2021 (11) TMI 901 - HC - Service Tax

Levy of service tax - indivisible composite work contracts - respondent has prima facie taken a view that petitioner had rendered certain taxable services and declared the value of the services in its return of income under the Income Tax Act, 1961, but as the service provider had not paid any service tax, the same has resulted in non-payment of service tax - why income declared in the Income Tax Return for the period 2016-17 and for the period 2017-18 up to June, 2017 should not be treated as income received from taxable services under the Finance Act, 1994, besides levy of interest and imposition of penalty? - HELD THAT - In the instant case, the two aspects i.e., whether the petitioner had provided services to only Governmental authorities, and not others, and even if provided to Governmental authorities, whether the contracts were indivisible, or composite, and secondly whether the extended period of limitation as per the proviso to sub-section (1) of Section 73 of the Act, would be applicable or not, would depend upon the factual examination and adjudication by the adjudicating authority. We are of the view that to preempt the adjudicating authority from carrying out the said exercise at the threshold would not be justified. From a reading of the show cause notice dated 18.10.2021, no definite view can be taken at this stage, that the said notice is beyond the period of limitation in terms of the proviso to sub-section (1) of Section 73. These are matters for examination and adjudication by the primary authority. In the circumstances, it would be in the interest of justice if the petitioner is relegated to the forum of adjudication before the respondent No.1. Ordered accordingly. Petition disposed off.

Summary

Issues:
Petition to quash show cause notice for treating income as taxable services under the Finance Act, 1994, imposition of penalty, and interest.

Analysis:
1. Nature of Contract Works and Service Tax Exemption:
The petitioner, a works contractor, argues that the works carried out for governmental authorities are indivisible composite contracts exempt from service tax due to notifications issued by the Government of India.

2. Basis of Show Cause Notice:
The respondent issued the notice based on information from the Income Tax Department indicating that the petitioner declared income from taxable services but did not pay service tax, leading to the notice for non-payment.

3. Limitation Period and Proviso under Section 73:
The petitioner contends that the limitation period for the show cause notice has expired, and the proviso extending it to five years is inapplicable due to the absence of conditions like fraud, collusion, willful misstatement, or contravention of Act provisions.

4. Arguments and Counter-Arguments:
The petitioner asserts that service tax is not required for services to governmental authorities, and the respondent is biased towards levying tax, making the response to the notice a formality. The respondent argues that the proviso conditions need to be evaluated through an enquiry and adjudication process.

5. Legal Precedents and Court's Decision:
References to judgments from Kolkata High Court, Madras High Court, and CESTAT, Allahabad are made, but the court emphasizes that each case stands on its own merit. The court decides not to delve into these precedents in detail.

6. Judicial Review and Adjudication:
The court decides that the adjudicating authority should examine whether the services were provided only to governmental authorities, the nature of contracts, and the applicability of the extended limitation period. It deems premature to preclude the authority from conducting this evaluation.

7. Court's Order and Directions:
The court directs the petitioner to respond to the show cause notice within thirty days and ensures a fair hearing for the petitioner's representative. The decision to consider the response in accordance with the law is left to the respondent No.1, maintaining that all contentions remain open.

8. Disposition and Closure:
The writ petition is disposed of with directions for the petitioner to participate in the adjudication process. Interlocutory applications, if any, are closed without costs being awarded.