2024 (4) TMI 12 - HC - Service Tax

Demand of service tax on amounts collected as penalties under various contracts - Constitutional Validity of Section 66E(e) of the Finance Act 1994 - violative of Articles 246 and 265 as well as Articles 14 and 19(1)(g) of the Constitution of India or not - HELD THAT - It is clear and forthcoming that the contentions sought to be put forth by the petitioner have been interpreted and construed by the respondents by the circular dated 3.8.2022 which is subsequent to the show cause notice dated 20.6.2016. It is also relevant to note that prior to the issuance of the said circular dated 3.8.2022 the CESTAT has rendered its judgment in the case of South Eastern Coalfields Ltd. 2020 (12) TMI 912 - CESTAT NEW DELHI - The respondents have subsequently issued a circular dated 28.2.2023 where under it has decided not to challenge the judgment rendered in the case of South Eastern Coalfields Ltd. Hence the reliance placed by the petitioner on the said aspects requires consideration since the same goes to the foundational basis on which the show cause dated 20.6.2016 has been issued. It is further relevant to note that vide the said show cause notice dated 20.6.2016 the petitioner has been notified that it is liable to pay service tax. Further it has been called upon to file its reply and place evidence in support of its defence. The petitioner was also required to indicate as to whether they wish to be heard in person before the case is adjudicated. The petitioner shall appear before the second respondent on 30.4.2024 on which date it shall place on record its defence along with all material it chooses to rely upon - Consequent to the appearance of the petitioner the second respondent after affording an opportunity to the petitioner to put forth its defence shall consider the same in the light of the circulars dated 3.8.2022 and 28.2.2023 and after conducting further proceedings pass appropriate orders in accordance with law - Appeal disposed off.

Summary

Issues Involved:
The appeal challenges the order dismissing a writ petition, which contested a show cause notice and the constitutionality of certain provisions and notifications under the Finance Act, 1994.

Challenge to Show Cause Notice and Constitutional Validity:
The petitioner challenged a show cause notice and the constitutionality of Section 66E(e) of the Finance Act, 1994, along with notifications No. 20/2014 ST dated 16.9.2014 and circular No. 985/09/2014-CS dated 22.9.2014. The petitioner's contentions were partially accepted based on subsequent circulars and a judgment by the Customs, Excise and Service Tax Appellate Tribunal [CESTAT], leading to the issuance of circular No. 214/1/2023 dated 28.2.2023.

Background and Facts:
The petitioner, a government-owned corporation, received a show cause notice to pay service tax on penalties collected from contractors for various reasons. The petitioner argued that the amounts were not subject to service tax as they did not involve added value or a service element. The petitioner's arguments were supported by a judgment in the case of South Eastern Coalfields Ltd. and subsequent circulars issued by the Government of India.

Contentions and Submissions:
The appellant contended that the amounts in question were not taxable under service tax laws, citing judgments and circulars supporting their position. On the other hand, the respondents argued that the circulars relied upon by the petitioner were subsequent events and not available when the show cause notice was issued.

Judicial Decision and Directions:
The court noted that the contentions raised by the petitioner were considered in subsequent circulars and a CESTAT judgment. The petitioner was directed to appear before the authority, present their defense, and provide all relevant material. The authority was instructed to consider the defense in light of the circulars and conduct further proceedings before passing appropriate orders.

Conclusion:
The writ appeal was disposed of with directions for the petitioner to appear before the authority, present their defense, and allow for further proceedings based on the circulars and judgments mentioned. All contentions of the petitioner were left open, and no costs were awarded.