2021 (3) TMI 12 - HC - Service Tax

Tax Court Upholds GST Royalty Payment Order, Imposes Duty, Interest, Penalty

Selan Exploration Technology Limited Versus Assistant Commissioner Of Goods And Services Tax Division

The judgment upheld the order passed by the Assistant Commissioner, Central GST, regarding the taxation of royalty payment under service tax. The court ... Levy of Service tax - expenses incurred towards 'Royalty' - principal argument of the learned counsel appearing for the writ-applicant is that the royalty is not a payment in respect of any taxable service - HELD THAT:- It is pointed out that the matters have been admitted vide order dated 19th September 2018. Let notice of Rule be issued to the respondents, returnable on 19/04/2021. Let there be an adinterim order in terms of Para6( b). Issues Involved:Challenge to order passed by Assistant Commissioner, Central GST on taxation of royalty payment under service tax; Applicability of extended period of time for demand and recovery of duty; Imposition of penalty under Section 78(1) of the Act; Interpretation of provisions under repealed Acts and Rules; Argument on royalty payment not being a taxable service; Comparison with similar cases pending before the Court.Analysis:1. Taxation of Royalty Payment under Service Tax:The writ-application challenges the order passed by the Assistant Commissioner, Central GST, regarding the taxation of royalty payment under service tax. The impugned order invoked the extended period of five years for demand and recovery of duty, along with interest and penalty under Section 78(1) of the Act. The order specifically mentions the liability of the service tax assessee for not disclosing the receipt of services from the Government of Gujarat and not paying the appropriate service tax under the reverse charge mechanism.2. Applicability of Extended Period for Demand and Recovery:The impugned order justified the invocation of the extended period of time for demand and recovery of duty amounting to a specified sum. It relied on the proviso to Section 73(1) of the Act to support the recovery of service tax and interest under Section 75 of the Act. The order also imposed a total penalty under Section 78(1) of the Finance Act, emphasizing the consequences of non-disclosure and non-payment of service tax.3. Interpretation of Provisions under Repealed Acts and Rules:The order referred to the repealed Central Excise Act, 1944, the Central Excise Tariff Act, 1985, and the Finance Act, 1994, emphasizing the enforcement of these provisions for the purpose of demand, interest, and penalty. The applicability of the saved provisions under Section 174(2) of the CGST Act, 2017, was highlighted in the context of duty demand and penalty imposition.4. Argument on Royalty Payment not Being a Taxable Service:The principal argument raised by the writ-applicant's counsel was that royalty payment is not in respect of any taxable service. Referring to specific Acts and Rules governing royalty payments on petroleum, the counsel argued that the payment made to the Government was in compliance with statutory provisions and did not involve any service provision by the State. The counsel contended that the levy of service tax on royalty payments was beyond the scope of the relevant Acts.5. Comparison with Similar Pending Cases:The counsel drew attention to similar cases pending before the Court, specifically mentioning Special Civil Application No.4603 of 2017 and Special Civil Application No.4606 of 2017. These cases involved the levy of service tax under the Mines and Minerals (Development and Regulation) Act, 1957. Highlighting the admission of these matters by the Court, the counsel indicated the relevance of these cases to the present challenge.In conclusion, the judgment addresses various legal aspects concerning the taxation of royalty payments under service tax, applicability of extended periods for demand and recovery, interpretation of repealed Acts and Rules, arguments on the nature of royalty payments, and comparison with related cases before the Court. The detailed analysis provides insights into the legal reasoning and implications of the impugned order, setting the stage for further judicial review and consideration.