2021 (4) TMI 1096 - HC - Service Tax

Levy of service tax - reimbursement of the damage of the municipal roads due to such work - section 174 (2)(e) of the CGST Act - HELD THAT - There is no scope for passing any interim order, as prayed for, in the writ petition as the same will amount to passing of final order in the writ petition. An issue, however, remains to be adjudicated as to whether the petitioner is liable to pay service tax in view of the notification and the fate of ₹ 18,90,432/- paid by the petitioner as GST. Let this matter appear under the heading Hearing on 25th February, 2021.

Issues:
1. Liability of petitioner to pay service tax under the Finance Act, 1994 and CGST Act, 2017.
2. Demand notice issued by the service tax authorities.
3. Adjudication order dated 27th March, 2019, upholding the demand and imposing penalty.
4. Recovery proceedings initiated by the authorities.
5. Applicability of section 174(2)(e) of the CGST Act regarding inquiry into evasion or nonpayment of service tax.
6. Appeal process and the petitioner's failure to file an appeal against the adjudication order.

Analysis:

1. The petitioner, a Municipality, allowed a telecom company to lay optical fibre cables, and a dispute arose regarding the liability to pay service tax. The petitioner argued that they are not liable to pay service tax under the Finance Act, 1994, due to a notification issued by the Ministry of Finance. However, a demand notice was issued for a substantial amount, leading to financial losses for the petitioner.

2. The demand notice dated 13th September, 2018, demanded a sum of money as service tax from the petitioner, despite their assertion of not being liable to pay. Subsequently, an adjudication order was passed on 27th March, 2019, upholding the demand, imposing a penalty, and allowing the recovery of the amount demanded, causing significant financial burden on the petitioner.

3. The authorities initiated recovery proceedings and recovered a substantial sum from the petitioner, leading to financial distress. The petitioner approached the High Court seeking relief, including quashing the adjudication order dated 27th March, 2019, due to the perceived injustice and financial impact of the demands made by the authorities.

4. The respondent authorities justified their actions by citing section 174(2)(e) of the CGST Act, which allows inquiries into evasion or nonpayment of service tax even for periods preceding the enactment of the CGST Act in 2017. They argued that the issuance of the demand notice and subsequent adjudication were valid exercises of their statutory powers.

5. The respondents contended that the adjudication order was appealable, and the petitioner's failure to file an appeal deprived them of the right to challenge the order through a writ petition. The authorities emphasized the importance of following the proper appeal process before seeking judicial intervention.

6. The Court noted the submissions from both parties and deferred passing an interim order, highlighting the need for a detailed examination of the petitioner's liability to pay service tax and the fate of the amount paid as GST. The Court directed the filing of affidavits and scheduled a hearing to address the issues raised comprehensively.

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