2023 (2) TMI 178 - HC - GST

Jurisdiction - power of DGGI to issue SCN - Transition to GST regime - Exemption Notification 25/2012 dated 20.06.2012 - case of petitioner is that the Notifications under which the officials of the DGGI have assumed jurisdiction have not been expressly saved under Section 174(2) of the CGST Act and hence the impugned orders/notice are non-est in law. Whether, the Notifications under which the DGGI/officials of the Intelligence Department have drawn sustenance to issue show cause notices for assessment under the Finance Act 1994, survive the transition from the erstwhile regime of taxation (Service tax) to the new regime of Goods and Service tax (GST), effective from 01.07.2017? - whether the assumption of jurisdiction by the DGGI for issuance of show cause notice under Finance Act 1994 read with Section 174(2) of the CGST Act, is proper in law? HELD THAT - In the case of Sheen Golden Jewels (I) P. Ltd. 2019 (2) TMI 300 - KERALA HIGH COURT and Prosper Jewel Arcade LLP 2018 (10) TMI 1527 - KARNATAKA HIGH COURT , the Kerala and Karnataka High Courts held adverse to those petitioners rejecting their arguments that with the shift to the GST regime, all levies under the erstwhile service law regime had lapsed. The conclusion arrived at was that Section 174 of the respective State GST enactments saved all the rights, obligations or liabilities acquired, accrued or incurred under the repealed enactments which included Service Tax Act as well - To be noted that neither of the aforesaid decisions had dealt with the specific question/issue raised in these matters as to whether the Notifications issued under the Service tax regime, survived the transition to the GST regime. In any event, though a lukewarm ground has been raised to this effect, it is admittedly not the case of the petitioners before me that the levy of service tax in itself erroneous post 01.07.2017, but only that the assumption of jurisdiction by the DGGI in issuing show cause notices, is. Had the notices been issued by the correct officer, the petitioner are unanimous in stating that the present challenge would be a non-starter. Section 174, according to the Bench, thus unequivocally saved all rights, obligations, privileges and liabilities that had enured under the old laws which would continue in the new regime. In Canon India 2021 (3) TMI 384 - SUPREME COURT , the issue that arose was whether an officer of the Directorate of Revenue Intelligence (DRI) had the authority in law to issue a show cause notice under Section 28(4) of the Customs Act, 1962 when the goods were initially cleared for import by a Deputy Commissioner of Customs who was of the opinion that the said goods were exempted from duty. It was held that the officer of the DRI would not be a proper officer to review the original order of exemption granted by the Deputy Commissioner as the enactment did not provide for identically placed officers of different Departments exercising the powers of re-assessment or review in regard to each other s orders - That apart, they also held that the Additional Director General of the DRI who had issued the recovery notice was not the proper officer, by a combined reading of the definitions of proper officer under Sections 2(34), 6 and 28 of the Customs Act. The ratio of this judgment, although rendered in a different context, may well support the revenue rather than the petitioners. The expansive constitution of Section 88 of the Tamil Nadu Value Added Tax Act that specifically includes subordinate legislation has been cited by the petitioners as a counter to the move restricted construction of Section 174. Notwithstanding this difference, it is reiterated that in interpreting the reach of Section 174, this Court does not wish to loose sight of the necessity to ensure a seamless application of the levy following the consistent procedure followed under the old and new enactments - Section 174(2) states that repeal as per subsection (1) shall not affect any rights, privileges or obligations or liability acquired, accrued or incurred under the old Act and the proviso carves out an exception in regard to tax exemption granted as an investment against investment through ' Notification' . In such cases, such exemptions shall continue until rescinded. What I gather by implication, is that Notifications in other situations continue. The assumption of jurisdiction by the officials of the DGGI is valid. These writ petitions are dismissed.

Summary

Issues Involved:

1. Liability to Service Tax under the Finance Act, 1994 for the transfer of copyright in musical work by music composers.
2. Exemption from Service Tax in terms of Exemption Notification 25/2012 dated 20.06.2012.
3. Jurisdiction of the Director General of GST Intelligence (DGGI) to issue show cause notices post-GST regime.
4. Validity of proceedings initiated by DGGI under Section 174(2) of the CGST Act, 2017.
5. Applicability and interpretation of the General Clauses Act, 1897 in the context of the CGST Act.
6. Limitation and delay in issuing show cause notices.
7. Maintainability of writ petitions in the presence of alternative statutory remedies.

Detailed Analysis:

1. Liability to Service Tax for Transfer of Copyright in Musical Work:
The petitioners, music composers, were issued show cause notices for the period April 2013 to June 2017, proposing the levy of service tax on the transfer of copyright in musical works. The respondents asserted that the composers were not the owners of the musical works, and hence, no copyright as contemplated under Section 13(1)(a) of the Copyright Act, 1957, vested in them. The notices proposed imposition of service tax under Section 66E(c) dealing with temporary transfer or permitting the use or enjoyment of any intellectual property right.

2. Exemption from Service Tax:
The petitioners claimed exemption under Clause (15) of Notification No.25 of 2012, which exempts services provided by way of temporary transfer or permitting the use or enjoyment of a copyright relating to original literary, dramatic, musical, or artistic work. The petitioners argued that they were the sole and absolute owners of the copyright in the musical works composed by them and assigned them to film producers under agreements. The respondents countered this by stating that the petitioners had not established their sole ownership of the copyright.

3. Jurisdiction of DGGI to Issue Show Cause Notices Post-GST:
The petitioners contended that the DGGI had no jurisdiction to issue show cause notices post-GST regime as the source of power emanated from notifications issued in the era prior to GST, which had not been expressly saved under the new regime. They argued that the delegation of the power of adjudication by one authority to another was not saved under Section 174 of the CGST Act, which provides for repeal and savings.

4. Validity of Proceedings Initiated by DGGI:
The respondents countered the challenge to the legality of the impugned proceedings by relying on Section 174(2) of the CGST Act and Notification No.2 of 2015 dated 10.02.2015, which empowers the Board under Rule 3 of the Service Tax Rules to notify the Principal Directors General who hold jurisdiction over Executive Principal Commissioners or Commissioners of Service Tax/Central Excise for assigning show cause notices issued by the DGGI for adjudication. The court held that the assumption of jurisdiction by the officials of the DGGI is valid.

5. Applicability and Interpretation of the General Clauses Act:
The petitioners relied on various judgments to argue that the notifications under which the DGGI assumed jurisdiction were not expressly saved under Section 174(2) of the CGST Act. The court referred to Section 6 of the General Clauses Act, 1897, which provides for the saving of orders, etc., issued under enactments repealed and re-enacted. The court held that the practice and procedure, both pre and post-GST, are consistent and involve the participation of the officer of the DGGI in the issuance of show cause notices.

6. Limitation and Delay in Issuing Show Cause Notices:
The petitioners argued that the delay in issuing the show cause notices was fatal to the respondents' cause as they had never concealed any particulars or material regarding the transactions. The respondents countered this by stating that the petitioner had been regularly remitting tax for the period 01.04.2011 to 31.03.2012 but had stopped thereafter, indicating a conscious effort to evade statutory commitments. The court held that the extended period of limitation is available to the respondents in such a situation.

7. Maintainability of Writ Petitions:
The respondents argued that the writ petitions were not maintainable due to the availability of an efficacious alternative remedy. The court held that the writ petitions are maintainable to the extent of the legal issue raised but left the challenge on the merits open to be agitated in appeal. The court granted the petitioners liberty to approach the appellate authority by way of statutory appeal within four weeks from the date of receipt of a copy of this order.

Conclusion:
The court dismissed the writ petitions, holding that the assumption of jurisdiction by the officials of the DGGI is valid. The petitioners were granted liberty to approach the appellate authority by way of statutory appeal. The petitioner in W.P.No.5098 of 2020, who challenges a show cause notice, was permitted to file a response within four weeks and take matters forward in accordance with the law. The connected miscellaneous petitions were closed with no order as to costs.