment
Despite the positive news, SCI’s stock closed marginally lower at ₹206.60 on the Bombay Stock Exchange, down ₹1.85 or 0.89%:
The muted reaction may reflect broader market conditions or profit-booking after recent gains.
Analysts expect the liability reversal to be earnings-accretive in subsequent quarters, potentially boosting SCI’s valuation multiples.
With a market capitalization exceeding ₹97 billion and a strong dividend history, SCI remains a key PSU stock in the logistics and maritime space.
Outlook and Strategic Focus
SCI continues to pursue strategic initiatives aimed at long-term growth and operational resilience:
The company is actively engaged in fleet modernization and has signed MoUs for acquiring new gas carriers.
Its demerger scheme, exempted from stamp duty, is progressing toward unlocking value for shareholders.
SCI is also exploring green hydrogen pilot projects under India’s maritime decarbonization mission.
The favorable CESTAT ruling adds momentum to these efforts, freeing up capital and management bandwidth for strategic execution.
Sources: CNBC TV18, MarketScreener
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