2023 (11) TMI 1398 - HC - Service Tax

Appeal allowed: show-cause notice and ex parte order quashed for jurisdictional defect and natural justice breach; reliance on Form 26AS

The HC allowed the appeal and quashed the show-cause notice and ex parte order. The court found the notice was issued solely on the basis of Form 26AS ... Issuance of SCN on the basis of the Form 26AS issued by the Income Tax Department for being the annual tax statement under Section 203AA of the Income Tax Act, 1961 - petitioner was not aware about the show-cause notice or the subsequent ex-parte order passed by the respondent-authority - principles of natural justice - HELD THAT:- It appears that the respondent-authorities have issued the show cause notice only on the basis of the Form 26AS issued by the Income Tax Department which was made available as the petitioner had registered itself under the GST Act providing its PAN Number to the Service Tax Department and on the basis of such data, it appears that the respondent-Department has obtained the Form No. 26AS and presumed that the petitioner failed to submit the necessary returns for service tax under Section 73(2) of the Act 1994 and accordingly, issued the show-cause notice. As per Section 66B of the Act, 1994 the charge of service tax on or after is to be levied as a tax at the rate of 14% on the value of all services other than those services specified under negative list. The petitioner was required to file return for the service provided by it for the construction of road in view of the provisions of the Service Tax Act. The respondent-authorities on the basis of the GST registration made by the petitioner in the year 2020 after obtaining the Form No. 26AS presumed that the petitioner failed to file return of income without verifying as to whom the petitioner has provided the services who had deducted the tax at source for the payment made to the petitioner for the services rendered by the petitioner. On bare perusal of the Form No. 26AS placed on record, it is revealed that the none of the parties from whom the petitioner has received the amount for rendering the services and the tax was deducted at source was situated in the State of Gujarat and accordingly, the respondent- Authority has no jurisdiction to issue any show-cause notice for the services rendered by the petitioner at Rajasthan as none of the parties to whom the services were rendered was situated in the State of Gujarat. Therefore, even considering the Form No. 26AS on the face value, respondent-authority have no jurisdiction to issue the show-cause notice and therefore, the show-cause notice is liable to be quashed and set aside and is accordingly, quashed and set aside. Appeal disposed off. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether a show-cause notice issued under the Service Tax / Finance Act based solely on Form 26AS obtained from the Income Tax Department can confer jurisdiction on the issuing authority where the Form 26AS does not indicate that the payors (who deducted tax at source) were situated within the territorial jurisdiction of that authority. 2. Whether an ex parte assessment and consequent recovery proceedings under Section 73(2) of the Finance Act, 1994 (read with relevant provisions) are liable to be quashed where the show-cause notice was founded exclusively on third-party information (Form 26AS) without verification of territorial nexus and where the notice was not effectively brought to the attention of the assessee prior to ex parte action. 3. Whether registration under a later tax regime (GST registration obtained in 2020) can retrospectively confer jurisdiction to issue a service-tax show-cause notice for an earlier period (2016-17) arising from alleged services rendered outside the issuing authority's territory. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Jurisdiction: Reliance on Form 26AS as basis for issuing show-cause notice Legal framework: Jurisdiction to issue a show-cause notice under service tax law depends on territorial nexus between the alleged taxable activity and the territorial limits of the authority issuing the notice; Service Tax / Finance Act provisions require proper identification of taxable receipts and the relevant territorial authority before initiating proceedings. Precedent Treatment: The Court considered the established proposition that third-party statements or information (such as Form 26AS) may constitute material to suspect non-compliance but do not, without more, establish territorial jurisdiction or replace the requirement to verify identity and situs of payors/transactions. The judgment follows that line and did not distinguish or overrule precedent; it applied the principle that jurisdictional facts must be shown on record. Interpretation and reasoning: The Court examined Form 26AS on its face and found it did not identify any payor located in the State where the issuing authority sat. The authority had obtained Form 26AS after the assessee's GST registration (2020) and treated the information as third-party material to presume failure to file service tax returns for 2016-17. The Court held that mere possession of Form 26AS, without verification of which entities deducted tax and where those entities were situated, is insufficient to establish territorial jurisdiction to issue the show-cause notice for services said to be rendered in another State (Rajasthan). The Court reasoned that territorial jurisdiction is a jurisdictional fact and cannot be presumed from an absence of indicia on Form 26AS pointing to the issuing authority's territory. Ratio vs. Obiter: Ratio - where third-party information (Form 26AS) does not disclose territorial nexus to the issuing authority, reliance on that information alone to found jurisdiction is impermissible and renders the show-cause notice void. Obiter - observations that Form 26AS can be a source of intelligence for tax authorities but requires follow-up verification; such remarks are ancillary to the ratio. Conclusion: The show-cause notice issued by the authority is without jurisdiction and is liable to be quashed insofar as it is based solely on Form 26AS that does not establish that the payors were within the authority's territorial jurisdiction. Issue 2 - Validity of ex parte assessment and recovery proceedings founded on an allegedly non-served or defective show-cause notice Legal framework: Principles of natural justice require that a show-cause notice be effectively served and that an assessee be given an opportunity to respond before assessment; statutory provisions permit ex parte action where notice is served and no reply is filed, but service and jurisdictional validity are prerequisites. Precedent Treatment: The Court applied settled law that ex parte assessments based on defective jurisdictional foundations or on notices not validly served may be quashed. The Court followed precedent emphasizing both service and jurisdictional adequacy as preconditions for sustaining ex parte assessments and recovery actions. Interpretation and reasoning: The Court noted the petitioner's claim of non-receipt and that the ex parte order followed attachment of bank accounts. The respondent relied on an acknowledgment said to be signed by the petitioner's manager. The Court did not rest the decision solely on service contentions but found that even viewing Form 26AS on face value there was no territorial link; therefore, the foundational show-cause notice was void for lack of jurisdiction. Given the primary defect, subsequent ex parte assessment and recovery proceedings were necessarily invalid. The Court treated the attachment and recovery as consequential to a void order and therefore liable to be set aside. Ratio vs. Obiter: Ratio - an ex parte assessment and recovery predicated upon a show-cause notice lacking territorial jurisdiction is invalid and must be quashed; service alone cannot cure lack of jurisdiction. Obiter - factual observations about the sufficiency of the acknowledgment relied upon by respondents were not necessary to decide the case. Conclusion: The ex parte assessment order and recovery proceedings are quashed as consequences of the void show-cause notice; the rule is made absolute and attendant recovery/attachment set aside. Issue 3 - Effect of subsequent GST registration on jurisdiction for earlier period Legal framework: Jurisdiction to assess and levy service tax for a prior period depends on facts prevailing during that period; subsequent registrations under later regimes do not confer retrospective jurisdiction for past periods absent statutory provision to that effect. Precedent Treatment: The Court followed the orthodox position that subsequent formal registrations do not retrospectively cure jurisdictional defects for prior tax periods. No precedent was overruled. Interpretation and reasoning: The respondent-authority relied upon GST registration obtained by the assessee in 2020 to justify issuing a show-cause notice for 2016-17. The Court rejected the contention, holding that registration in 2020 cannot be used to retrospectively vest territorial jurisdiction to pursue service-tax liabilities for 2016-17 when the alleged services and payors were situated outside the issuing authority's territory. The Court emphasized the need to base jurisdiction upon facts relevant to the period under scrutiny and not upon later events. Ratio vs. Obiter: Ratio - subsequent GST registration does not retrospectively confer jurisdiction to issue a show-cause notice for an earlier period where territorial nexus for that earlier period is absent. Obiter - none material beyond application of that principle. Conclusion: The reliance on GST registration in 2020 is inadequate to sustain jurisdiction for the 2016-17 show-cause notice; therefore that reliance does not save the impugned proceedings. Cross-references and Consequential Findings Where the foundational show-cause notice is quashed for want of jurisdiction (Issue 1) and where subsequent assessment and recovery are consequent upon that notice (Issue 2), all consequential orders - assessment order, recovery notice, and attachments - must be quashed and set aside. The Court made the rule absolute and ordered no costs.