2017 (3) TMI 729 - HC - Service Tax

Works contract - petitioner is an an A-Grade Electrical Contractor engaged in electrical works - time limitation - petitioner case is that the initiation of proceedings by the authority is beyond the period of limitation as prescribed under Section 73(1) of the FA, 1994 and there was no reason to invoke the proviso to Section 73(1) of the Act to enlarge the period of limitation by five years - another case of petitioner is that the petitioner had undertaken the contract for five builders who had already collected the service tax component from the petitioner s bill and they, having accounted for the same, there was no obligation on the part of the petitioner to pay any amount as service tax. Held that - merely for the reason that a person did not pay service tax or did not file return does not amount to wilful suppression of facts to evade payment. That apart, the petitioner has a case that service tax amount had already been collected by his principals and they have accounted the same in their books of accounts. In the said circumstances, I am of the view that neither show cause notice nor Ext.P2 order contain any material to arrive at a finding that the Department was entitled to invoke proviso to Section 73(1) of the Act. Hence it requires a fresh consideration of the matter - matter on remand. Regarding another issue that contractors have already collected the service tax component from the petitioner s bill and they, having accounted for the same, there was no obligation on the part of the petitioner to pay any amount as service tax, apparently the said objection of the petitioner also requires to be considered in accordance with law especially when a contention is raised that the principals of the petitioner have collected service tax from the petitioner. Petition allowed by way of remand.

Summary

Issues:
Challenge to order rejecting appeal as barred by limitation; Invocation of proviso to Section 73(1) of the Finance Act, 1994; Liability to pay service tax; Consideration of objections raised by the petitioner; Denial of opportunity to contest the matter on merits.

Analysis:

1. The petitioner challenged the Ext.P5 order rejecting their appeal as barred by limitation. The petitioner, an A-Grade Electrical Contractor, was served with a show cause notice for non-payment of service tax. The petitioner contended that the initiation of proceedings was beyond the limitation period as prescribed under Section 73(1) of the Act. Additionally, the petitioner argued that the liability to pay service tax was not applicable as the tax amount had already been collected by their principals. The appeal filed by the petitioner was dismissed due to being beyond the limitation period.

2. The respondent argued that the writ petition was not maintainable and that the limitation issue was considered by the original authority. The respondent contended that the petitioner should have availed alternate remedies and that the Court should not interfere if the appeal is barred by limitation. However, the Court noted that if the order impugned is arbitrary or unreasonable, the Court can intervene. The show cause notice issued by the Department was for a period beyond the limitation, but it was invoked under the proviso to Section 73(1) of the Act. The Court emphasized that the Department must prove suppression of facts or contravention of provisions to extend the limitation period.

3. Referring to legal precedents, the Court highlighted that the extended limitation period should be invoked only in cases of fraud, collusion, wilful misstatement, or suppression of facts with intent to evade payment of duty. Mere non-filing of return does not constitute wilful suppression. The petitioner's argument that the principals had already collected the service tax amount was crucial. The Court found that the show cause notice and the impugned order did not contain sufficient material to justify invoking the proviso to Section 73(1) of the Act. Thus, a fresh consideration of the matter was deemed necessary.

4. The Court concluded that denying the petitioner an opportunity to contest the matter on merits would result in substantial injustice. As a remedy, the Court set aside the previous orders and directed the original authority to reconsider the show cause notice after allowing the petitioner to submit objections. Fresh orders were to be passed in accordance with the prescribed procedure, ensuring the petitioner's right to present their case on merits.

This detailed analysis of the judgment showcases the legal intricacies involved in the case, focusing on the limitation period, liability to pay service tax, and the necessity for a fair opportunity for the petitioner to contest the matter on its merits.