2017 (10) TMI 1556 - HC - Service Tax

Non-payment of service tax - training and coaching service - exemption under Ext. P9 Notification dated 20-6-2012 - Non-application of mind - principles of natural justice - HELD THAT - From a perusal of Ext. P3 show cause notice issued to the petitioner that the case of the Department is essentially that the petitioner had been engaged in rendering commercial training or coaching services for the period from April 2010 to June 2012 and that for the subsequent period from April 2012 to March 2015 the activities of the petitioner were liable to service tax since the services rendered by petitioner would not qualify for the exemption contemplated under Ext. P9 Notification. In reply to the said show cause notice the petitioner preferred a detailed reply which is produced as Ext. P11 in the writ petition wherein the case of the petitioner is essentially that the services rendered by him being in the nature of commercial training/coaching services leading to a qualification recognised by law will not come within the ambit of the levy of service tax for the period prior to 1-7-2012. It was also pointed out in the said reply that for the period subsequent to 1-7-2012 and upto March 2015 the training services rendered by the petitioner would qualify for the exemption under Ext. P9 Notification under the head of services by an entity registered under Section 12AA of the Income-tax Act that conducts activities that answer to the description of charitable activities as defined under Clause 2K of the said Notification. The specific contention of the petitioner that for the period prior to 1-7-2012 the demand for tax in respect of the services rendered by him would be hit by limitation and the further contention of the petitioner that for the services rendered by him for the period subsequent to 1-7-2012 and till March 2015 he would qualify for the exemption under Ext. P9 Notification were not dealt with by the respondent who merely proceeded to record the contentions of the petitioner and then hold that the services rendered by the trust would not come under the charitable activities mentioned in the Notification and further that the services rendered by the trust were of commercial nature. In my view when the petitioner had taken a specific contention with regard to the particular head of service under which he qualified for exemption as per Ext. P9 Notification it was incumbent upon the respondent adjudicating authority to consider the contention of the petitioner and give reasons for rejecting the said contention of the petitioner. In Ext.P8 order I do not find such an exercise as having been done by the respondent as there is no reason stated as to why the contention of the petitioner regarding exemption available to the services rendered by him could not be accepted. Thus it is found that relegating the petitioner to his alternative remedy of an appeal against Ext. P8 order would be an exercise in futility since Ext. P8 order does not inform the petitioner of the reasons that found favour with the respondent while finding against the petitioner on the issue of exemption and confirming the demand of service tax and penalty on him - the respondent are not directed to pass a fresh order in lieu of Ext. P8 after considering Ext. P11 reply of the petitioner and after hearing him in the matter.

Summary

Issues:
Challenge against confirmation of service tax and penalty under the Finance Act, 1994; Non-application of mind by the respondent in passing the order.

Analysis:
The petitioner contested the demand of service tax and penalty imposed on them for alleged non-payment of service tax related to training and coaching services. The petitioner argued that the respondent's order confirming the demand (Ext. P8) did not address their detailed submission explaining why they should not be liable for the tax. The petitioner claimed that their services qualified for exemption under a specific notification for the period after 2012. The respondent's order did not specifically consider these contentions, leading the petitioner to challenge the order on the grounds of non-application of mind.

Upon reviewing the case, the court noted that the Department's case was based on the petitioner providing commercial training or coaching services from 2010 to 2012 and being liable for service tax from 2012 to 2015. The petitioner's response highlighted that their services did not fall under the service tax ambit before 2012 and qualified for exemption post-2012 under a specific notification. The respondent's order, however, did not adequately address these arguments, merely stating that the services were commercial in nature and not covered under charitable activities for exemption.

The court found that the respondent did not sufficiently address the petitioner's contentions regarding tax liability before 2012 and eligibility for exemption post-2012. The order lacked reasoning for rejecting the petitioner's claims, necessitating a fresh order. The court quashed the original order (Ext. P8) and directed the respondent to pass a new order after considering the petitioner's detailed reply (Ext. P11) and providing an opportunity for a hearing. The petitioner was instructed to appear before the respondent for this purpose, with the respondent required to issue a new order within a month of the hearing.