2018 (8) TMI 425 - HC - Service Tax

Court quashes show-cause notice for services not taxable under Finance Act. Refund ordered.

M/s. Webel Technology Ltd. Versus Commissioner of Service Tax, Kolkata & Others

M/s. Webel Technology Ltd. Versus Commissioner of Service Tax, Kolkata & Others - 2018 (19) G.S.T.L. 467 (Cal.) Issues Involved:1. Jurisdiction of the show-cause notice dated October 16, 2007.2. Classification of the petitioner’s services under the Finance Act, 1994.3. Applicability of Service Tax to the preparation of Electoral Photo Identity Cards (EPIC).4. Interpretation of relevant sections of the Finance Act, 1994 and related statutes.5. Maintainability of the writ petition challenging the show-cause notice.Detailed Analysis:1. Jurisdiction of the Show-Cause Notice:The petitioner challenged the show-cause notice dated October 16, 2007, issued by the respondent, alleging that the preparation of EPIC involved photography services, thereby attracting Service Tax. The court found that the show-cause notice lacked jurisdiction as the petitioner did not render any photography services under the Finance Act, 1994. The court quashed the show-cause notice, deeming it without jurisdiction.2. Classification of Services:The petitioner argued that their activities did not fall under the definitions of 'photography' or 'photography studio or agency' as per Sections 65(78) and 65(79) of the Finance Act, 1994. The court agreed, noting that the petitioner was primarily engaged in software technology and the preparation of EPIC involved multiple activities, with photography being a minor component. The court concluded that the petitioner’s services could not be classified as photography services.3. Applicability of Service Tax:The petitioner contended that the preparation of EPIC, which involved taking photographs, did not amount to a taxable service under Section 65(105)(zb) of the Finance Act, 1994. The court referenced the case of Larsen & Toubro Ltd., which held that indivisible works contracts could not be subjected to Service Tax prior to June 1, 2007. Since the contracts in question were pre-2007 and involved multiple components, the court ruled that they could not be taxed as photography services. Additionally, the court cited CMC Limited, which held that issuance of EPIC does not fall within the definition of photography services.4. Interpretation of Relevant Sections:The court examined several sections of the Finance Act, 1994, including Sections 65(19), 65(76b), 65(78), 65(79), 65(105)(zb), 65A, 66, and 67. It concluded that the petitioner’s activities did not fit the definitions of taxable services related to photography. The court also considered various circulars and clarifications issued by the department, which supported the view that the petitioner’s services were not taxable under the said provisions.5. Maintainability of the Writ Petition:The court acknowledged that while it is generally slow to interfere with show-cause notices, it can do so if the notice is without jurisdiction. Given that the writ petition had been pending since 2008 and had undergone a complete hearing, the court found it appropriate to quash the show-cause notice. The court also noted that requiring the petitioner to reply to the notice at this stage would be harsh.Conclusion:The court allowed the writ petition, quashing the show-cause notice dated October 16, 2007, and holding that the petitioner was not liable to pay Service Tax for the preparation of EPIC. The question of the vires of the provisions of the Finance Act, 1994, was kept open. The court also ordered the respondents to refund the deposits made by the petitioner along with statutory interest within four weeks.