2026 (2) TMI 126 - HC - Service Tax

Levy of service tax challenged for extended limitation invocation; court quashes demand and related penalties under writ review

Levy of service tax was challenged on grounds that revenue invoked the extended period of limitation without satisfying statutory preconditions, amounting ... Levy of service tax - Reverse charge mechanism - Principles against taxation by inference or analogy - Extended period of limitation u/s 73(1) - Suppression, willful misstatement, fraud or collusion - Jurisdictional error - Assumption of jurisdiction - Writ jurisdiction under Article 226 - Alternative statutory remedies and exhaustion - HELD THAT:- From a reading of the order of adjudication it is clear that gross injustice has been done to the petitioner because of the high handed and palpably illegal and arbitrary order and therefore it is held that the present writ petition is maintainable notwithstanding the availability of statutory alternative remedy and the impugned show cause notice as well as order of adjudication are liable to be set aside and quashed. It is the view of this Court that while demand and recovery of taxes as ordinarily prescribed under the provisions of the Act requires careful consideration of the facts and circumstances and satisfaction of all the parameters prescribed upon, the demand and recovery under the extended period of limitation under section 73(1) being an exception to the General Rule, requires a higher degree of responsibility and diligence on the part of the revenue authorities before they can proceed to invoke the powers conferred under section 73(1). It is a trite law that greater the power prescribed under the statute greater will be the responsibility on the authorities on whom it has been bestowed to ensure that no infraction of the provisions of the Act and the Rules are made and no injustice is caused to the assessee during the process of demand and recovery. It is not a case that the documents which were called for required to be submitted were not furnished. The ST-3 Returns filed by the petitioner assessee were available in the records of the revenue authorities and which would have given a complete picture of the services rendered by petitioner assessee and/or whether such services come within the ambit of service taxes or are excluded by any circular or notification issue. However, there is no finding by the revenue authorities as to why this aspect was not examined. There is no conclusion of the revenue authorities in this aspect of the matter as is evident from the impugned order in original. Therefore, under such circumstances the invocation of extended period of limitation under section 73(1) has been held by this Court to be invalid and contrary to the prescriptions mandated by law. This being a position, it is a clear case of assumption of jurisdiction by the Revenue authorities where the statutes did not confer them such jurisdiction by default. A Writ Court while exercising its powers under Article 226 can certainly examine whether the Tribunal or the quasi-judicial authority by exercising its jurisdiction mandated under the statute has fulfilled the necessary pre-conditions prescribed by the statute itself. It is the conclusion arrived at by this Court that such preconditions mandated by law under section 73(1) having not been fulfilled by the Revenue authorities, their assumption of jurisdiction under section 73(1) of the GST Act was completely unwarranted and revenue authorities could not have assumed the jurisdiction under section 73(1) unless these pre-conditions mandated and a conclusion thereto has been arrived at by the Revenue authorities before assumption of such jurisdiction. It is under these circumstances that notwithstanding the availability of statutory alternative remedy, this Court considers it an appropriate case to invoke its jurisdiction under Article 226 to interfere with the impugned order in original and to set aside and quash the order-in-original. There is also no quarrel with the general proposition of law that in the face of statutory alternative remedy being available, a Writ Court would ordinarily not invoke its power of issuance of prerogative Writs. Since this Court has held that the levy of service tax on the petitioner by extending the limitation is contrary to the provisions of law, the natural corollary that would follow is that the levy of all penalty, surcharge and interest are also not leviable on the petitioner, this Court therefore issues a writ of certiorari setting aside the impugned order in original and it is ordered accordingly. Therefore the writ petition stands accordingly allowed. However no order as to cost. Pending I.A.s are also dismissed and the interim order if any stands merged. Issues: (i) Whether the service tax demand and penalties confirmed by the adjudicating authority on the basis of Form 26AS and related proceedings are sustainable; (ii) Whether invocation of the extended period of limitation under proviso to Section 73(1) is valid in the absence of a finding of fraud, collusion, willful misstatement or suppression of facts with intent to evade tax; (iii) Whether the writ petition is maintainable despite the availability of statutory alternative remedies.Issue (i): Whether the impugned demand of service tax and penalties confirmed against the petitioner on the basis of Form 26AS and without proper appreciation of payment challans and reverse charge liability is sustainable.Analysis: The material before the authority included evidence that (a) receipts from IOC/IOC Marketing were subject to reverse charge and were discharged by the recipients, (b) the petitioner produced challans showing payment of service tax in respect of ONGC receipts, and (c) amounts reflected in Form 26AS relating to sale of flats were not service receipts. The adjudicating authority proceeded to levy tax principally on inferences from Form 26AS without determining whether specific receipts were taxable in the hands of the petitioner or whether tax had already been discharged by recipients or by the petitioner as evidenced by challans.Conclusion: The demand of service tax and penalties confirmed on that basis is not sustainable and is set aside in favour of the assessee.Issue (ii): Whether invocation of the extended five-year limitation under proviso to Section 73(1) was valid where there was no conclusive finding of fraud, collusion, willful misstatement or suppression of facts with intent to evade tax.Analysis: The proviso to Section 73(1) permits extension only if any of the specified conditions (fraud, collusion, willful misstatement, suppression of facts or contravention with intent to evade) are found. Jurisprudence requires such conditions to be established by cogent findings of willful conduct or intent. The adjudicating authority invoked the extended period without reaching a conclusive, fact-based finding that the petitioner had acted with the requisite willful intent to evade tax; mere non-filing or reliance on Form 26AS without examination of submitted documents does not satisfy the statutory preconditions for extension.Conclusion: Invocation of the extended period under proviso to Section 73(1) was unlawful and held to be invalid; therefore the show cause notice and consequent demand premised on extended limitation are set aside in favour of the assessee.Issue (iii): Whether the writ petition is maintainable despite available statutory appellate remedies.Analysis: Interference by prerogative writ is permissible where the impugned action is arbitrary, without jurisdiction, procedurally infirm, or where a jurisdictional error is apparent on the face of the record. The adjudicating authority assumed extended jurisdiction under Section 73(1) without fulfilling statutory preconditions and levied tax arbitrarily without considering relevant materials; these defects go to the root of jurisdiction and justify exercise of writ jurisdiction.Conclusion: The writ petition is maintainable and entertained; relief is granted in favour of the assessee.Final Conclusion: The impugned show cause notice and the Order-in-Original dated 23.05.2022 are quashed and set aside; consequently the demand, interest and penalties confirmed therein are vacated and the petitioner succeeds.Ratio Decidendi: For demands under Section 73(1) by invoking the extended period, the adjudicating authority must record a conclusive, fact-based finding that one or more of the proviso conditions (fraud, collusion, willful misstatement, suppression of facts or contravention with intent to evade tax) are satisfied; absent such a finding, invocation of extended limitation and any demand based solely on Form 26AS or analogous inference is unauthorized and void.