2019 (12) TMI 1052 - HC - Service Tax

Short payment of service tax/ reversal of CENVAT credit - validity of summon issued in furtherance of inquiry/ investigation proceedings - Chapter (V) of Finance Act, 1994 repealed - Section 174(2)(e) of the Central Goods and Services Act, 2017 - HELD THAT - Reliance placed by the petitioner on Mega Cabs 2016 (6) TMI 163 - DELHI HIGH COURT is misplaced, firstly, on account of the fact that the said decision has been stayed by the Supreme Court; and, secondly, on account of the fact that the Division Bench only declared that Rule 5A(2) as amended, to the extent that it authorized the officers of the Service Tax Department, the audit party deputed by a Commissioner or the CAG to seek production of documents therein on demand as ultra vires the Finance Act. It does not interfere with the power of the authorities vested by Sub-Rule (1) of Rule 5A and the power of the respondents to conduct investigation and inquiry. Petition dismissed.

Summary

Issues:
1. Challenge to the summons dated 23.09.2019 issued by respondent No. 2 at the petitioner's Gurugram Office.
2. Interpretation of Section 174(2)(e) of the Central Goods and Services Act, 2017 regarding investigation and inquiry proceedings.
3. Validity of the summons in relation to non-reversal of CENVAT credit.
4. Application and implications of the decision in Mega Cabs (P) Ltd. vs. Union of India on the summons and investigation proceedings.

Analysis:

1. The petitioner challenged the summons dated 23.09.2019 issued by respondent No. 2 at their Gurugram Office, citing the striking down of Rule 5A of the Service Tax Rules, 1994 by the Delhi High Court in the Mega Cabs case. The petitioner argued that the summons was invalid due to this ruling, which has been stayed by the Supreme Court. However, the High Court found no merit in this argument, emphasizing that the ruling on Rule 5A(2) did not affect the overall power of authorities to conduct investigations and inquiries into potential violations of tax laws.

2. The interpretation of Section 174(2)(e) of the Central Goods and Services Act, 2017 was crucial in this case. The respondent argued that this provision allows for investigations and inquiries to continue even after the repeal of relevant tax laws. Specifically, the investigation in this case pertained to the alleged non-reversal of CENVAT credit, which the respondent contended was within their rights to examine under the provisions of the Act.

3. The validity of the summons in relation to the non-reversal of CENVAT credit was a key point of contention. The respondent asserted that the summons was issued in connection with the investigation into the alleged improper retention of CENVAT credit by the petitioner. This issue raised questions about the scope of authority and the necessity of such inquiries to ensure compliance with tax laws.

4. The application and implications of the Mega Cabs case on the summons and investigation proceedings were thoroughly analyzed. The High Court clarified that the ruling on Rule 5A(2) did not invalidate the broader investigative powers of the authorities. It was emphasized that the decision in Mega Cabs did not preclude investigations into potential breaches of tax laws, such as the non-reversal of CENVAT credit. Ultimately, the High Court dismissed the petition, upholding the validity of the summons and the ongoing investigation into the petitioner's tax compliance.