2010 (4) TMI 368 - HC - Service Tax

Letter from Department- the respondent which is a company engaged in Door-to-Door International Courier Service had sought a clarification from the office of the Commissioner of Service Tax by its letters dated 20-3-2002 and 8-10-2004 regarding leviability of service tax in respect of Door-to-Door International Courier Service. The then Commissioner took a view that the said service did not constitute a taxable service and accordingly, a communication was issued to the respondent on 23-12-2004. Subsequently, it was found by the Department that the said communication was contrary to the Board s Circular F. No. 341/43/96-TRU dated 31-10-1996 and therefore, a letter C. No. IV/16/38/2005 ST. Tech dated 9-1-2006 was issued informing that the clarification issued in letter dated 23-12-2004 was contrary to the legal provision and therefore, void ab initio. Aggrieved by the letter dated 9-1-2006, the respondent-assessee filed an appeal before the CESTAT, held that the right of assessee were altered without following the due process of law, the same was bad in law thus setting aside the order. Held that- order dated 9.1.2006 passed without complying with natural justice not sustainable. Competent authority directed to pass fresh order after providing hearing opportunity.

Issues Involved:
1. Whether the CESTAT is legally right in concluding that the letter dated 9-1-2006 is an "order" and therefore appealable under Section 86 of the Finance Act, 1994.
2. Whether the "International Freight" activity of the assessee falls under the taxable service category as clarified in the Board's Circular dated 31-10-1996, thus attracting Service Tax.

Issue-wise Detailed Analysis:

Issue 1: Appealability of the Letter Dated 9-1-2006
The primary contention from the revenue was that the letter dated 9-1-2006 was merely a clarificatory letter and not an order passed under Sections 73, 83A, 84, or 85 of the Finance Act, 1994. It was argued that for Section 86 to be applicable, there must be an order under these sections, which was not the case here. However, the respondent-assessee contended that the letter dated 9-1-2006 altered their rights without following the due process of law, thus qualifying as an order under Section 84 of the Finance Act, 1994. The tribunal agreed with the respondent, stating that the letter dated 9-1-2006 was indeed an order and appealable under Section 86, as it altered the assessee's rights without following due legal procedure.

The court examined the communication dated 9-1-2006 and noted that it directed the respondent to discharge service tax liability immediately, which was a demand without issuing a show-cause notice, thus bypassing the procedure envisaged under the Act. The court also highlighted that the letter sent to the respondent did not include the footnote directing the Assistant Commissioner to issue a show-cause notice, further supporting the respondent's claim that their rights were altered without due process.

The court concluded that the letter dated 9-1-2006 was indeed an order within the meaning of Section 86 of the Finance Act, 1994, and thus, the appeal filed by the respondent before the CESTAT was maintainable. The Tribunal was justified in setting aside the order dated 9-1-2006 for not complying with the principles of natural justice.

Issue 2: Taxability of "International Freight" Activity
The court examined whether the "International Freight" activity of the assessee falls under the taxable service category as clarified in the Board's Circular dated 31-10-1996. The initial communication from the Commissioner dated 23-12-2004 had stated that the service was not taxable. However, this was later reversed by the letter dated 9-1-2006, which stated that the service was taxable, citing the Board's Circular.

The court noted that the reversal of the initial decision without following the due process of law, such as issuing a show-cause notice, was a violation of Section 73 and Section 84 of the Finance Act, 1994. The court emphasized that any order altering the rights of the assessee must comply with the mandatory requirements of these sections, including giving the assessee an opportunity to be heard.

The court did not provide a direct answer to whether the "International Freight" activity was taxable, as it focused on the procedural lapses in the issuance of the order dated 9-1-2006. The court directed the competent authority to pass a fresh order after complying with all mandatory requirements and giving the respondent an opportunity to be heard.

Conclusion:
The court affirmed the CESTAT's order, holding that the communication dated 9-1-2006 was an appealable order under Section 86 of the Finance Act, 1994, and was issued without following due process. The court directed the competent authority to pass a fresh order after complying with all mandatory requirements of the Finance Act, thus dismissing the appeal by answering the substantial question of law against the Revenue.

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