2010 (4) TMI 1024 - HC - Service Tax

Whether Oil and Natural Gas Corporation Limited does not require to pay the service tax insofar as the payments effected by it to the manpower supply agencies are concerned? Held that - In view of the assurance held out by the learned counsel for the Oil and Natural Gas Corporation Limited that adequate money payable to the seven societies would always be available with the Oil and Natural Gas Corporation Limited, we do not visualise any difficulty for the respondent to recover the assessed amount either from the societies or from the Oil and Natural Gas Corporation Limited. Therefore, we allow the writ petitions for the present only on the ground that the impugned notice dated November 18, 2009 has been issued without being preceded by an order of assessment. The respondent is, therefore, at liberty to pass an order of assessment within a maximum period of three months from today.

Summary

Issues:
1. Assessment of service tax liability on the petitioners.
2. Validity of the notice issued under section 87 of the Finance Act, 1994.
3. Liability of the principal employer to remit service tax amount.

Analysis:
1. The judgment involves two writ petitions, one filed by the Oil and Natural Gas Corporation Limited and the other by manpower supply agencies of the same corporation. The Deputy Commissioner of Customs issued a notice directing the corporation to remit a service tax amount for a specific period. The petitioners contested the requirement to pay service tax to the manpower supply agencies without a proper assessment order. The court emphasized that the assessing authority must assess the liability of the agencies first before directing the principal employer to remit the amount. The court directed the respondent to assess the liability of the societies mentioned in the notice and provide them with a fair opportunity to present their case.

2. The court acknowledged the argument that without an assessment order, there could be potential friction between the manpower suppliers and the principal employer, affecting business operations. The Oil and Natural Gas Corporation Limited assured that it could transmit the tax liability once an assessment order is issued. The court allowed the writ petitions on the grounds that the notice was issued without a preceding assessment order. It granted the respondent a maximum of three months to pass an assessment order. The judgment highlighted the importance of following due process before directing payment.

3. The judgment clarified that the liability to pay the service tax amount arises only after a proper assessment by the authority. It emphasized that the principal employer should not be directed to remit the amount until the liability of the agencies is determined through assessment. The court's decision aimed to ensure a fair and lawful process in assessing and collecting service tax, preventing any undue burden on the principal employer without a valid assessment order in place.