2021 (10) TMI 310 - HC - Service Tax

Levy of service tax alongwith penalty - transfer of development rights - suppression of factum of taxable service - intent to evade tax - HELD THAT - Petitioners are the land developers and that they take up developmental activities on the lands belonging to others, is not in dispute; the development activities are accomplished in terms of Joint Development Agreements whereunder the structure built in the form of Flats are shared between the developers and the land owners in the agreed ratio. Circular dated 10.02.2012 makes it abundantly clear that the taxable event occurs at the time when the builder gives the possession or creates right in the property of the said Flats in favour of the land owner; these building blocks of the provision are conspicuously absent in the impugned notices which appear to stand as the non-sense on the stilts ; therefore, they are liable to be violated warranting remittance of the matter for fresh consideration. Matter is remitted for being treated afresh - petition allowed in part and part matter on remand.

Summary

Issues:
Assailing Show Cause Notices for service tax and penalty under Finance Act, 1994 on grounds of tax evasion.

Analysis:
The judgment involves a challenge to Show Cause Notices issued by the third respondent regarding the proposed levy of service tax and penalty under sections 75, 76, 77, and 78 of the Finance Act, 1994. The petitioners, land developers engaged in developmental activities under Joint Development Agreements, contested the notices alleging suppression of taxable services and transfer of development rights to evade tax and education cess. The Revenue, represented by its Senior Panel Counsel, argued that the challenge was premature as the petitioners could show cause before the jurisdictional authority. The court, after hearing both parties and examining the case, granted relief to the petitioners for several reasons.

Firstly, the court noted that the Circular issued by the Central Board of Excise and Customs in 2012 provided guidelines for the levy and collection of service tax based on different business models in the construction sector. The Circular highlighted the valuation of flats given to service receivers and the tax liability of builders/developers upon transferring possession or rights in the property to landowners. The court emphasized that the impugned notices lacked essential elements outlined in the Circular, rendering them questionable and necessitating fresh consideration.

Secondly, the court rejected the Revenue's argument that interference by the Writ Court at the Show Cause Notice stage was impermissible as a general rule. It clarified that when jurisdictional facts were absent, the issuance of such notices was not valid. Citing the decision in Larsen and Toubro Ltd Vs. State of Karnataka, the court distinguished the case, which dealt with works contracts, sales tax, and VAT, from the present matter involving the Finance Act, 1994, and the Circular by the Central Board of Excise & Customs. The court emphasized that a case serves as an authority only within its specific factual context.

In conclusion, the court partially allowed the Writ Petitions, quashing the impugned Show Cause Notices and remitting the matter for fresh consideration. The judgment highlighted the importance of adhering to legal provisions and circulars in tax matters and ensuring that coercive proceedings are not initiated without proper jurisdictional facts.