2021 (2) TMI 8 - HC - Service Tax

Court sets aside service tax demand on exempted services due to lack of evidence and arbitrary exercise of power.

M/s. GVPR Engineers Limited Versus Union of India

M/s. GVPR Engineers Limited Versus Union of India - 2021 (51) G. S. T. L. 164 (Telangana) Issues Involved:1. Validity of the demand for service tax on exempted and non-taxable services.2. Jurisdictional challenge and maintainability of the Writ Petition.3. Non-consideration of material evidence by the adjudicating authority.4. Availability of an alternative remedy and its impact on the maintainability of the Writ Petition.Issue-wise Detailed Analysis:1. Validity of the demand for service tax on exempted and non-taxable services:The petitioner, a company engaged in various business activities including Commercial or Industrial Construction and Erection, challenged the demand for service tax amounting to Rs. 37,16,16,555/- on exempted non-taxable services for the period 2011-12 to 2014-15. The petitioner contended that it was paying service tax on taxable services and filing periodical returns, but canal construction works, construction of roads in Jammu & Kashmir, and trading of electrical equipment were outside the purview of service tax. These activities were either exempted or non-taxable, and hence were not reflected in the ST-3 returns. The petitioner argued that the ST-3 returns did not contain any column for non-taxable services, and the details of these activities were known to the respondents through various submissions and audits.2. Jurisdictional challenge and maintainability of the Writ Petition:The petitioner argued that the 4th respondent acted arbitrarily and without jurisdiction in demanding the service tax, making the Writ Petition maintainable despite the availability of an alternative remedy. The petitioner cited the case of Sanghi Polyesters Limited v. Supdt. of Central Excise, where it was held that a Writ Petition is maintainable if the authority acts without jurisdiction or in an arbitrary manner.3. Non-consideration of material evidence by the adjudicating authority:The petitioner contended that the 4th respondent failed to consider the material evidence submitted, including work orders, agreements, and audit reports, which demonstrated that the services were exempted. The 4th respondent's order was based on the failure to produce documents substantiating the exemption claims, but the petitioner had submitted these documents multiple times. The court noted that the 4th respondent should have examined the available material or requested additional documents during the personal hearing, and penalizing the petitioner without considering this evidence vitiated the impugned order.4. Availability of an alternative remedy and its impact on the maintainability of the Writ Petition:The court held that the existence of an alternative remedy does not bar the exercise of judicial review under Article 226 of the Constitution if the statutory authority acts without jurisdiction, violates fundamental rights, or acts arbitrarily. The court cited the Supreme Court's decision in Whirlpool Corpn. v. Registrar of Trade Marks, which established that a Writ Petition is maintainable in cases of violation of natural justice, lack of jurisdiction, or enforcement of fundamental rights.Conclusion:The court concluded that the impugned order could not be sustained due to the non-consideration of material evidence and the arbitrary exercise of power by the 4th respondent. The matter was remitted to the 4th respondent for fresh consideration, with instructions to afford the petitioner a personal hearing and pass a reasoned order in accordance with law. The Writ Petition was allowed, and the impugned order was set aside. The petitioner was granted four weeks to file written submissions with supporting material, and the 4th respondent was directed to communicate the reasoned order to the petitioner. No costs were imposed, and any pending miscellaneous petitions were closed.