Saving clause preserves accrued service tax liability and allows recovery proceedings after CGST transition.

Omission of Chapter V of the Finance Act, 1994 by the CGST Act did not extinguish service tax liabilities that had accrued before the transition. Section 174 preserved the prior operation of the omitted provisions and saved rights, liabilities, tax, penalty and interest, while also preserving the institution and continuation of investigations, assessments and recovery proceedings as if the omission had not occurred. The absence of pending proceedings on 01.07.2017 therefore did not bar issuance of the show cause notice and related recovery letters. Relying on the saving provision and general principles under the General Clauses Act, the notice and letters were treated as maintainable.

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Issues: Whether the omission of Chapter V of the Finance Act, 1994 by the CGST Act barred issuance of the impugned show cause notice and letters for service tax demands relating to periods before and around the commencement of the CGST regime, in the absence of pending proceedings on 01.07.2017.

Analysis: Section 173 of the CGST Act omits Chapter V of the Finance Act, 1994, but Section 174 preserves the previous operation of the amended Act and expressly saves rights, obligations, liabilities, tax, penalty and interest that were due or may become due. It further saves investigations, inquiries, verification, scrutiny, audit, assessment, adjudication and other proceedings, and permits such matters to be instituted, continued or enforced as if the omission had not occurred. The obligation to pay service tax was treated as an accrued statutory liability and the absence of pending proceedings on the commencement date did not extinguish the power to initiate recovery proceedings. The earlier coordinate bench decisions were followed, and the reliance on general saving principles under Section 6 of the General Clauses Act, 1897 supported the conclusion that enforcement proceedings for an accrued liability survive repeal or omission.

Conclusion: The impugned notice and letters were held to be maintainable and the challenge to them failed.

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