2009 (12) TMI 42 - HC - Service Tax

High Court ruling on service tax enforcement upheld, tax department directed to comply with judgment

The High Court upheld its previous judgment declaring a notification and circular on service tax for renting immovable property for business purposes as ... Binding effect of High Court judgment until stayed by a higher court - pendency of Special Leave Petition does not stay operation absent an order of the Supreme Court - departmental instructions cannot compel compliance with a judgment under challenge in the absence of a stay - prohibition on coercive revenue recovery measures where the impugned order remains in force - duty to issue corrective instructions to field officersBinding effect of High Court judgment until stayed by a higher court - pendency of Special Leave Petition does not stay operation absent an order of the Supreme Court - departmental instructions cannot compel compliance with a judgment under challenge in the absence of a stay - Whether the Department could direct its officers to demand payment of service tax and threaten coercive action during the pendency of a Special Leave Petition against a Delhi High Court judgment which had not been stayed by the Supreme Court. - HELD THAT: - The Court held that where a High Court judgment has been rendered and a Special Leave Petition has been filed in the Supreme Court but no stay on the operation of that High Court judgment has been granted, the High Court's decision remains operative and binding. In those circumstances, the respondents were not entitled to instruct their officers to pursue taxpayers to deposit service tax or to threaten initiation of coercive action on the basis only of the pendency of the Special Leave Petition. The communications issued to field officers, which sought to require payment and threatened further action, were contrary to the legal position that the impugned High Court order continued in force until stayed by the Supreme Court. The Attorney General/administration accepted the need for corrective action and gave assurance that superseding instructions would be issued to prevent such demands and threats to taxpayers.Departmental instructions directing officers to demand payment of service tax or threaten coercive steps during the pendency of an unstayed Special Leave Petition were disapproved; respondents to issue corrective instructions in supersession of earlier directions.Final Conclusion: Writ petition disposed on the assurance that the respondents will issue corrective, superseding instructions restraining field officers from demanding payment or threatening coercive action while the Delhi High Court judgment remains in operation pending before the Supreme Court. Issues:Challenge to the validity of a notification and circular regarding service tax on renting of immovable property for business purposes. Issuance of instructions by the tax department despite a court judgment. Demand for service tax payment and threats of coercive action.Analysis:The judgment pertains to the challenge against a notification and circular related to the imposition of service tax on renting of immovable property for business or commerce purposes. The High Court had previously held these amendments to be ultra vires the Finance Act in a judgment dated 18th April, 2009. Despite this, the tax department, respondent No.1, continued to issue instructions to its officers nationwide, directing them to pursue taxpayers for service tax payment or take legal action to protect revenue. The petition highlighted the discrepancy between the court's decision and the department's actions, leading to the issuance of notices demanding compliance with the contentious notification and circular.In response to the petition, the court noted that the Supreme Court had not granted a stay on the High Court's judgment, rendering it binding and in force. The court observed that the department's instructions to enforce service tax payment based on the pending Special Leave Petition were unjustified. The communications from tax officials clearly indicated a demand for tax payment and threats of consequences for non-compliance, despite the lack of a final decision from the Supreme Court. The court emphasized that until a stay order was issued, the department could not coerce taxpayers into paying the service tax.During the hearing, the respondent's counsel assured the court that corrective measures would be taken to issue new instructions to officers, superseding the previous directives demanding tax payment and threatening coercive action. The court accepted this assurance, leading to the disposal of the writ petition. The judgment underscores the importance of adherence to legal decisions and the prohibition against enforcing tax payments based on pending appeals without a stay order.