2012 (4) TMI 827 - HC - Income Tax

Summary

Issues involved: Interpretation of notification dated 27.2.2010 exempting transport service for "food grains and pulses" from service tax u/s 66 of the Finance Act, 1994.

Issue 1: Effect of notification on obligation to pay service tax
- The petitioners transported food grains for Food Corporation of India under a contract.
- Notification dated 27.2.2010 exempted "food grains and pulses" from service tax.
- Petitioners challenged deductions made by respondent FCI for service tax post-notification.
- Respondents claimed deductions were justified as service tax was part of the rate.
- Court held that petitioners were not obligated to pay service tax post-notification.
- Ordered refund of any deducted amounts with 10% interest if not refunded within two months.

Issue 2: Contractual obligations and tender terms
- Petitioners awarded Mandi Labour/Mandi Transportation Contracts by FCI.
- Contracts stipulated payment of all taxes, including service tax, from transportation bills.
- Petitioners protested against service tax deductions in the past.
- Respondents continued deductions post-notification, leading to legal challenge.
- Court ruled that post-notification, petitioners had no obligation to pay service tax.

Issue 3: Legal framework and notifications
- Central Government issued notifications exempting certain goods from service tax.
- Notification dated 27.2.2010 added "food grains and pulses" to exempted items.
- Previous notification of 3.12.2004 did not include food grains and pulses.
- Court concluded that post-2010 notification, service tax on food grains was exempt.
- Respondent FCI's actions of deducting service tax post-notification deemed unlawful.

Separate Judgement:
- The High Court, comprising of HON'BLE MR. JUSTICE M.M. KUMAR AND HON'BLE MR. JUSTICE ALOK SINGH, declared that petitioners were not liable to pay service tax to the Government or FCI post-notification dated 27.2.2010.
- Any deducted amounts were ordered to be refunded to the petitioners within two months with 10% interest if not refunded timely.
- The court emphasized the legal implications of the notifications exempting "food grains and pulses" from service tax, highlighting the incorrectness of FCI's deductions post-notification.