2007 (10) TMI 259 - HC - Service Tax

High Court analyzes Union Govt's service tax authority on hire-purchase & lease financing services, prohibits harassment of top management

The High Court examined the legislative competence of the Union Government to levy service tax on hire-purchase agreement and lease financing services. ... Lease financing and hire-purchase – recovery of dues - managing directors and high officers are investigated through harassive methods – held that for recovery of demands normal procedure under the law should be followed, officers should not be harassed and coercive methods should not be adopted - petitioners case that the State Legislature has exclusive right to levy any taxes on their transactions, has to be examined on affidavits, so matter remanded Issues:1. Legislative competence of the Union Government to levy service tax on hire-purchase agreement and lease financing services.2. Allegations of harassive methods of investigation and unauthorized demand for payment of service tax.Analysis:Issue 1:The petitioners challenged the legislative competence of the Union Government to levy service tax on hire-purchase agreement and lease financing services. They argued that the State Legislature has the exclusive right to levy taxes on the services being rendered by them. The petitioners contended that the investigation process and the manner of investigation were improper. The High Court directed the filing of affidavits to examine this aspect further. The petitioners' case regarding the legislative competence of the Union Government to levy service tax needs to be assessed based on the submitted affidavits.Issue 2:The second set of grievances raised by the petitioners pertained to allegations of harassive investigation methods and unauthorized demands for payment of service tax. The petitioners claimed they were coerced into making a payment of Rs. 20 lakhs towards service tax. They also highlighted issues such as prolonged examinations during late hours and the issuance of summons to officers and directors of the petitioner-company. The High Court did not halt the investigation but directed that examinations should occur within regular office hours upon the service of summons. The Court emphasized adherence to a notice that prohibits harassment of top management for enforcing payment of disputed dues. The Court instructed that no coercive steps should be taken for recovering service tax, and any demand should be raised in accordance with the law. The petitioners were required to cooperate with the Revenue Authorities, and the directors and high officers of the petitioner-company should not face undue harassment. The Court also referred to a previous order directing no penal action against the petitioners and another party, with an assurance from the Revenue Authority that no penal action would be taken at that moment.In conclusion, the High Court addressed the issues of legislative competence for levying service tax and the allegations of harassive investigation methods and unauthorized demands in a detailed manner, providing specific directions to ensure fair treatment of the petitioners during the investigation process.