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 ultra vires the Finance Act. Despite this, the tax department continued to direct officers to enforce tax payments, contrary to the court's decision. The court emphasized the binding nature of its judgment, prohibiting coercive actions for tax collection without a stay order from the Supreme Court. Following assurances from the respondent's counsel to issue new instructions, the court disposed of the petition, highlighting the need to respect legal decisions and refrain from enforcing taxes during pending appeals without a stay order.

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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.

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