Tribunal Order Quashed in Tax Appeal for Toll Collection by Private Company

The High Court quashed the Tribunal's order for pre-deposit of Rs. 45,00,000 by a private limited company appealing against a service tax demand notice for toll collection. The Court directed the Tribunal to hear the appeal on its merits without any pre-deposit, subject to the appellant executing a bond to pay tax and penalty if confirmed. It highlighted the need to determine whether toll collection is a business auxiliary service or a sovereign function, emphasizing this issue for the final appeal hearing.

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Issues involved:
The judgment deals with the issue of whether the Tribunal was justified in directing the appellant to make a pre-deposit for entertaining the appeal filed against the order in original. It also addresses the question of whether collecting toll on specified highways constitutes a business auxiliary service and whether it should be subject to service tax.

Details of the Judgment:

Issue 1: Pre-deposit for entertaining the appeal
The appellant, a private limited company engaged in road construction and toll collection, was directed by the Tribunal to make a pre-deposit of Rs. 45,00,000 for appealing against a demand notice for service tax. The Tribunal justified this pre-deposit based on the approximate tax demanded. However, the High Court held that the Tribunal's decision was not appropriate. The Court emphasized that the NHAI's function of managing national highways and collecting toll might be a sovereign function of the State, and therefore, the appeal should be heard on merit without any pre-deposit, subject to the appellant executing a bond to pay the tax and penalty if confirmed by the Tribunal.

Issue 2: Classification of collecting toll as a business auxiliary service
The Tribunal classified the service of collecting toll on national highways as a business auxiliary service, subject to service tax. The High Court observed that the nature of this activity, whether sovereign or business-related, needed further examination. Referring to a previous case, the Court highlighted that collecting toll tax on behalf of a Municipal Corporation was considered a sovereign function. The Court directed the Tribunal to hear the appeal on its merits without pre-deposit, considering the nature of toll collection and the requirement to deposit toll amounts into the government treasury.

Conclusion:
The High Court quashed the Tribunal's order for pre-deposit and directed the Tribunal to hear the appeal on its merits without any pre-deposit, subject to the appellant providing a bond to pay the tax and penalty if confirmed. The Court emphasized the need for further examination on whether collecting toll constitutes a business auxiliary service or a sovereign function, indicating that this question should be decided during the final hearing of the appeal.

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