2011 (4) TMI 500 - HC - Service Tax

Service tax appeals on rate, valuation or liability must go to Supreme Court under s.35L(b), not s.35G

HC held that appeals from CESTAT orders involving determination of rate of service tax or value of taxable services lie to SC under s.35L(b) of the ... Maintainability of this appeal - Jurisdiction of High Court u/s 35G - questions of law​​​​​​​ -determination of 'rate of duty' payable - taxable services under the category of 'Consulting Engineer Service' - time barred - demand of differential tax - orders passed without proper scrutiny of the information contained in the ST3 returns - major portion of the demand hit by time bar - deduction of reimbursable expenses - lower authorities have not followed the DGST circular according to which the taxable services for which the payment is received in India is convertible foreign exchange is exempted from the whole of service tax under section 66 of the Finance Act, 1994 - bifurcation of the jurisdiction between the Apex Court and the High Courts - HELD THAT:- The phrase 'rate of tax' does not mean fraction of tax payable because what is the tax payable i.e., fraction payable is decided by the Legislature. Once that is prescribed by the Legislature in the Act, the Court cannot sit in judgment and alter or modify the said rate of tax. The Court has no jurisdiction to go into the correctness or otherwise of the rate of tax payable in the sense the rate prescribed by the Legislature. In the case of Finance Act, 1994, the rate of service tax payable is uniform to all the services. If rate of tax is to be understood in the sense it is suggested, sections 35G and 35L, has no application at all to the Finance Act. Such an interpretation would render section 83 insofar as applying the provisions of sections 35G and 35L redundant. Then there is no provision in the Finance Act, 1994 for determination of the aforesaid disputes. That was not the intendment of the Parliament. Therefore, the argument that the rate of tax means only the rate at which tax is payable or a fraction is unsustainable. Thus, it is clear that an order passed by the Appellate Tribunal relating to the determination of any question having relation to the rate of service taxes or to the value of services for the purposes of assessment lies to the Supreme Court under section 35L(b) of the Act and not to the High Court under section 35G. Bifurcation of the jurisdiction between the Apex Court and the High Courts - The intention behind this bifurcation of jurisdiction between the Apex Court and the High Court seems to be that more often than not, any decision on these aforesaid aspects not only affects the interest of the parties rendering services who are parties to a dispute, but also to the parties rendering those services throughout the country. In a country governed by Parliamentary legislation because of the territorial bifurcation in forming states and because of the divergent opinion which is possible, the service tax payable would vary from place to place. all disputes emanating from the orders determining the rate of service tax and value of service, which has reached finality are to be determined by the High Court and not disputes arising prior to the stage of determining the rate of service tax and value of service. Taxable services under the category of 'Consulting Engineer Service' - According to the DGST circular, the taxable services for which the payment is received in India in convertible foreign exchange is exempted from the whole of service tax under section 66 of the Finance Act, 1994. The demand of differential tax is unsustainable both on merits and on the ground of limitation. The objection of the assessee was over-ruled and demand was issued. The first appellate authority, i.e., the Commissioner of Appeals up held the demand and dismissed the appeal. As is clear from the questions of law framed, the question that is to be decided by this Court in this appeal is whether for the purpose of levying service tax, the contract made has to be read in toto or has to be bifurcated for other various services and whether the assessee is entitled to exemption from payment of service tax in pursuance to the Notification Nos. 2/99, dated 28-2-1399, 6/99, dated 9-4-1999 and 21/2003, dated 20-11-2003, apart from other issues. We are of the considered opinion that the present appeal preferred under section 35G of the Act is not maintainable before this Court. The appeal is to be preferred to the Supreme Court under section 35L of the Act. Accordingly, the appeal is dismissed. Issues Involved:1. Whether the Tribunal was right in holding that the major portion of the demand is time-barred.2. Whether the order of the Tribunal regarding the deduction of reimbursable expenses is legally tenable.3. Whether for the purpose of levying service tax, the contract made has to be read in toto or bifurcated for various services.4. Whether the Tribunal is justified in applying certain notifications and granting exemption without verifying the conditions prescribed therein.Detailed Analysis:1. Time-Barred Demand:The Tribunal held that the lower authorities passed their orders without proper scrutiny of the information contained in the ST3 returns. Consequently, the longer period could not be invoked, and a major portion of the demand would be hit by the time bar. The Tribunal found that the demand of differential tax is unsustainable both on merits and on the ground of limitation.2. Deduction of Reimbursable Expenses:The Tribunal concluded that the entire amount of receipts cannot be subject to service tax as part of the amount is on account of reimbursable expenses. The Tribunal noted that the lower authorities did not follow the DGST circular, which exempts taxable services for which the payment is received in India in convertible foreign exchange from the whole of service tax under section 66 of the Finance Act, 1994.3. Contract Interpretation for Service Tax:The Tribunal's decision involved determining whether, for the purpose of levying service tax, the contract made has to be read in toto or bifurcated for various services. The Tribunal's interpretation was challenged, and the issue was whether the contract should be considered as a whole or divided into different services for tax purposes.4. Application of Notifications and Exemptions:The Tribunal applied Notification Nos. 2/1999-ST, 6/1999-ST, and 21/2003-ST and granted exemptions in favor of the assessee without verifying the conditions prescribed therein, such as whether the foreign exchange received was repatriated from or sent outside India. The Tribunal's application of these notifications and the resultant exemptions were contested by the revenue.Maintainability of Appeal:The learned counsel for the assessee raised an objection regarding the maintainability of the appeal before the High Court, arguing that the appeal involves determination of questions relating to the rate of duty of service tax and the value of taxable service for purposes of assessment. Under section 35G of the Central Excise Act, the High Court has no jurisdiction to decide such questions, which fall under the jurisdiction of the Supreme Court as per section 35L(b) of the Act.The High Court agreed with this contention, stating that the appeal preferred by the revenue is not maintainable before the High Court and should be preferred to the Supreme Court under section 35L of the Act. Consequently, the High Court dismissed the appeal, concluding that it lacked jurisdiction to entertain the matter.