2025 (1) TMI 896 - HC - Service Tax

Maintainability of petition - availability of alternative remedy - Levy service tax on the entire turnover of the value of the service provided by the petitioner - Business of retreading tyres - deemed sale component, already subjected to VAT - HELD THAT - In the present case, the writ petitions are listed for final hearing and there is abundant material on record to demonstrate that the issue under consideration is squarely covered by the judgment of the Hon ble Supreme Court in the case of Safety Retreading Company (P) Ltd3. Hence, the contention of alternative remedy raised by the Revenue is untenable and accordingly rejected. The petitioner has furnished copies of tax invoices maintained by it, wherein the petitioner has indicated the value of the material and labour charges separately and as also indicated that in respect of the value of the materials the tax has been paid to State Government and with respect to the value of the labour charges the service tax has been paid to the Union Government. The said invoices have also been submitted to the tax authorities in the State Government and the State has passed re-assessment orders under KVAT Act. The Hon ble Supreme Court in the case of Safety Retreading Company (P) Ltd 2017 (1) TMI 1110 - SUPREME COURT has clearly held that no dispute has been raised in the show cause notice (as in the present case also) with regard to the correctness of the figures furnished by the petitioner and at no point of time the respondents raised a plea as to the correctness of the invoices. The Division Bench of the Bombay High Court has also noticed a similar factual circumstance and relying upon the judgment of the Hon ble Supreme Court in the case of Safety Retreading Company (P) Ltd, held that the Revenue did not dispute the invoices furnished. In the present case also, the respondents have not denied the correctness of the said bifurcation of the amounts made by the petitioner/assessee. Hence, the same is required to be accepted in the present case also. In the present case, the petitioner having clearly bifurcated the amounts in invoices with respect to the amounts incurred towards material charges as also the amounts towards service charges and tax having been paid in respect of both the said amounts by classifying the same accordingly, the question of the respondent authorities seeking to levy service tax on the entire value mentioned in the invoices does not arise. Conclusion - The petitioner/assessee is liable to pay the service tax only with respect to the service component under the State Act. The constitutional separation of tax powers upheld. The writ petitions are partly allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the orders-in-original issued by the respondent authorities demanding service tax on the entire turnover of the petitioner are valid and legal.
Whether the imposition of service tax on the value of deemed sale component, which is already subjected to VAT, is constitutionally valid.
Whether the petitioner is liable to pay service tax only on the service component of the turnover as assessed under the State Act.
Whether the writ petitions are maintainable despite the availability of an alternative remedy of appeal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Orders-in-Original

Relevant Legal Framework and Precedents: The court considered the provisions of the Finance Act, 1994, and the Central Excise Act, 1944, along with precedents such as the Supreme Court's decision in Safety Retreading Company (P) Ltd. v. Commissioner of C.EX., Salem.
Court's Interpretation and Reasoning: The court noted that the orders-in-original were contradictory, as the Commissioner initially found that the activity did not fall under "works contract" but later confirmed the recovery under "works contract service."
Key Evidence and Findings: The petitioner provided invoices showing separate charges for materials and services, which were accepted by the State for VAT purposes.
Application of Law to Facts: The court found that the orders-in-original were untenable as they contradicted the established legal position that service tax can only be levied on the service component.
Treatment of Competing Arguments: The court rejected the Revenue's argument that changes in the legal framework post-2012 affected the case.
Conclusions: The orders-in-original were quashed as they were found to be in violation of established legal principles.

Issue 2: Constitutional Validity of Imposing Service Tax on Deemed Sale Component

Relevant Legal Framework and Precedents: The court referred to the constitutional provisions regarding the separation of taxation powers between the Union and the States.
Court's Interpretation and Reasoning: The court emphasized that the Union cannot tax the deemed sale component, which falls under the State's jurisdiction.
Key Evidence and Findings: The petitioner had already paid VAT on the deemed sale component, which was not disputed by the Revenue.
Application of Law to Facts: The court applied the Supreme Court's ruling in Safety Retreading Company (P) Ltd., which held that only the service component is taxable under service tax.
Treatment of Competing Arguments: The court dismissed the Revenue's contention that the service tax could be applied to the entire turnover.
Conclusions: The imposition of service tax on the deemed sale component was held to be unconstitutional.

Issue 3: Liability to Pay Service Tax on Service Component Only

Relevant Legal Framework and Precedents: The court relied on the Supreme Court's decision in Safety Retreading Company (P) Ltd., which clarified the taxability of service components.
Court's Interpretation and Reasoning: The court reiterated that only the service component, as assessed under the State Act, is liable for service tax.
Key Evidence and Findings: The petitioner provided evidence of separate assessments for VAT and service tax, which were undisputed.
Application of Law to Facts: The court found that the petitioner had correctly bifurcated the charges and paid the appropriate taxes.
Treatment of Competing Arguments: The court rejected the Revenue's argument that the entire turnover was taxable.
Conclusions: The petitioner is liable to pay service tax only on the service component.

Issue 4: Maintainability of Writ Petitions

Relevant Legal Framework and Precedents: The court considered the principles of alternative remedy and the exceptions thereto.
Court's Interpretation and Reasoning: The court noted that the issue was squarely covered by the Supreme Court's decision, making the writ petitions maintainable.
Key Evidence and Findings: The court found that the issues raised were purely legal and did not require factual adjudication.
Application of Law to Facts: The court applied the principle that writ jurisdiction can be invoked when the issue is covered by binding precedent.
Treatment of Competing Arguments: The court rejected the Revenue's objection regarding alternative remedy.
Conclusions: The writ petitions were held to be maintainable.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The petitioner/assessee is liable to pay the service tax only with respect to the service component under the State Act."
Core Principles Established: The Union cannot tax the deemed sale component; service tax is applicable only on the service component; writ jurisdiction is maintainable when the issue is covered by precedent.
Final Determinations on Each Issue: The court quashed the orders-in-original, upheld the constitutional separation of tax powers, confirmed the liability to pay service tax only on the service component, and declared the writ petitions maintainable.

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