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2024 (7) TMI 384 - HC - Service Tax


Issues Involved:

1. Validity of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006.
2. Jurisdiction of the respondent to issue the show cause notice.
3. Maintainability of the petition under Article 226 of the Constitution of India.

Issue-Wise Detailed Analysis:

1. Validity of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006:

The petitioner challenged the validity of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, arguing that it was ultra vires Section 67 of the Finance Act, 1994. The petitioner cited the Supreme Court's decision in Union of India vs. Intercontinental Consultants and Technocrats Pvt. Ltd., which held that Rule 5(1) was beyond the mandate of Section 67 and therefore invalid. The Supreme Court in this case emphasized that the value of taxable service should be the gross amount charged by the service provider for such service, and any additional expenses or costs incurred could not be included in the valuation for service tax purposes.

2. Jurisdiction of the respondent to issue the show cause notice:

The respondent issued a show cause notice to the petitioner, alleging non-payment of service tax on certain expenses and additional costs. The petitioner argued that the show cause notice was without jurisdiction as it relied on Rule 5(1), which had been declared ultra vires by the Supreme Court. The respondent countered by citing a recent Supreme Court decision in Commissioner of Central Excise and Service Tax, Rohtak vs. Merino Panel Product Ltd, arguing that the methodology for arriving at the assessable value was immaterial as long as the power to issue the notice existed. However, the court found that since the show cause notice was based on an invalid rule, it was without jurisdiction.

3. Maintainability of the petition under Article 226 of the Constitution of India:

The respondent argued that the petition was not maintainable under Article 226 of the Constitution of India, suggesting that the petitioner should be relegated to the competent authority to file a reply to the show cause notice. However, the court held that since the impugned show cause notice was issued based on a rule declared ultra vires by the Supreme Court, the petition was maintainable under Article 226. The court emphasized that the impugned show cause notice was contrary to the law laid down by the Supreme Court and was therefore without jurisdiction.

Conclusion:

The court concluded that the impugned show cause notice dated 31st October 2017 was without jurisdiction and thus quashed and set it aside. The petition was allowed, and the rule was made absolute to the extent of quashing the show cause notice. No order as to costs was issued.

 

 

 

 

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