2022 (11) TMI 926 - HC - Service Tax

Levy of service tax - reimbursement of service tax component as raised in the invoice of the provider - applicability of Municipal Commissioner s Circular No.83 of 2013-14 - correct interpretation of the Mega Exemption Notification issued by the Central Government or not - reverse charge mechanism - HELD THAT - Since the appellant did not remit the service tax component to the department, show cause notices were issued to all the three appellants. The matter has culminated in an order of adjudication which has been challenged by the said service provider before the Customs, Excise and Service Tax Appellate Tribunal, Kolkata Bench (CESTAT). The learned single Bench, by the impugned order, though separate orders, they contain the same reasoning, taking note of the fact that the service tax authorities had issued summons to the appellants and that the proceedings are yet to attain finality, opined that it would be appropriate to permit the service tax authorities to conclude the proceedings against the appellants in accordance with law - the authorities deciding the liability of the service tax under the Finance Act, 1994 is the appropriate authority to adjudicate the liability of the appellant to pay service tax in respect of the contract between it and the KMC in accordance with law. Though such was the observation in the penultimate paragraph of the order, the writ petition stood dismissed. The KMC has taken a stand as is evident from the Circular No.83 of 2013-14 dated 4th January, 2014 that the services rendered by them and services given to them in rendering public services is exempted from payment of service tax in view of Mega Exemption Notification No.25/2012-ST dated 20th June, 2012 issued by the Government of India since the functioning and duties of the KMC is concomitant to the public interest as enshrined in the Constitution of India. Therefore, the KMC opined that they are not liable to pay service tax in terms of the provisions of the said notification until further orders in view of the fact that the KMC is discharging constitutional obligation imposed upon them by the Constitution of India. The correctness of the interpretation made by KMC in their Circular dated 4th January, 2014 has to be decided - The Service Tax Department has not put KMC on notice in any of the three proceedings initiated against the appellants. The appellants stand apart from other things is that the service tax component which is remitted by them as a service provider has to be reimbursed by the recipient, KMC. Thus, unless and until the adjudication is done in the presence of the KMC, it will not be a binding adjudication. The three appeals are disposed of by this common judgement and order by directing the concerned Service Tax Commissionerate to issue fresh notices to the appellants as well as KMC which shall be treated as continuation of the earlier show cause notices. After hearing the parties, the concerned authority shall adjudicate the issue and pass a reasoned order on merits in accordance with law - no coercive action shall be initiated against the appellants till the adjudication is complete.

Issues:
1. Condonation of delay in filing the appeal.
2. Interpretation of Mega Exemption Notification No.25/2012-ST by Kolkata Municipal Corporation (KMC) regarding service tax exemption.
3. Dispute between service provider and KMC over reimbursement of service tax component.
4. Appropriate forum for deciding the correctness of KMC's interpretation.
5. Direction to Service Tax Commissionerate for fresh adjudication involving KMC as a party.
6. Stay on coercive action against appellants pending adjudication.

Condonation of Delay:
The High Court heard the counsel for the parties and allowed the condone delay applications for the appeals, condoning the delay in filing the appeals.

Interpretation of Mega Exemption Notification:
The dispute arose between Tenacity Security, the service provider, and KMC regarding the reimbursement of service tax component. KMC relied on Circular No.83 of 2013-14, claiming exemption from service tax under the Mega Exemption Notification. The appellants challenged this interpretation, leading to a writ petition and subsequent adjudication by the Customs, Excise, and Service Tax Appellate Tribunal.

Dispute Over Reimbursement:
The High Court noted that the correctness of KMC's interpretation in the Circular needed adjudication by the appropriate authority. The Court emphasized the need for KMC to be made a party to the proceedings to ensure a binding adjudication on the matter of reimbursement of the service tax component.

Appropriate Forum for Decision:
The Court held that the writ court was not the appropriate forum to decide the issue initially, as the adjudicating authority was yet to rule on the matter. The Court directed the Service Tax Commissionerate to issue fresh notices to both the appellants and KMC, continuing the earlier show cause notices, and to adjudicate the issue after hearing both parties.

Direction for Fresh Adjudication:
The High Court directed the concerned authority to issue fresh notices, including KMC as a co-noticee, and to pass a reasoned order on merits in accordance with the law. The Court requested the CESTAT to defer the pending proceedings until the fresh adjudication was completed.

Stay on Coercive Action:
The Court ordered that no coercive action should be initiated against the appellants until the adjudication was completed. The appellants and KMC were given specific timelines for submitting replies and completing the adjudication process, emphasizing cooperation for the early conclusion of proceedings.

Conclusion:
The High Court disposed of the appeals by directing fresh adjudication involving KMC as a party, staying coercive action, and setting timelines for the process, ensuring a comprehensive and fair resolution to the dispute over the reimbursement of the service tax component.

← Previous Next →