2023 (9) TMI 166 - HC - GST

Rule 5A Service Tax Dispute: Challenging Regulatory Framework and Statutory Interpretation of Finance Act Provisions

M/s T.R. Sawhney Motors Pvt. Ltd. Versus Union Of India & Anr.

HC examined the validity of Rule 5A of Service Tax Rules 1994 in context of Finance Act 1994 and CGST Act 2017. The Court acknowledged prior Division ... Constitutional Validity of Rule 5A of the Service Tax Rules 1994 - it is also sought that Rule 5A has lapsed and does not survive after the introduction of the Central Goods and Services Tax Act 2017 - HELD THAT:- Subsequently and once the Act came to be repealed consequent to the advent of CGST, an issue appears to have been addressed with respect to the validity of proceedings pending or to be initiated under the Rules. This Court was called upon by the respondents to hold that the proceedings initiated under Rule 5A(2) and which may pertain to or be pending on the date when CGST came into effect would stand saved by virtue of Section 174 of the CGST. The Division Benches of this Court in AARGUS GLOBAL LOGISTICS PVT. LTD. VERSUS UNION OF INDIA & ANR. [2020 (3) TMI 811 - DELHI HIGH COURT] and VIANAAR HOMES PRIVATE LIMITED VERSUS ASSISTANT COMMISSIONER (CIRCLE-12), CENTRAL GOODS & SERVICES TAX, AUDIT-II, DELHI & ORS. [2020 (11) TMI 150 - DELHI HIGH COURT] proceeded to accept the submission addressed on behalf of the respondents and held that the proceedings which had already been initiated or which related to a period prior to the repeal of the Act would stand saved. However, it appears that the decisions in TRAVELITE (INDIA) VERSUS UOI AND OTHERS [2014 (8) TMI 200 - DELHI HIGH COURT] and MEGA CABS PVT. LTD. VERSUS UNION OF INDIA & ORS. [2016 (6) TMI 163 - DELHI HIGH COURT] were not brought to the notice of the Division Benches and the matters appear to have been argued as if Rule 5A continued to exist on the statute book. That would clearly appear to be a factual inaccuracy. Application disposed off. Issues involved:The validity of Rule 5A of the Service Tax Rules 1994 in light of the Finance Act 1994 and the Central Goods and Services Tax Act 2017.Issue 1: Declaration regarding Rule 5A's validityThe petitioners sought a declaration that Rule 5A of the Service Tax Rules 1994 is ultra vires the provisions of the Finance Act 1994 and has lapsed after the introduction of the Central Goods and Services Tax Act 2017. The Court noted that the validity of Rule 5A(2) was previously struck down by a Division Bench. Subsequently, a new clause was introduced in the Act to validate the action initiated under Rule 5A(2). However, a Division Bench held that the amended Rule 5A(2) remained ultra vires the Act. The Court acknowledged that the decisions in Travelite and Mega Cabs are pending before the Supreme Court, where the judgments have been stayed.Issue 2: Proceedings under Rule 5A post CGSTAfter the repeal of the Act due to the introduction of CGST, the validity of proceedings pending or to be initiated under the Rules was addressed. The respondents argued that proceedings initiated under Rule 5A(2) before the CGST came into effect would stand saved by virtue of Section 174 of the CGST. Division Benches of the Court accepted this submission and held that proceedings initiated or related to a period before the Act's repeal would stand saved. However, it was noted that the Division Benches were not made aware of the decisions in Travelite and Mega Cabs, leading to a factual inaccuracy in the arguments presented. The Court opined that despite the judgments in Travelite and Mega Cabs being placed in abeyance, the declaration of invalidity would not be effaced.The matter was adjourned to a later date due to the indisposition of the learned Standing Counsel.