2022 (11) TMI 341 - HC - Service Tax

Withholding the refund of security deposit with the state government towards service tax - Seeking issuance of directions in the nature of 'mamdamus' to the respondents to decide the legal notice - seeking release of the petitioner lying deposited with respondent no. 3 - HELD THAT - The stand of respondents no. 2 and 3 was to the effect that they had withheld the amount solely for the reason that service tax liability had not been cleared by the petitioner whereas the Department of Central Excise (as it was then), now the Assistant Commissioner Central GST clearly states that in the present case service tax was not applicable and that no demand of service tax has ever been raised by the concerned department. Consequently, the retention of the aforesaid security money deposited by the petitioner is per se not justified. The same is accordingly directed to be refunded expeditiously and preferably within a period of four weeks of the receipt of the certified copy of this order. It has also been pointed out by the petitioner that the aforesaid amount has been kept in a Fixed Deposit by respondents no. 2 and 3 - Petition allowed.

Summary

Issues involved:
Petition seeking directions for release of security deposit along with interest, dispute over service tax liability for parking services, failure of respondents to refund security deposit, conflicting responses from different authorities regarding service tax applicability.

Analysis:
The petitioner filed a writ petition under Article 226/227 seeking directions for the release of a security deposit and interest. The petitioner had leased vacant land for parking and was directed to deposit a refundable security amount along with rent. The petitioner claimed to have regularly paid due charges but was later asked to pay service tax, which was contested citing Finance Act provisions. Despite contract completion, the security deposit was not refunded, leading to the petition. Respondents contended that the petitioner failed to pay service tax as per the agreement terms, justifying the withholding of the amount. The dispute revolved around the interpretation of tax liability clauses in the contract.

The response from authorities highlighted repeated requests for service tax payment, emphasizing the petitioner's non-compliance. However, a communication from the Central Excise department stated that service tax was not applicable to the parking services during the relevant period. This conflicting stance raised doubts on the justification for withholding the security deposit. The Assistant Commissioner of Central Excise supported the petitioner's claim, stating no demand for service tax was raised, further questioning the withholding of the security amount. The authorities' contradictory positions added complexity to the case.

The court, after considering the submissions, found the retention of the security deposit unjustified due to the conflicting views on service tax applicability. The court directed the expeditious refund of the security deposit and the release of accrued interest to the petitioner. The decision was based on the lack of clarity regarding service tax liability, leading to the allowance of the petition. The judgment aimed to resolve the dispute over the security deposit and highlighted the importance of consistent interpretation of tax laws in contractual agreements.