2025 (2) TMI 215 - HC - Service Tax

Gujarat HC quashes show-cause notice under Section 73 Finance Act 1994 for improper service despite address change

Gujarat HC quashed show-cause notice and Order-in-Original under Section 73 of Finance Act, 1994 due to improper service. Despite attempts via registered ... Valid service of SCN and the Order-in-Original issued u/s 73 of the Finance Act, 1994 - jurisdiction to issue the Order-in-Original based on the information available in Form 26AS under the Income Tax Act, 1961 - liability to pay service tax on export services under the provisions of the Finance Act, 1994 - HELD THAT:- The decision or order passed or any summons or notice issued under the Act is to be served by various modes as prescribed in clause (a) by tendering or by registered post or by speed post with proof of delivery or by courier, failing which, by affixing a copy thereof to some conspicuous part of the factory or warehouse or other place of business or usual place of residence of the person for whom such decision, order, summons or notice, as the case maybe, is intended and on failure of the modes prescribed in clauses (a) and (b), by affixing a copy thereof on the notice board of the Officer who passed such decision or order or issued summons or notice. Admittedly the show-cause notice was never served upon the petitioner. Similarly, the letter dated 07.04.2022 fixing the personal hearing as well as the Order-in-Original were also sent by speed post as contended in the reply dated 30th May, 2023 given under the RTI Act, however, the same also met with the same fate of not delivering upon the petitioner. Therefore, the respondent-Authority was required to take recourse to clauses (b) and (c) of Sub-section (1) of Section 37C of the Act, 1944, however, it is admitted in the affidavit-in-reply that as the petitioner had changed the place of the business, it was not possible to follow the provisions of Section 37C (b) of the Act, 1944 as at the time of delivery, the address of the premises was not in existence but the provisions of Section 37C (c) was followed by affixing copy thereof on the notice board, no document or details are available even for compliance of clause (c) of Section 37C (1) of the Act, 1944. It is clear that neither the show-cause notice nor the Order-in-Original was ever been served upon the petitioner at any point to time and when there is non service of the show-cause notice and the Order-in-Original, both are liable to be quashed and set aside. Conclusion - i) The show-cause notice and the Order-in-Original were invalid due to improper service, as per Section 37C of the Central Excise Act, 1944. ii) The petitioner was not liable to pay service tax on export services under Section 66B of the Finance Act, 1994. iii) The respondent authority lacked jurisdiction to issue the Order-in-Original based on improperly served notices and incorrect application of tax liability principles. The matter is required to be considered in favour of the petitioner as petitioner was never liable to pay the service tax on the export services under the provisions of the Act, 1994 and hence, no further orders are required to be passed - petition allowed by way of remand. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment were:1. Whether the show-cause notice and the Order-in-Original issued under Section 73 of the Finance Act, 1994, were validly served to the petitioner.2. Whether the petitioner was liable to pay service tax on export services under the provisions of the Finance Act, 1994.3. Whether the respondent authority had jurisdiction to issue the Order-in-Original based on the information available in Form 26AS under the Income Tax Act, 1961.ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Service of NoticeRelevant Legal Framework and Precedents: The legal framework revolves around Section 37C of the Central Excise Act, 1944, which prescribes the methods for serving decisions, orders, summons, or notices. The methods include registered post, speed post, or courier with proof of delivery, and if these fail, by affixing a copy at a conspicuous part of the business premises or on the notice board of the issuing authority.Court's Interpretation and Reasoning: The Court noted that the show-cause notice and the Order-in-Original were not served on the petitioner as required by Section 37C. The respondent's failure to provide proof of delivery and lack of documentation for affixing the notice on the notice board were critical in the Court's reasoning.Key Evidence and Findings: The evidence showed that the notice was sent to an outdated address and was returned undelivered. No proof was presented for following the alternative methods of service outlined in Section 37C.Application of Law to Facts: The Court applied Section 37C and found that the respondent failed to comply with the service requirements, rendering the notice and subsequent Order-in-Original void.Treatment of Competing Arguments: The respondent argued that notices were sent via registered post, but the Court found this insufficient without proof of delivery or adherence to alternative service methods.Conclusions: The Court concluded that the lack of proper service invalidated the show-cause notice and the Order-in-Original.Issue 2: Liability to Pay Service Tax on Export ServicesRelevant Legal Framework and Precedents: Section 66B of the Finance Act, 1994, exempts export services from service tax. The Court also referenced existing legal principles that support non-taxability of such services.Court's Interpretation and Reasoning: The Court interpreted that the export services provided by the petitioner were outside the taxable territory and thus not subject to service tax.Key Evidence and Findings: The petitioner did not register for service tax due to the non-taxability of export services, which was consistent with the legal provisions.Application of Law to Facts: The Court applied the provisions of Section 66B, concluding that the petitioner was not liable for service tax on export services.Treatment of Competing Arguments: The respondent's reliance on Form 26AS data was deemed insufficient to establish tax liability, given the exemption under Section 66B.Conclusions: The Court found in favor of the petitioner, confirming no service tax liability existed for the export services.Issue 3: Jurisdiction of the Respondent AuthorityRelevant Legal Framework and Precedents: The jurisdiction to issue orders is contingent upon proper service of notices as per Section 37C and the correct interpretation of tax liability under the Finance Act, 1994.Court's Interpretation and Reasoning: The Court reasoned that the respondent lacked jurisdiction due to improper service of notices and misinterpretation of the petitioner's tax liability.Key Evidence and Findings: The absence of service evidence and the misapplication of data from Form 26AS were pivotal in determining jurisdiction.Application of Law to Facts: The Court applied jurisdictional principles, concluding that the respondent overstepped its authority.Treatment of Competing Arguments: The respondent's argument for jurisdiction based on Form 26AS data was rejected due to the lack of service and misinterpretation of tax laws.Conclusions: The Court concluded that the respondent authority acted without jurisdiction.SIGNIFICANT HOLDINGSThe Court held that:- The show-cause notice and the Order-in-Original were invalid due to improper service, as per Section 37C of the Central Excise Act, 1944.- The petitioner was not liable to pay service tax on export services under Section 66B of the Finance Act, 1994.- The respondent authority lacked jurisdiction to issue the Order-in-Original based on improperly served notices and incorrect application of tax liability principles.Final Determinations on Each Issue:- The Court quashed and set aside the impugned show-cause notice dated 20.09.2020 and the Order-in-Original dated 27.04.2022.- The Court ruled in favor of the petitioner, confirming the absence of service tax liability on export services.- The Court determined that the respondent authority acted beyond its jurisdiction, rendering its actions void.