2013 (1) TMI 705 - HC - VAT and Sales Tax

Court allows petition challenging service tax notice, directs fair hearing on liability pre-April 18, 2006.

The court disposed of the petition challenging a show-cause notice for service tax liability, allowing the petitioners to present their case before the ... Striking down rule 2(1)(d)(iv) of the Service Tax Rules, 1994 seeked as ultra vires the Finance Act, 1994, and ultra vires articles 14 and 19(1)(g) of the Constitution of India - show-cause notice challenged - Held that:- counsel for the petitioners did not press prayer 17A of the petition and agreed to appear before the departmental authorities in the pending show-cause notice proceedings. He would, however, contend that any demand of service tax for the period prior to April 18, 2006 would not be sustainable. Whatever be the position after April 18, 2006, by virtue of introduction of section 66A of the Finance Act, 1994, for the earlier period, the demand would not be sustainable. In view of the above developments, we allow the petitioners to appear before the adjudicating authority, who, we are sure, will grant a full hearing to the petitioners and take a final decision in accordance with law bearing in mind the observations made in the case of Commissioner, Service Tax v. Quintiles Data Processing Centre (I) Pvt. Ltd. [2011 (4) TMI 585 - GUJARAT HIGH COURT] and Indian National Shipowners Association v. Union of India [2008 (12) TMI 41 - BOMBAY HIGH COURT] that may be applicable and brought to his notice. Issues:Challenge to show-cause notice proceedings dated March 17, 2008 regarding service tax liability.Analysis:The petitioners challenged a show-cause notice dated March 17, 2008, demanding service tax on services received from foreign agents. The notice questioned the taxability of services under business auxiliary service, the amount paid as brokerage/commission, interest on tax liability, and various penalties under the Finance Act, 1994. The demand was based on rule 2(1)(d)(iv) of the Service Tax Rules, 1994 and section 66A of the Finance Act, 1994. The controversy revolved around levying service tax on the petitioners, who were service recipients from providers outside India. The petitioners argued that authorities lacked the power to impose such tax as per the rules and the Finance Act, especially for the period before April 18, 2006, when section 66A was introduced.The petitioners cited a Bombay High Court decision and an apex court ruling to support their case, emphasizing that service tax demand from service recipients before the introduction of section 66A was not sustainable. Consequently, the petitioners withdrew one prayer from their petition and agreed to participate in the ongoing proceedings while maintaining that any service tax demand for the period pre-April 18, 2006, would be legally untenable. The court allowed the petitioners to present their case before the adjudicating authority, ensuring a fair hearing and a decision in line with the law and relevant court precedents.In light of the developments and legal arguments presented, the court disposed of the petition, leaving all contentions of the petitioners regarding the show-cause notice open for further consideration. The judgment highlighted the importance of legal observations from previous cases and directed the adjudicating authority to consider relevant precedents while making a final decision on the matter.