2018 (3) TMI 1288 - HC - Service Tax

Levy of service tax on receipt of amount after new levy whereas the contract was Concluded before levy - whether the law came into force w.e.f. 1-7-2003 and the concluded contract which has entered prior to coming into force of the law where the taxing statute has taken place on 1-7-2003 should be taxed if the contract is concluded and the services are rendered thereafter? - Circular 65/14/2003, dated Nov. 5, 20 F. No, B3/7/2003-TRU. Held that - The assessee herein has entered into a concluded Contract much prior to coming into force of Service Tax law and in view of the clarification which has been issued in 2005 which clearly made out the case for the appellant inasmuch as the legislation has now used the language after 2005 - it is very clear that prior thereto, there is authority interpretation of the provision as services which are referred to be provided in future was not covered. Even otherwise in view of the law Concluded Contract cannot be revived in view of subsequent development which will lead to a very odd situation with the assessee and he has to suffer in his business and has to face the breach of contract. Any payment of contract which are entered after 1-7-2003 will invite Service Tax and any contract which is concluded prior to 1-7-2003 will not invite imposition of Service Tax. Appeal allowed - decided in favor of assessee.

Summary

Issues Involved:

1. Whether the clarification dated 5-11-2003 issued by the Tax Research Unit (TRU) was ultra vires, null and void, and beyond the authority delegated under Section 37B of the Central Excise Act, 1944.
2. Whether Service Tax can be levied on the amount received prior to the date of levy when registration and invoice could not be raised to collect indirect tax and provisions of the Provisional Collection Act were not applicable, and Section 66 of the Act imposed the levy w.e.f. 1-7-2003.
3. Whether the treatment of service under the head of Commercial Coaching Centre and franchisee service on the same issue by the Department can be held to be suppression on the part of the appellant and the demand tenable under both heads simultaneously.

Issue-Wise Detailed Analysis:

1. Clarification by TRU Ultra Vires:

The appellants challenged the TRU's clarification dated 5-11-2003, asserting it was ultra vires and beyond the authority delegated under Section 37B of the Central Excise Act, 1944. The court examined the legality of the TRU's interpretation, which allowed the collection of tax prior to the date of levy, contrary to Sections 66, 67, 68, and 69 of the Finance Act, 1994, read with Rules 4 and 6 of the Service Tax Rules, 1994. The court concluded that the TRU's clarification was not aligned with the statutory provisions and thus held it as ultra vires.

2. Levy of Service Tax on Amounts Received Before the Date of Levy:

The court addressed whether Service Tax could be levied on amounts received before the date of levy when the registration and invoice could not be raised to collect indirect tax and the Provisional Collection Act provisions were not applicable. The appellants argued that the concluded contracts prior to 1-7-2003 should not be taxed even if services were rendered after this date. The court referred to the Finance Minister's speeches and various legal provisions, concluding that the tax could only be imposed from the notified date (1-7-2003). Therefore, any payment received before this date for services to be rendered after should not be subject to Service Tax.

3. Suppression and Demand Under Both Heads Simultaneously:

The court examined whether the simultaneous treatment of services under the heads of Commercial Coaching Centre and franchisee service by the Department constituted suppression by the appellant. The Department argued that the appellant did not disclose the franchisee service, leading to suppression of facts. However, the court found that the initial show cause notice did not mention franchisee services, and the subsequent demand under a different category was not sustainable. The court held that the suppression claim was not tenable as the appellant had disclosed the services in their registration certificate and earlier show cause notices.

Conclusion:

The court held that the TRU's clarification was ultra vires, Service Tax could not be levied on amounts received before the date of levy, and the claim of suppression by the appellant was not justified. The appeals were allowed in favor of the assessee, and the issues were answered against the Department.