2009 (10) TMI 98 - HC - Service Tax

Court directs response to show cause notice, upholds due process, leaves validity open for future consideration.

The High Court found the challenge to the show cause notice premature as the petitioner had not responded or raised the issue of the rule's validity. The ... Challenge to show cause notice - maintainability of writ petition against pre-prosecution show cause notice - remedy of filing reply to show cause notice - speaking order by departmental authorities - challenge to validity of rule to be considered by authorityChallenge to show cause notice - maintainability of writ petition against pre-prosecution show cause notice - remedy of filing reply to show cause notice - Writ petition challenging a pending show cause notice is not entertainable at the pre-adjudicatory stage where statutory remedy of replying to the notice has not been availed. - HELD THAT: - The Court found that the petitioner had challenged only a show cause notice and had not filed a reply with the departmental authorities or relied upon the admitted Division Bench decision in its reply. The Court observed that the notice cannot be treated as without jurisdiction and that part of the demand would, on the admitted chronology, be valid. Therefore, the statutory and conventional remedy of filing a reply to the show cause notice before the authorities must be exhausted before invoking writ jurisdiction. The Court directed that the petitioner be relegated to the remedy of filing a reply and that the authorities should consider the issues raised and pass a speaking order.Writ petition dismissed at this stage; petitioner directed to file reply to the show cause notice and pursue remedies before the departmental authorities who shall pass a speaking order.Challenge to validity of rule to be considered by authority - speaking order by departmental authorities - The question as to the constitutional and legal validity of the specified rule and related provisions is not adjudicated by the Court and is left open for consideration by the authorities if raised by the petitioner. - HELD THAT: - Although the petitioner questioned the validity of Rule 2(1)(d)(iv) of the Service Tax Rules and related provisions, the Court declined to decide the validity in the writ proceedings brought at the stage of a show cause notice. The Court noted the petitioner's reliance on a Division Bench decision but recorded that the petitioner had not placed that decision before the authorities in reply. Consequently, the Court left the question of validity open and permitted the petitioner to raise it before the departmental authorities and, if necessary, thereafter before the courts.Validity of the rule and related provisions left open; petitioner at liberty to raise the issue before the authorities and, thereafter, before this Court if necessary.Final Conclusion: The writ petition is disposed of by refusing to entertain the challenge to the show cause notice at this stage; petitioner is directed to file a reply to the notice and the departmental authorities shall consider the contentions and pass a speaking order; the question of validity of the rule is left open for consideration by the authorities and thereafter by the courts if required. Issues:Challenge to show cause notice for non-payment of service tax to overseas agents, constitutional validity of Rule 2(1)(d)(iv) of Service Tax Rules, 1994, validity of Taxation of Service Rules, 2006.Analysis:The petitioner challenged a show cause notice for non-payment of service tax to overseas agents amounting to Rs. 3,81,33,750/- along with Rs. 41,73,003/- as education cess. Additionally, the constitutional validity of Rule 2(1)(d)(iv) of Service Tax Rules, 1994, Explanation to Section 65(105), and Section 66A of the Finance Act, 1994 were contested. The petitioner also questioned the validity of Taxation of Service Rules, 2006, citing a Division Bench judgment of the Bombay High Court declaring Rule 2(1)(d)(iv) as invalid.The High Court, after hearing the arguments, found that challenging the show cause notice at that stage was premature as the petitioner had not even filed a reply or raised the Division Bench judgment declaring the rule invalid. The Court noted that the period in question was from 9-7-2004 to 31-12-2008, while the Division Bench judgment found the rule valid from 18-4-2006. The Court suggested that the petitioner should have raised the issue before the departmental authorities, especially for the period before 18-4-2006. The Court refused to entertain the petition, directing the petitioner to respond to the show cause notice and allowing the authorities to consider the raised issues. The Court left the question of the rule's validity open for the petitioner to raise if necessary.In conclusion, the High Court disposed of the writ petition, emphasizing the importance of availing the remedy of responding to the show cause notice before the authorities and allowing them to consider the issues raised. The Court clarified that the petitioner could raise the validity issue if needed, indicating that the authorities should pass a speaking order considering the raised concerns.