2023 (3) TMI 581 - HC - Service Tax

Invocation of extended period of limitation - Valuation of services - certain charges collected from the customers towards in-room dining, in-room beverages supply and mini bar and also on laundry, Miscellaneous Income and Telephone - inclusion in the assessable value or not - Department was of the view that these charges should be included in the value of room rent and the petitioner ought to have paid service tax on these charges under Short Term Accommodation Services . HELD THAT - Admittedly the impugned proceedings are initiated invoking the extended period of limitation under Section 73 of the Finance Act, 1994. Thus, the notice issued on 16.10.2015 culminating in the impugned order dated 05.04.2017 can be sustained only if it is shown that service tax has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax. Assuming the levy is valid, the impugned proceeding invoking the extended period of limitation cannot be sustained. To invoke the extended period, it ought to be demonstrated that service tax has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax. It has been consistently held by the Hon'ble Supreme Court that any non-disclosure or claim of non-liability on the basis of bonafide interpretation of law would not enable the Respondent to invoke the extended period of limitation. This Court also finds that the attempt made by the learned counsel for the Respondent to sustain the impugned proceedings, by invoking extended period of limitation cannot be sustained, in view of the fact that the view taken by the Petitioner has also been approved by at least two High Courts - the question of existence of mental element/mens rea, which is a condition precedent for invoking the extended period, is absent, thus the invocation of extended period is unsustainable. The proceedings having been challenged as bad for want of jurisdiction, the question of alternate remedy may not have a bearing for exercise of discretion under Article 226 of the Constitution of India. In this regard, it may be relevant to note that the remedy under Article 226 of the Constitution of India, is a discretionary remedy and existence of an alternative remedy, would not result in an embargo against exercise of jurisdiction under Article 226 of the Constitution of India, more-so, where the impugned proceedings are challenged on the ground of want of jurisdiction. The proceedings being barred by limitation, thus, the same is bad for want of jurisdiction and a nullity. In such circumstances, interference under Article 226 of the Constitution of India is warranted inasmuch as question of limitation relates to jurisdiction. An order barred by limitation is a nullity. It appears that there is no room for invoking the extended period on the facts - the impugned order dated 05.04.2017 is thus set aside as barred by limitation and thus bad for want of jurisdiction and a nullity. Petition disposed off.

Issues Involved:

1. Levy of service tax on certain charges.
2. Constitutional validity of service tax on accommodation services.
3. Bar of limitation and extended period of limitation.
4. Jurisdiction and alternative remedy under Article 226 of the Constitution of India.

Detailed Analysis:

1. Levy of Service Tax on Certain Charges:

The petitioner, operating a hotel, was found by the Department to have not paid service tax on charges collected for in-room dining, beverages, mini bar, laundry, miscellaneous income, and telephone. The Department argued these should be included in the room rent value and taxed under "Short Term Accommodation Services." A show cause notice was issued demanding service tax for the period 2010-2011 to 2014-2015 under Proviso to Section 73(1) of the Finance Act, 1994.

2. Constitutional Validity of Service Tax on Accommodation Services:

The petitioner referenced the Delhi High Court's decision in the case of Federation of Hotels and Restaurants Association of India Vs Union of India (2016 (44) STR 3 (Del)), which struck down Section 65(105)(zzzw) of the Finance Act, 1994, declaring the levy of service tax on "Short Term Accommodation Services" unconstitutional due to the absence of machinery provision for tax collection. The petitioner also cited similar views from the Kerala High Court, arguing that short term accommodation services fall within the exclusive competence of the State per Entry 52 of List II of the Seventh Schedule to the Constitution of India.

3. Bar of Limitation and Extended Period of Limitation:

The impugned proceedings invoked the extended period of limitation under Section 73 of the Finance Act, 1994. For this to be valid, it must be shown that the tax evasion resulted from fraud, collusion, wilful mis-statement, suppression of facts, or contravention of provisions with intent to evade tax. The petitioner argued that their non-disclosure was based on a bona fide interpretation of the law, supported by decisions from other High Courts. The court found no evidence of mens rea (guilty mind) necessary to invoke the extended period, rendering the invocation unsustainable.

4. Jurisdiction and Alternative Remedy under Article 226 of the Constitution of India:

The court addressed the respondent's argument that an alternative remedy by way of appeal existed. However, the court held that when proceedings are challenged for lack of jurisdiction, the question of alternative remedy does not preclude the exercise of jurisdiction under Article 226 of the Constitution of India. The proceedings were deemed barred by limitation, making them a nullity and warranting interference under Article 226.

Conclusion:

The court concluded that the impugned order dated 05.04.2017 was barred by limitation, thus bad for want of jurisdiction and a nullity. The writ petition was disposed of with no costs, and the connected miscellaneous petition was closed.

← Previous Next →