Retrospective service tax exemption on liquor licence grants can extinguish a notice to that extent, with balance demand requiring fresh scrutiny.

Retrospective exemption under the Finance (No.2) Act, 2019 covered service tax levied on the grant of liquor licences, so the show-cause notice could not survive to that extent. For the remaining demand items, the assessee's claim that the tax liability and interest had already been discharged required verification on the pleadings and documents, after giving an opportunity to be heard. The balance demand was therefore not finally determined and was left for fresh consideration in accordance with law.

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Issues: (i) Whether the retrospective exemption granted by the Finance (No.2) Act, 2019 applied to the service tax demands relating to grant of liquor licence and warranted quashing of the show-cause notice to that extent; (ii) Whether the remaining demand items could be sustained without first considering the assessee's claim that liability and interest had already been discharged.

Issue (i): Whether the retrospective exemption granted by the Finance (No.2) Act, 2019 applied to the service tax demands relating to grant of liquor licence and warranted quashing of the show-cause notice to that extent.

Analysis: The amendment by Finance (No.2) Act, 2019 granted retrospective exemption from service tax on services by way of grant of liquor licence. The show-cause notice items dealing with the levy on such services fell within that exemption. The statutory amendment was therefore applicable to the assessee's case and displaced the foundation of the demand to the extent it related to those covered items.

Conclusion: The issue is answered in favour of the assessee. The show-cause notice was liable to be set aside insofar as it related to the exempted items.

Issue (ii): Whether the remaining demand items could be sustained without first considering the assessee's claim that liability and interest had already been discharged.

Analysis: For the balance items, the assessee asserted prior discharge of liability along with interest. The appropriate course was to examine that claim on the basis of the pleadings and documents, after giving the assessee an opportunity, and then pass orders in accordance with law. The matter was therefore not finally determined on merits as to those items.

Conclusion: The issue is partly in favour of the assessee. The respondents were directed to consider the claim of discharge of liability and interest for the remaining items and proceed according to law.

Final Conclusion: The demand was annulled to the extent it was covered by the retrospective exemption, while the balance was left for fresh consideration after granting an opportunity to establish prior discharge.

Ratio Decidendi: Where a subsequent retrospective exemption squarely covers the levy forming the basis of a notice, the notice cannot survive to that extent, and any remaining tax demand must be adjudicated after considering the assessee's evidence of prior discharge and affording due opportunity.

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