2006 (3) TMI 51 - HC - Service Tax

Service Tax - Writ Jurisdiction - Show cause notice - If assessees are not liable to pay tax under the law relating to service tax, the impugned circular cannot create liability for payment of service tax

Summary

Issues:
Challenge to circular on service tax collection for construction services

Analysis:
The petitioners, an Association of Builders, challenged a circular issued by the Director General of the Directorate of Service Tax regarding the collection of service tax under construction services. The petitioners argued that the circular sought to collect service tax from builders who are owners of the flats/buildings they are constructing, not providing construction services to others. They contended that the circular relied on a Supreme Court decision related to works contract under the Sales Tax Act, which was not applicable to service tax imposition on builders. On the other hand, the respondents argued that the Supreme Court decision on works contract could be applied to determine if service tax could be imposed on builders for construction services.

The court found the writ petition premature as no assessment had been made against the petitioners for service tax payment, and no demands had been served. The court advised the petitioners to file a reply before the competent authority if they believed no service tax was payable for their construction activities. The assessing authority would then consider the reply, facts, and agreements between builders and customers to determine service tax liability in accordance with the Finance Act, 1994, as amended by the Finance Act, 2005, and other relevant laws. The court emphasized that if the petitioners were not liable for tax under service tax laws, the circular could not create a liability for service tax payment. The court also allowed the petitioners to seek relief from appropriate forums, including the court, if they were aggrieved by any assessment or recovery made.

This judgment highlights the importance of proper assessment and determination of tax liability under relevant laws before imposing service tax on builders for construction services. It clarifies the procedure for addressing disputes regarding service tax liability and emphasizes the need to follow legal provisions while making such determinations.