2021 (4) TMI 520 - HC - Service Tax

Issuance of pre-show cause notice consultation - Levy of service tax - services offered by the petitioner-company to two entities located outside India - recipients of the services are associate concerns or not - export of services - Rule 6A of the Service Tax Rules, 1994 - HELD THAT - The contesting respondents were mandatorily required to have a pre-show cause notice consultation with the petitioner-company and that having not being done in the instant matter, the proceedings initiated by the contesting respondents via the impugned show cause notice are non-est in law. That being said, the only issue, which remains to be addressed, is concerning limitation. This aspect is pending consideration before the Supreme Court i.e. as to the date when the limitation will commence. The contesting respondents will serve an appropriate communication on the petitioner-company indicating therein, the date, time and venue at which they intend to convene a meeting for holding the pre-show cause notice consultation - concerned officer will accord a personal hearing to the authorized representative of the petitioner-company - petition disposed off.

Issues Involved:
1. Adherence to the 2015 Instruction and 2017 Master Circular.
2. Mandatory pre-show cause notice consultation.
3. Applicability of preventive action exception.
4. Export of services and service tax liability.
5. Binding nature of circulars on tax authorities.

Detailed Analysis:

1. Adherence to the 2015 Instruction and 2017 Master Circular:
The petitioner-company's primary grievance is the failure of the respondents to adhere to the provisions of the 2015 Instruction and the 2017 Master Circular issued by the Central Board of Indirect Taxes & Customs. The petitioner argues that the impugned show cause notice (SCN) violates paragraph 5 of the 2017 Master Circular, which mandates a pre-show cause notice consultation with the assessee.

2. Mandatory Pre-Show Cause Notice Consultation:
The petitioner contends that the respondents were required to hold a pre-show cause notice consultation as per paragraph 5 of the 2017 Master Circular. The petitioner cites the judgment in Amadeus India Pvt. Ltd. vs. Principal Commissioner, which supports the necessity of such consultation. The petitioner asserts that their case does not fall under the exceptions to this requirement, which are related to preventive action or offences committed by the noticee.

3. Applicability of Preventive Action Exception:
The respondents argue that the petitioner’s case falls under the preventive action exception, thus exempting them from the pre-show cause notice consultation requirement. They reference the intelligence gathered and subsequent search operations indicating non-payment of service tax by the petitioner, which they classify as preventive action.

4. Export of Services and Service Tax Liability:
The petitioner-company claims it provides accounting services to entities outside India and is not liable for service tax under Rule 6A of the Service Tax Rules, 1994, concerning "Export of Services." They dispute the respondents' reliance on Section 65B (44) Explanation-3(b) of the Finance Act, arguing that the services are provided to separate legal entities, not establishments of the petitioner-company.

5. Binding Nature of Circulars on Tax Authorities:
The court examines the binding nature of circulars issued by statutory authorities, referencing K.P. Varghese vs. Income-tax Officer and UCO Bank, Calcutta vs. Commissioner of Income Tax, W.B.. The court emphasizes that circulars are binding on tax authorities and cannot be ignored to the detriment of the assessee.

Conclusion:
The court concludes that the respondents were required to conduct a pre-show cause notice consultation with the petitioner-company. The court finds that the preventive action exception claimed by the respondents does not apply in this case. The court remands the matter to the respondents with specific directions to hold the mandatory consultation and decide on the continuation of proceedings based on the merits, including jurisdictional aspects.

Directions:
1. Communication for Consultation: The respondents must notify the petitioner-company of the date, time, and venue for the pre-show cause notice consultation.
2. Personal Hearing: The concerned officer must provide a personal hearing to the petitioner-company’s authorized representative.
3. Merits and Jurisdiction: The officer must allow submissions on the merits and jurisdiction before deciding on the continuation of proceedings.
4. Revival or Fresh Notice: If proceedings are to continue, the officer must decide whether to revive the impugned show cause notice or issue a fresh one, in line with the Supreme Court’s decision in SLP (Civil) Diary No. 35886/2019.

The writ petition is disposed of with these directions, and pending applications are closed.

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