2019 (6) TMI 1664 - HC - GST

Levy of service tax - license fee paid by the petitioners to Indian Railways for award of license for operation, management and supply of catering services in the Trains of Indian Railways - reverse charge mechanism - suppression of facts or not - HELD THAT - A perusal of the notice would show that preliminary submissions were made by the petitioners' representative(s) and after consideration thereof, the notice under challenge was issued. The show cause notice appears to have been issued after the initial reply. The details of notice purports that the averments of the petitioners were too considered and thereafter, they were given opportunity of hearing in person before adjudication of the case. The said notice further shows that the case is posted for hearing and the petitioners were given opportunity of being heard before any orders have been passed. Reading of the entire show cause notice which runs into 32 pages primarily describes the averments of the parties. The language of show cause notice would show that after preliminary consideration, the authority issuing the same came to a conclusion that the petitioners have willfully suppressed certain facts of rendering taxable services provided to them. The show cause further speaks that such facts came to fore when the investigation of records was carried out and after examination of records, the authority was of the opinion that suppression of facts exists. A reading of show cause notice would show that the authority issuing notice has reasonably acted upon and narrations have been made that why the authority has come to conclusion by recording such objective satisfaction of fact and has asked for the explanation by way of show cause. At this stage, since the petitioners have been given opportunity of hearing, the prayer to quash the show cause at the inception would amount to strangulate the issue which is yet to be adjudicated - it would not be appropriate to exercise the discretionary jurisdiction of writ and quash the show cause notice by evaluating the language of it as primarily it does not show that it is without jurisdiction. The petitions at this stage are premature and liable to be dismissed.

Summary

Issues:
Challenge to show cause notice for demand of service tax on license fee paid to Indian Railways.

Analysis:
1. The main issue raised in the petitions is the demand of service tax on the license fee paid by the petitioners to Indian Railways for catering services on trains. The petitioners argue that the license fee includes all taxes and charges, hence demanding service tax amounts to double taxation.

2. The petitioners contend that the license fee paid is for access to passengers on trains and does not constitute a separate service provided by Indian Railways. They argue that the show cause notice is based on incorrect interpretation and contradicts the terms of the agreement between the parties.

3. Referring to case law, the petitioners argue that double taxation would make the writ petition maintainable. They also highlight that the service tax was paid for outdoor catering services, as shown in their returns, and there was no suppression of facts regarding tax payments.

4. The petitioners further assert that the demand for service tax for the period from 2012 to 2016 is unreasonable, as the legislative intent and limitations period should be considered. They argue that the license fee paid initially covers all charges, making it a case of revenue neutrality.

5. On the other hand, the respondent argues that the petitioners rushed to court without exhausting the opportunity for a hearing before the authority. They cite previous cases to support the dismissal of the petitions at this stage.

6. The court analyzed the show cause notice and found that the authority acted reasonably by issuing the notice after considering preliminary submissions. The notice provided an opportunity for the petitioners to respond and defend themselves against the charges of suppression of facts.

7. Citing legal precedents, the court emphasized that the petitioners should be allowed to explain their activities before a final decision is made on the tax liability. The court concluded that dismissing the petitions at this stage would be premature, as the petitioners have the right to present their case before the adjudicating authority.

In conclusion, the court dismissed the petitions as premature, stating that the petitioners should address their grievances before the adjudicating authority. The court found that the show cause notice was issued reasonably, allowing the petitioners an opportunity to rebut the allegations of suppression of facts before any final decision is made.