2024 (11) TMI 669 - HC - Service Tax

Jurisdiction of the respondent authorities to issue the show cause notice Service tax demand on Works Contracts with respect to Road Building Department/Irrigation Department/Public Health Engineering Wing - petitioner is an approved E-1 (class contractor) - HELD THAT - It is evident that the petitioner was not at all liable for service tax and the respondent authorities could not have assume the jurisdiction to issue the show cause notice on the basis of the data provided by the Income Tax Department in Form-26AS and thereafter failed to consider the details provided by the petitioner in reply to the show cause notice. No justification is given in the impugned show cause notice as well as the order-in-original for assumption of jurisdiction by invoking extended period of 5 years under the priviso to sub-section-1 of section 73 of the Finance Act, 1994. The impugned show cause notice is not tenable as the same is issued without jurisdiction and consequently the order-in-original also would not survive. The petition is accordingly succeeds.

Issues Involved:

1. Jurisdiction of the show cause notice based on Form-26AS.
2. Applicability of Service Tax under the Finance Act, 1994.
3. Consideration of exemption under Notification No. 25/2012.
4. Invocation of the extended period for issuing the show cause notice.
5. Rectification of the order-in-original and subsequent proceedings.

Detailed Analysis:

1. Jurisdiction of the Show Cause Notice:

The petitioner challenged the jurisdiction of the show cause notice dated 22.04.2021, arguing that it was based on particulars in Form-26AS, which is impermissible. The petitioner contended that the respondent authorities failed to consider the petitioner's reply, asserting that the petitioner was not liable for Service Tax under the Finance Act, 1994. The court noted that the respondent authorities relied on data from the Income Tax Department, specifically Form-26AS, to determine the "Income Earned" as "Value of Services." However, the court found that the reliance on Form-26AS without proper jurisdiction was not tenable, referencing a similar case where jurisdiction was questioned based on geographical location and the nature of services rendered.

2. Applicability of Service Tax under the Finance Act, 1994:

The petitioner argued that the services provided were not subject to Service Tax as per the Finance Act, 1994. The petitioner was engaged in works contracts with governmental bodies, which were claimed to be exempt. The court examined whether the services fell under taxable services and found that the petitioner had provided sufficient details to show that the services were exempt. The court concluded that the petitioner was not liable for Service Tax, as the services were covered under the exemptions provided by the relevant notifications.

3. Consideration of Exemption under Notification No. 25/2012:

The petitioner claimed exemptions under Serial No. 12 (A) of Notification No. 25/2012, which exempts certain services provided to government bodies. The court examined the nature of the contracts and found that some contracts were indeed exempt, specifically those related to local authorities like Idar Nagarpalika. The court criticized the respondents for not considering the exemptions properly and for assuming jurisdiction without justification. The court held that the petitioner was entitled to the exemptions claimed.

4. Invocation of the Extended Period for Issuing the Show Cause Notice:

The petitioner argued that the show cause notice was time-barred, as it was issued beyond the prescribed period by invoking the extended period under the proviso to Section 73(1) of the Finance Act, 1994. The court found that the respondents failed to justify the invocation of the extended period, as there was no evidence of concealment by the petitioner. The court emphasized that the lack of justification rendered the notice and subsequent order-in-original unsustainable.

5. Rectification of the Order-in-Original and Subsequent Proceedings:

The petitioner filed an application for rectification of the order-in-original, which was not addressed by the respondent authorities. The court noted that the failure to respond to the rectification application and the subsequent freezing of the petitioner's bank accounts were unjustified. The court observed that the respondents did not provide any valid reason for not considering the rectification application, further supporting the petitioner's case.

Conclusion:

The court quashed the impugned show cause notice and the order-in-original, finding them to be issued without jurisdiction and unsustainable. The court also set aside the attachment of the petitioner's bank accounts, ruling in favor of the petitioner. The decision emphasized the importance of jurisdiction, proper consideration of exemptions, and adherence to procedural timelines in tax matters.

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