2025 (10) TMI 483 - HC - GST

Writ appeals dismissed; pre-adjudication challenges to s.73 Finance Act SCNs quashed, parties allowed post-SCN replies and remand

The HC rejected the writ appeals and declined to interfere with the Single Judge's orders which had quashed pre-adjudication challenges to show cause ... Issuance of SCN u/s 73 of Finance Act, 1994 - quashing of SCN (before adjudication) by allowing the writ petitions - negative listed services - petitioners are providing service to the local authority or they are providing services on behalf of the local authority - HELD THAT:- Learned Single Judge relegated the petitioners to the stage of post show cause notice, reserving liberty to file reply/additional reply and in some of the writ petitions where the Order-in-original was the subject matter, set aside the same and relegated the matter to the stage of post show cause notice with liberty to file additional reply apart from the reply. There are no error or illegality in the order passed by the learned Single Judge. It would be premature for this Court to examine the contentions raised by the petitioners herein as to whether the petitioners would be liable to pay service tax or whether the petitioners services are exempted from service tax or whether each of the petitioners herein would be entitled to the same benefit as granted to one Smt. B.M. Rukmini in [2025 (3) TMI 126 - KARNATAKA HIGH COURT]. It is submitted that the said order is also set aside and it is sent back to the stage of filing objections. The entire process as to whether the petitioners are liable to pay service tax on the services rendered by them involves examination of factual aspects. The petitioners have failed to point out any jurisdictional error so as to interfere with the show cause notices which is only the ground available to interfere with the show cause notices. It is not inclined to interfere with the learned Single Judge’s order and accordingly writ appeals stand rejected. ISSUES PRESENTED AND CONSIDERED 1. Whether show cause notices issued under Section 73 of the Finance Act, 1994 read with Section 174 of the CGST Act, 2017 challenging liability for service tax can be quashed by the Writ Court at pre-adjudicatory stage. 2. Whether services rendered by contractors providing solid waste management to a local authority fall within the Negative List/exemptions under the 1994 Act (charging Sections 66B/66D and relevant notifications) such that show cause notices are without jurisdiction or liable to be quashed summarily. 3. Whether the Writ Court may interfere with adjudicatory orders (Orders-in-Original) or proceedings and instead remit matters to the adjudicating authority for consideration of factual and legal contentions raised by the assessee, including requests for uniformity of approach. 4. Whether an administrative benefit or order in favour of one contractor (dropping proceedings) must be extended to other similarly situated contractors absent adjudication of facts and law. ISSUE-WISE DETAILED ANALYSIS Issue 1: Power of Writ Court to quash pre-adjudicatory show cause notices Legal framework: Article 226 remedies versus statutory adjudicatory scheme under the Finance Act, 1994 and CGST Act, 2017; Section 73 of the 1994 Act (show cause for service tax) and Section 174 CGST Act (transitional / procedural provisions). Precedent Treatment: No specific precedents were relied upon by the Court in the judgment; the Court applied settled principles that interference with show cause notices is permissible only on jurisdictional or patent illegality grounds. Interpretation and reasoning: The Court held that the statutory scheme provides an adjudicatory mechanism to determine liability and exemptions; the Writ Court should not supplant that process where adjudication requires factual inquiry. Petitioners failed to point to any jurisdictional error in issuance of show cause notices. The Court regarded examination of whether services are taxable/exempt as a factual-administrative task appropriate for the adjudicating authority. Ratio vs. Obiter: Ratio - Writ relief to quash show cause notices at pre-adjudicatory stage is not warranted absent a jurisdictional error or patent illegality; matters requiring factual and evidentiary resolution ought to proceed before the adjudicating authority. Obiter - observations about the limits of Article 226 in revenue adjudications reaffirm conventional principles. Conclusions: The remand to the adjudicating authority was appropriate; the Writ Court correctly declined to quash the show cause notices in limine. Issue 2: Applicability of Negative List / Exemptions to municipal service contracts Legal framework: Charging Sections (66B/66D) and the Negative List under the 1994 Act; subsequent notifications creating exemptions for services to local authorities or on their behalf. Precedent Treatment: The Court noted a departmental adjudicatory order in a related matter that dropped proceedings for one contractor, but did not treat that order as binding precedent for others absent adjudication. No judicial precedent was treated as determinative in the judgment. Interpretation and reasoning: Whether a contractor's services fall within the Negative List or notified exemption involves detailed factual evaluation of the nature of service, contractual terms, and the relationship with the local authority. Such questions are within the competence of the adjudicating authority to decide after considering replies, evidence and applicable notifications. A categorical pre-adjudicatory grant of exemption by the Writ Court was therefore inappropriate. Ratio vs. Obiter: Ratio - Determination of applicability of Negative List/exemptions is a fact-sensitive adjudicatory exercise and not amenable to summary judicial determination in absence of jurisdictional infirmity. Obiter - reference to the need for uniform adjudication across assessors to avoid disparate departmental views. Conclusions: Petitioners' entitlement to exemption must be adjudicated by the competent authority; the Writ Court correctly remitted the matters for that purpose rather than grant summary relief. Issue 3: Interference with Orders-in-Original and remand to adjudicating authority; uniformity of departmental approach Legal framework: Principles governing judicial interference with statutory adjudication; power to set aside orders where required and remit for fresh consideration; administrative measures to ensure consistent adjudication. Precedent Treatment: The Court did not overrule any precedent; it applied established principles permitting remand where adjudication is necessary and where parties seek opportunity to raise contentions afresh. Interpretation and reasoning: The Single Judge set aside Orders-in-Original in some petitions and relegated matters to the post-show-cause stage, permitting additional replies/objections to be filed. The High Court found no error in this approach and endorsed directions to assign adjudication to a common set of officers to ensure uniformity. The Court noted the departmental step to nominate officers for consolidated adjudication. Ratio vs. Obiter: Ratio - Remand and setting aside of O.I.O.s to enable adjudication with opportunity for additional replies is appropriate when factual adjudication is necessary; courts may direct administrative consolidation to secure uniformity. Obiter - comments that administrative orders favoring one contractor do not bind adjudicators in other matters without adjudicatory findings. Conclusions: Remand with liberty to file additional replies and administrative assignment to common adjudicators is legally sound; the Court endorsed the remedial approach taken by the Single Judge. Issue 4: Claim for extension of benefit granted to one contractor to other contractors Legal framework: Doctrine of consistency and equality of treatment administratively balanced against individualised adjudication based on facts and records. Precedent Treatment: The Court treated the departmental order in favour of one contractor as an administrative decision whose applicability to others requires adjudicatory consideration rather than automatic extension by the Writ Court. Interpretation and reasoning: The Court observed that an order dropping proceedings in one file was set aside and remitted to permit consideration at the post-show-cause stage. The Court held that petitioners cannot compel extension of that benefit absent adjudication demonstrating identical legal and factual position; the obligation falls on petitioners to persuade the adjudicating authority. Ratio vs. Obiter: Ratio - Administrative benefit to one assessee does not automatically create a justiciable right for others in absence of adjudicated identity of facts and law; such claims must be addressed in the adjudicatory process. Obiter - suggestion that administrative consolidation may promote uniform outcomes if facts and law are analogous. Conclusions: Petitioners' plea for parity with the contractor whose proceedings were dropped was appropriately deferred to the adjudicating authority; no ground existed for judicial extension of that benefit at the writ stage. Overall Conclusion The Court held that the Single Judge rightly refrained from quashing show cause notices or sustaining Orders-in-Original summarily, instead remitting matters to the adjudicating authority with liberty to file replies and directing administrative consolidation to ensure uniformity. The writ appeals were dismissed for want of jurisdictional error or patent illegality in the impugned notices/orders.