2017 (11) TMI 1522 - HC - Service Tax

Demand of service tax - adjudication of case after the Scheme of Arrangement - sick unit - Held that - This Court does not wish to express any opinion at this juncture, as the first respondent is yet to adjudicate the case. The first respondent, having issued the impugned demand, has to consider the petitioner s objections and pass an order and it is open to the petitioner to prefer an appeal. On the other hand, if the first respondent is convinced on the legal issue raised by the petitioner, it may even lead to dropping of proceedings. Therefore, necessarily, there should be an adjudication. The prayer sought for by the petitioner to quash the impugned show cause notice cannot be granted, as it is premature - writ petition is dismissed as premature.

Summary

Issues:
1. Interpretation of a Scheme of Arrangement under the Companies Act, 1956.
2. Liability of a successor company for service tax demands raised against the predecessor company.
3. Validity of show cause notices issued by the tax authorities.
4. Prematurity of seeking to quash a show cause notice before adjudication.

Analysis:
1. The judgment involves the interpretation of a Scheme of Arrangement under the Companies Act, 1956, where a company transferred its undertaking to another entity. The court noted that the Scheme of Arrangement sanctioned by the court provided for the transfer of the Erode factory to the petitioner company, with an effective date as of 01.4.1999.

2. The issue of liability arose concerning service tax demands raised against the predecessor company, leading to show cause notices and subsequent orders confirming the demands. The court addressed the contention that the successor company was liable for the amounts claimed by the tax authorities, emphasizing the need for adjudication by the concerned authority.

3. The validity of the show cause notices issued by the tax authorities was examined, highlighting the petitioner's responses challenging the demands based on the Scheme of Arrangement and the appointment of the Official Liquidator. The court acknowledged the ongoing process and the need for the tax authority to consider the objections raised before passing a final order.

4. The court concluded that the petitioner's request to quash the show cause notice was premature since the tax authority had not yet adjudicated the case. Emphasizing the importance of due process, the court dismissed the writ petition but directed the tax authority to consider the petitioner's submissions, provide a hearing, and pass a reasoned order within a specified timeframe, allowing for further legal recourse if needed.