2025 (3) TMI 126 - HC - Service Tax

Exemption from service tax - services provided by the petitioners specifically related to Solid Waste Management are exempt from Service Tax under the Finance Act 1994 - Section 66-B of the Finance Act 1994 - validity of SCN - notice proposing to levy service tax can be construed as a notice for recovery while affirming a final demand or not? - HELD THAT - The Section 65-B (44) of the Finance Act 1994 defines the term service . Section 65-B (51) of the Finance Act defines taxable service as taxable service means any service on which service tax is leviable under section 66B. Section 66B of the Finance Act provides that there shall be levied a tax on the value of all services other than those specified in the Negative List - Section 66D of Finance Act 1994 provides for the negative list while Section 93 of the Finance Act provides power to the Central Government to grant exemption for taxable service from service tax. Accordingly unless the service is one that falls in the negative list or a notification of exemption the same would fall within the service tax net. This Court in M/s Sapthagiri Cleaning Services Versus The Joint Commissioner of Central Tax Bengaluru The Deputy Commissioner of Central Tax Bengaluru 2024 (9) TMI 1418 - KARNATAKA HIGH COURT while considering setting aside of the show cause notice in an identical factual matrix had declined to issue a writ as sought for while observing that the relief sought for required interpretation of work order in the context of the exemption notification and accordingly relegated the matter to the stage of post show cause notice. There is no reason that the present writ petitions seeking setting aside of show cause notice on the ground of exemption or non-chargability to service tax are to be disposed off on different grounds. The interpretation of the work orders/ contracts would be necessary in order to arrive at a conclusion as regards non chargeability or as regards the application of exemption notification. It is relevant to note the observations made by the Apex Court in Union of India and another v. VICCO Laboratories 2007 (11) TMI 21 - SUPREME COURT wherein it is held that the Writ Courts could interfere at the stage of show cause notice only under exceptional circumstances and when factual adjudication is warranted the interference by the Writ Court is ruled out. While the writ petitions challenging validity of the show cause notice are disposed of by relegating the petitioners to the stage post show cause notice reserving liberty to file additional reply and to file reply if not already filed permitting the assessees to raise all other contentions in support of their case of being within the exemption notification or outside the service tax net the other writ petitions raising identical grounds assailing the adjudicating order (Order-in-Original) are also allowed by setting aside the adjudicating order and relegating the assessees to the same stage of post show cause notice. Such order is passed noticing substantial contentions are raised in matters where show cause notices are assailed. In light of the contention of the revenue that the receiver of service i.e. BBMP/ local authority or Government is not a business entity registered as body corporate such aspect is also kept open for consideration by the authority upon remand of the matters to the stage of post-show cause notice. Conclusion - The writ jurisdiction is not the appropriate forum for resolving complex factual disputes involving tax assessments. The court set aside adjudicating orders and remanded the matters to the stage of post-show cause notice to ensure uniformity and consistent adjudication by the tax authorities. Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment are:

• Whether the services provided by the petitioners, specifically related to Solid Waste Management, are exempt from Service Tax under the Finance Act, 1994, and subsequent notifications.
• Whether the issuance of show cause notices and subsequent adjudicatory orders by the tax authorities were valid and within jurisdiction, particularly in light of exemptions claimed by the petitioners.
• Whether the services provided fall under the reverse charge mechanism, shifting the tax liability from the service provider to the service receiver.
• Whether the court can intervene at the stage of issuance of show cause notices under writ jurisdiction.

2. ISSUE-WISE DETAILED ANALYSIS

Exemption from Service Tax:

• Relevant legal framework and precedents: The petitioners argued that their services fall under the exemption provided in Notification No. 25/2012-ST, which exempts services related to functions ordinarily entrusted to municipalities, such as solid waste management. This exemption was amended by Notification No. 6/2014-ST, which deleted certain phrases, potentially narrowing the exemption.
• Court's interpretation and reasoning: The court noted that the interpretation of the exemption notification and the nature of the services provided require factual adjudication. The court emphasized that such matters are not suitable for determination under writ jurisdiction.
• Key evidence and findings: The court observed that the work orders and agreements need to be examined to determine if the services qualify for exemption, which is a factual matter.
• Application of law to facts: The court held that the interpretation of the exemption notification in light of the work orders is necessary to determine tax liability.
• Treatment of competing arguments: The court acknowledged the petitioners' argument for exemption but highlighted the need for detailed factual analysis by the tax authorities.
• Conclusions: The court concluded that the exemption issue requires adjudication by the tax authorities and cannot be resolved in writ proceedings.

Validity of Show Cause Notices:

• Relevant legal framework and precedents: The court referred to the principle that writ courts should not interfere with show cause notices unless they are issued without jurisdiction or constitute an abuse of process.
• Court's interpretation and reasoning: The court found no grounds to demonstrate that the show cause notices were issued without jurisdiction. It emphasized that factual matters, such as the interpretation of work orders, cannot be examined in writ proceedings.
• Key evidence and findings: The court noted that the petitioners did not establish a prima facie case of lack of jurisdiction or abuse of process in the issuance of the notices.
• Application of law to facts: The court held that the show cause notices are valid and should be adjudicated by the tax authorities.
• Treatment of competing arguments: The court recognized the petitioners' concerns but maintained that these should be addressed in the adjudication process.
• Conclusions: The court declined to set aside the show cause notices and directed the matters to be adjudicated post-show cause notice stage.

Reverse Charge Mechanism:

• Relevant legal framework and precedents: The petitioners contended that the tax liability should fall on the service receiver under the reverse charge mechanism as per Notification No. 30/2012-ST.
• Court's interpretation and reasoning: The court noted that the reverse charge mechanism applies only when services are provided to a business entity registered as a body corporate, which does not apply to BBMP/local authorities.
• Key evidence and findings: The court observed that the petitioners' services were provided to BBMP, which is not a business entity registered as a body corporate.
• Application of law to facts: The court held that the reverse charge mechanism does not apply in this context.
• Treatment of competing arguments: The court addressed the petitioners' argument but found it inapplicable under the circumstances.
• Conclusions: The court concluded that the reverse charge mechanism does not shift the tax liability in this case.

3. SIGNIFICANT HOLDINGS

• The court emphasized the necessity for factual adjudication by tax authorities to determine the applicability of service tax exemptions and the validity of show cause notices.
• The court reiterated that writ jurisdiction is not the appropriate forum for resolving complex factual disputes involving tax assessments.
• The court set aside adjudicating orders and remanded the matters to the stage of post-show cause notice to ensure uniformity and consistent adjudication by the tax authorities.
• The court preserved the petitioners' right to file additional replies and present all relevant contentions before the tax authorities.
• The court directed the tax authorities to assign the cases to a common set of officers to ensure a consistent approach across similar cases.