2021 (7) TMI 1107 - HC - Service Tax

Validity of SCN - Jurisdiction - demand of service tax on services provided or received which all are not exempted under the provisions of the Act - petitioner falling under the definition service provider so as to issue show cause notice with reference to certain services rendered by the petitioner, or not - HELD THAT - This Court is of an opinion that the High Court is expected to be slow in entertaining a writ petition against a show cause notice. A writ against a show cause notice may be entertained only if the said notice is issued by an incompetent authority having no jurisdiction or if an allegation of malafides is raised. Even in case of raising an allegation of malafides, the authorities against whom such an allegation is raised, is to be impleaded as party respondent in his personal capacity. In all other circumstances, the allegations or counter allegations are to be adjudicated with reference to the evidences to be produced by the respective parties and such an exercise cannot be done in a writ proceedings under Article 226 of the Constitution of India. Thus, the High Court is expected to be cautious while entertaining a writ petition filed against the show cause notice. It is not in dispute between the parties that transmission and distribution of electricity are exempted from service tax. Question arises, what all are the services falling under the exemption clause and the other services which all are not covered under the exemption clause. The first respondent has specifically stated that they have issued the show cause notice only in respect of the services stated above, which all are not covered under the exemption clause under the Act. This Court is of the considered opinion that only if the exemption clause is applicable, then alone the jurisdiction point needs to be considered with reference to the facts of the present case. However, in the present case, the first respondent himself has categorically admitted both in the show cause notice as well as in the counter filed by them that specifically exemption is granted for transmission or distribution of electricity by any electricity transmission or distribution utility. The first respondent has made it clear that show cause notice has not been issued demanding service tax for transmission or distribution of electricity. The service tax are demanded only for other services which all are not covered under the exemption clause and therefore, these facts are to be adjudicated with reference to the documents and evidences. When there is a slightest doubt in respect of the point of jurisdiction is raised, then the benefit of the said doubt is to be given for the Revenue. This being the general principles in the present case and the petitioner is also an organisation owned by the State, the first respondent has issued the show cause notice with reference to the services which all are not covered in the exemption clause. The petitioners are directed to submit their explanations, documents and evidences along with legal submissions, if any, within a period of eight weeks from the date of receipt of a copy of this order - on receipt of the explanations from the petitioners, the concerned respondents are directed to proceed with the enquiry by affording opportunity to the petitioners, including personal hearing, as contemplated and complete the process and pass final orders as expeditiously as possible. If the petitioners are aggrieved from and out of the said final orders, to be passed thereafter, they are at liberty to approach the appellate authority for redressal of their grievances. Petition disposed off.

Issues Involved:
1. Jurisdiction to issue the show cause notice.
2. Applicability of service tax on incidental services related to transmission and distribution of electricity.
3. Exemption of certain services under the Finance Act, 1994.
4. Period of limitation for issuing the show cause notice.

Detailed Analysis:

1. Jurisdiction to Issue the Show Cause Notice:
The petitioner contended that the show cause notice was issued without jurisdiction, arguing that TANGEDCO is not a "service provider" under the Finance Act, 1994. They cited Section 66D(k) of the Act, which includes "transmission or distribution of electricity by any electricity transmission or distribution utility" in the Negative List, thus exempting it from service tax. The petitioner argued that the incidental services related to transmission or distribution of electricity are also exempt and the show cause notice exceeds the jurisdiction of the quasi-judicial authority.

The respondents countered that the show cause notice did not demand service tax for transmission or distribution of electricity but for other services like works contract, rent a cab, manpower supply, and legal consultancy services, which are not exempt under the Act. They asserted that the notice was within jurisdiction and the petitioner must submit explanations and documents for adjudication.

2. Applicability of Service Tax on Incidental Services Related to Transmission and Distribution of Electricity:
The petitioner argued that incidental services related to transmission and distribution of electricity are also exempt from service tax, as they fall within the Negative List under Section 66D(k). They referred to judgments from CESTAT and the Gujarat High Court, which held that services related to transmission and distribution of electricity are exempt if they are essential activities with a direct and close nexus to the main service.

The respondents maintained that the show cause notice targeted services not exempt under the Act, such as works contract services, rent a cab services, and manpower services. They emphasized that the notice was not for transmission or distribution of electricity but for other taxable services availed by TANGEDCO.

3. Exemption of Certain Services Under the Finance Act, 1994:
The petitioner cited Section 66E(e) of the Act, arguing that the activities listed in the show cause notice should be treated as "declared services" and are exempt. They contended that the show cause notice was thus without jurisdiction and invalid.

The respondents argued that the show cause notice was issued for services not covered under the exemption clause. They stated that TANGEDCO had not paid service tax on certain services during the period from 01.07.2012 to 31.03.2017, which are not exempt under the Act.

4. Period of Limitation for Issuing the Show Cause Notice:
The petitioner contended that the show cause notice was issued beyond the period of limitation. However, the respondents clarified that the notice was issued within the extended period of limitation as per the CBEC orders.

Judgment:
The High Court dismissed the writ petitions, stating that the petitioner must submit explanations and documents to the authorities for adjudication. The court held that the show cause notice was within jurisdiction as it targeted services not exempt under the Act. The court emphasized that disputed facts and evidences must be adjudicated by the competent authorities, not through writ proceedings.

The court directed the petitioners to submit their explanations within eight weeks and instructed the respondents to proceed with the enquiry, affording the petitioners an opportunity for a personal hearing. If aggrieved by the final orders, the petitioners may approach the appellate authority for redressal.

Conclusion:
The High Court ruled that the show cause notice was valid and within jurisdiction, covering services not exempt under the Finance Act, 1994. The court directed the petitioners to participate in the adjudication process and submit necessary documents and explanations. The writ petitions were dismissed, and the petitioners were advised to seek redressal through the appellate authority if needed.

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