2017 (6) TMI 1332 - HC - Service Tax

Court upholds tax assessment in arbitration dispute settlement challenge, stresses procedural compliance.

The court declined to interfere with the show cause notice challenging the taxation of the amount received from an arbitration dispute settlement. ... Validity of demand-cum- show cause notice - SCN assailed on the ground that the respondent authorities have erred in law inasmuch as the said amount which the Petitioner has received is by virtue of a settlement out of Court in an arbitration dispute - HELD THAT:- The impugned demand- cum-show cause notice is one which was issued on 25.10.2016. The present writ petition was filed by the Petitioner on 22.5.2017, that is to say that there is a gap of almost about 7 months from the date of issuance of the impugned show cause notice. Further, from the perusal of the show cause notice it also reflects that at the time of the audit the Petitioner had been repeatedly asked to submit certain details on the basis of which audit could be done, but from the contents of show cause notice it reflects that there was a certain element of non-cooperation at the hands of the Petitioner. Thereafter, the authorities of the Respondents have discussed the entire factual matrix of the case and the legal provisions also and then the show cause notice has been issued. Considering the submissions made by the learned Counsel for the Petitioner particularly the fact that the amount that they have received whether is non-taxable, this aspect is one which would require consideration by the competent authority after considering the various documents which the Petitioner might be having in their possession like - nature of dispute that was before the International Court of Arbitration and the nature of award that they have received. Whether this would be taxable or not would have to be assessed and determined by the assessing authority based upon the evidence produced before it. This Court is of the opinion that it would not be proper at this juncture to interfere with the impugned show cause notice - Petition dismissed. Issues:Assailing demand-cum-show cause notice dated 25.10.2016 regarding taxation of amount received from arbitration dispute settlement.Analysis:The petitioner challenged the show cause notice arguing that the amount received from an arbitration dispute settlement is compensation for breach of contract, not consideration for services rendered. They claimed it falls within the exempted category under Section 66E(e) and Section 65B(44). The petitioner contended that even if considered a service, it falls under the export of service category, exempt from tax. They also raised jurisdictional issues, asserting the writ petition's maintainability under Article 226 of the Constitution of India. The petitioner cited judgments like Raza Textile Ltd. v. Income Tax Officer and Shrisht Dhawan v. M/s Shaw Brothers to support their case.The respondent argued that the writ petition was premature as the petitioner had ample opportunity to defend their case before the assessing authority. They claimed that all petitioner's contentions could be addressed during the assessment process. The respondent objected to the timing of the writ petition, filed considerably after the show cause notice issuance.The court noted the gap of seven months between the notice and the petition filing, highlighting the petitioner's non-cooperation during the audit process. Citing the Assistant Collector of Central Excise v. Dunlop India Ltd. case, the court emphasized that Article 226 should not bypass statutory procedures, especially in revenue matters. Referring to legal precedents, including Union of India v. M/s Hindalco Industries and Union of India v. Vicco Laboratories, the court reiterated that interference at the show cause notice stage should be rare and only in exceptional circumstances.Ultimately, the court declined to interfere with the show cause notice, emphasizing the availability of alternative remedies and the petitioner's delay in responding to the notice. The court held that the assessing authority should determine the taxability of the received amount based on evidence presented. Consequently, the writ petition was dismissed, concluding that it was improper to interfere with the notice at that stage.