2025 (1) TMI 1213 - HC - Service Tax

Classification of services - Works Contract Service or not - service of construction installation maintenance of petrol bunks owned by M/s. HPCL and M/s BPCL - recovery of tax not paid/levied u/s 73 (1) of the Finance Act 1994 - levy of penalty under Sections 76 77 and 78 of the Finance Act 1994. HELD THAT - A perusal at the order is indicative of an unequivocal fact that after issuance of the SCN the petitioner has paid the entire amount of Service Tax including the penalty long before the issuance of SCN in the year 2009 itself. The SCN comes to be issued in the year 2013. The proceedings are instituted after the receipt of the entire amount of arrears and default Service Tax and penalty on the score that the entire penalty or interest is not paid by the petitioner. The order quoted captures the fact that the amount of Rs.3, 19, 129/- is also appropriated by the authority during the investigation towards the demand. Therefore there is nothing today to be paid by the petitioner as long before the SCN an amount of Rs.20, 64, 849/- had been paid which is recorded by the authority. The order also records that it was the payment of service tax and interest that was paid by the petitioner and later on account of the proceedings an amount of Rs.3, 19, 129/- is also appropriated. The proceedings have gone on only to the satisfaction of the respondents Department as there was nothing to be paid or recovered from the hands of the petitioner. The proceedings itself were redundant insofar as the principal amount was concerned and the interest is also paid by the petitioner or appropriated by the department from the petitioner. Reference being made to the judgment rendered by the Division Bench of this Court in the case of COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX VERSUS M/S ADECCO FLEXIONE WORKFORCE SOLUTIONS LTD 2011 (9) TMI 114 - KARNATAKA HIGH COURT in the circumstance becomes opposite and the Division Bench interpreting Sections 73 and 76 of the Finance Act 1994 has held that The assessee has paid both the service tax and interest for delayed payments before issue of show cause notice under the Act. Sub-sec. (3) of Section 73 of the Finance Act 1994 categorically states after the payment of service tax and interest is made and the said information is furnished to the authorities then the authorities shall not serve any notice under sub-sec. (1) in respect of the amount so paid. Therefore authorities have no authority to initiate proceedings for recovery of penalty under Sec. 76 of the Act. Conclusion - i) The classification of the petitioner s services under Works Contract Service confirmed. ii) The impugned orders and notices quashed acknowledging that the petitioner had settled all dues prior to the show cause notice rendering further proceedings redundant. Petition allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered by the Court were:

• Whether the construction, installation, and maintenance of petrol bunks by the petitioner fall under the category of 'Works Contract Service' as defined under Section 65(105)(zzzza) of the Finance Act, 1994, and are thus chargeable to service tax.
• Whether the non-payment of service tax by the petitioner is recoverable under Section 73(1) of the Finance Act, 1994.
• Whether penalties under Sections 76, 77, and 78 of the Finance Act, 1994, are applicable to the petitioner.

ISSUE-WISE DETAILED ANALYSIS

Classification of Services and Tax Liability

• Relevant Legal Framework and Precedents: The petitioner's services were evaluated under Section 65(105)(zzzza) of the Finance Act, 1994, which pertains to 'Works Contract Service'. The Court referred to the petitioner's acceptance of this classification and the payment of service tax post-registration.
• Court's Interpretation and Reasoning: The Court determined that the petitioner's activities were correctly classified under 'Works Contract Service' and were subject to service tax. The petitioner had accepted this classification and paid the due taxes accordingly.
• Key Evidence and Findings: The petitioner had paid service tax along with interest and penalties before the issuance of the show cause notice. The records showed that the petitioner had paid Rs. 19,35,575/- in service tax for the period from 01.04.2008 to 31.03.2012, along with interest and late fees.
• Application of Law to Facts: The Court applied the provisions of the Finance Act, 1994, confirming the classification and tax liability of the petitioner's services.

Recovery of Tax and Penalties

• Relevant Legal Framework and Precedents: Sections 73, 75, 76, 77, and 78 of the Finance Act, 1994, were examined to determine the recoverability of unpaid taxes and the applicability of penalties.
• Court's Interpretation and Reasoning: The Court noted that penalties under Section 78 were not applicable due to the absence of malafide intent or suppression of facts by the petitioner. The petitioner had responded promptly to the department's inquiries and paid the necessary dues.
• Key Evidence and Findings: The petitioner had already paid the service tax and interest before the issuance of the show cause notice, and the department had appropriated the amounts paid.
• Application of Law to Facts: The Court found that since the petitioner had paid the tax dues along with interest before the issuance of the show cause notice, further proceedings were unnecessary.
• Treatment of Competing Arguments: The Court distinguished the case from the precedent cited by the respondents, noting that the petitioner had no outstanding dues at the time of the proceedings.

SIGNIFICANT HOLDINGS

Core Principles Established:

• The Court emphasized that once the service tax and interest are paid before the issuance of a show cause notice, further proceedings under Section 73(1) for recovery of penalties are unwarranted. This principle aligns with the precedent set in C.C.E. & S.T., LTU, Bangalore vs. Adecco Flexione Workforce Solutions Ltd.

Final Determinations on Each Issue:

• The Court confirmed the classification of the petitioner's services under 'Works Contract Service' and upheld the service tax liability for the period in question.
• The Court quashed the impugned orders and notices, acknowledging that the petitioner had settled all dues prior to the show cause notice, rendering further proceedings redundant.