[Cites 20, Cited by 0]
Karnataka High Court
Sri Gouribidanur Venkatakrishna Kumar vs The Asst Commissioner on 27 March, 2026
Author: M.Nagaprasanna
Bench: M.Nagaprasanna
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IN THE HIGH COURT O F KARNAT AKA DHARWAD BENCH
DATED THIS THE 27TH DAY OF MARCH, 2026
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
WRIT PETITION No.100372 OF 2024 (T-RES)
BETWEEN:
SRI GOURIBIDANUR VENKATAKRISHNA KUMAR
AGED ABOUT 54 YEARS
S/O G.V.VENKATAKRISHNA
RESIDING AT NO.101
SIDDHIVINAYAKA APARTMENT
ADHAYAPAK NAGAR, HUBLI - 580 032.
... PETITIONER
(BY SRI D.R.RAVISHANKAR, SENIOR ADVOCATE A/W.
SRI NAVEEN G. S., ADVOCATE)
AND:
THE ASST. COMMISSIONER
CGST-CENTRAL EXCISE
OFFICE AT:
OFFICE OF THE ASST. COMMISSIONER
HUBLI DIVISION, I FLOOR
C.R.BUILDING, NAVANAGAR
HUBLI - 580 025.
... RESPONDENT
(BY SRI SHIVRAJ S.BALLOLI, ADVOCATE)
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THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE
CONSTITUTION OF INDIA PRAYING TO ISSUE AN WRIT OR SUCH
OTHER ORDER IN THE NATURE OF CERTIORARI TO QUASH OR SET
ASIDE THE ORDER PASSED BY THE RESPONDENT ON 31.08.2023
AND ISSUED ON 25.09.2023 BEARING NO. BEL-EXCUS-000-HBL-
AC-MR-24-2023-24-ST AND PRODUCE AT ANNEXURE-E.
THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS, COMING ON FOR PRONOUNCEMENT THIS DAY, THE
COURT MADE THE FOLLOWING:-
CORAM: THE HON'BLE MR JUSTICE M.NAGAPRASANNA
CAV ORDER
The petitioner/assessee is before the Court calling in question
the order dated 31-08-2023 passed by the respondent and issued
on 25-09-2023 determining service tax liability, penalty and late fee
against the petitioner, combining three different assessment years.
2. Heard Sri D.R. Ravishankar, learned senior counsel
appearing for the petitioner and Sri Shivaraj S.Balloli, learned
appearing for the respondent.
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3. Facts, in brief, germane are as follows: -
3.1. The petitioner/assessee is the proprietor of M/s Advaita
Consultancy Services engaged in the business of sale of computers,
printers and computer related accessories to various Government
undertakings. The petitioner was assessed to value added tax (for
short, 'VAT') up to the date on which it subsisted i.e., up to 30-06-
2017 and is said to have been paying GST from its onset on 01-07-
2017. The assessee was earlier in the business of maintenance and
repairs of computers and had obtained a service tax registration for
the said business of maintenance and repair of computers and
copying machines. From the financial year 2013-14, the assessee
surrendered his service tax registration for the business of
maintenance and repairs and switched over to the business of sale
and marketing of computers and copying machines. These are the
averments in the petition.
3.2. After about 5 years, between the dates 23-10-2019 and
14-10-2020, several communications are issued by the
Superintendent of Central Tax seeking various documents and
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details pertaining to Form ST-3 returns, P & L Account and Balance
Sheet and Form 26AS for the assessment year 2015-16. The
petitioner is said to have complied with those directions.
Notwithstanding the same, on 18-12-2020 the respondent issues a
show cause notice calling upon the petitioner/assessee to show
cause as to why service tax should not be determined against him
along with penalty for short payment of service tax. The respondent
issues a notice for personal hearing to the petitioner. The petitioner
attends personal hearing and submits his reply. After about 2 years,
again another personal hearing notice is issued to the petitioner and
later an order in original is passed determining service tax liability
and late fee to the tune of ₹8,73,031/-. It is this order in original
that is challenged in the subject petition.
4. The learned senior counsel appearing for the petitioner
would contend that the impugned order is without jurisdiction.
Section 73(1) of the Finance Act, 1994 (for short, 'the Act')
provides that where service tax has been short paid, notice had to
be served on the person chargeable to service tax within thirty
months from the relevant date. The proviso to Section 73(1)
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stipulates that where short payment is due to fraud, collusion,
willful misstatement and suppression of facts, the time limit period
of thirty months would be required to be read as five years. Since
the show cause notice is issued beyond thirty months from the
relevant date, it is without jurisdiction. The second limb of
submission is that a single show cause notice is issued for financial
years 2015-16 to 2017-18 which is again contrary to law. Clubbing
of financial years and issuing a solitary show cause notice is held to
be illegal by coordinate Benches of this Court. Demanding service
tax on the income received by the assessee would amount to
double taxation, as VAT has already been paid by him. The
petitioner did produce all the VAT returns before the concerned
Authority for the relevant years. Notwithstanding the same, the
liability comes about.
5. The learned counsel appearing for the respondent would
refute the submissions to contend that the order in original is
appealable under Section 85 of the Act. The assessee ought to have
approached the Commissioner of Central Excise in appeal and a writ
petition is not entertainable in the teeth of availability of alternative
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remedy. Without prejudice to the aforesaid submission, the learned
counsel would submit that the assessee contends that there is no
suppression of facts or willful misstatement. But, the assessee has
suppressed an amount of ₹58,76,004/- towards taxable value as it
was not projected. Service tax is levied on the basis of self-
assessment system. It is the responsibility of the assessee to bring
about all the facts. The revenue becomes aware only at a later
point in time and issues show cause notice. Since suppression is the
ground on which proceedings have sprung, the limitation is not
thirty months, but it is five years. The demand is well within five
years. He would seek dismissal of the petition.
6. I have given my anxious consideration to the submissions
made by the respective learned counsel and have perused the
material on record.
7. The afore-narrated facts are not in dispute. The petitioner
initially was engaged in the business of maintenance and repairs of
computers. He was assessed to VAT on the sale of goods up to
30-06-2017 and later subjected to tax under the GST regime. It is
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not the case of the revenue that VAT has been short paid by the
petitioner. It is the case of the revenue that service tax has been
short paid. Therefore, it is necessary to notice the genesis of the
proceedings when the revenue issued a show cause-cum-demand
notice which triggered the entire issue in the case at hand. An
electronic mail is said to have been communicated to the petitioner
seeking to explain as to why, turn over for the financial year 2015-
16 had not been declared in maintenance or repair service by
holder of service tax registration - the assessee. The show cause
notice reads as follows:
"SHOW CAUSE CUM DEMAND NOTICE
Shri Gauribidanur Kumar, No 102, Plot No. 39,
Siddhivinayak Apartment, Adhyapaknagar, Hubballi- 580032, is
engaged in providing the taxable services of "MAINTENANCE OR
REPAIR SERVICE" and holder of Service Tax Registration No.
AFOPK5065JST001 (hereinafter also referred to as 'the
assessee').
02. Whereas, as per the information available with the
Department it is noticed that the assessee has not filed Form
ST-3 for the period 2015-16 and onwards.
03. Whereas, the Superintendent of Central Tax having
jurisdiction over the said assessee (hereinafter referred
to as 'the Superintendent') received data of CBDT along
with Data of Form ST-3 data for the financial year 2015-
16 from the Director General of Systems and Data
Management, New Delhi, through the Chief Commissioner
of Central Excise, Customs & Service Tax, Mysore Zone,
as shown below with a direction to carry out the
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verification of mismatch between the ITR / TDS data and
data of Service Tax return. Whereas, as per the data,
there is a difference in value of services as per ITR and
Gross Value in as per Form ST-3; difference is Rs.
16,73,969/-.
04. Accordingly, the Superintendent of Central Tax,
Hubballi-B Range, the jurisdictional Range officer, vide
letter dated 23/10/2019 by email, asked the assessee to
explain the difference of Rs. 1673969/- for the year
2015-16 in the turnover declared in Income-tax Return
filed/Value of Services Credited in TDS and Value of
Service provided as per STRs.
05. The assessee failed to explain for the difference in
the turnover declared in the Income Tax return and STR
value with documentary evidences like Bills/ Invoices,
Agreements. Hence, they were extended some more
opportunities to explain for the difference, vide letters
11/10/2020, 14/10/2020, 20/11/2020 and
20/11/2020, 27/11/2020. Again.
05.1 In response to this office letter dated 27/11/2020
the assessee submitted his reply through mail. In this
reply he stated that - there was an error in the ITR filing
for the year 2015-16. Their consultant has filed the ITR
returns wrongly instead filing the tax Returns as Income
from Sales he has filed a Income from Service. In the
reply he further stated that - in the middle of the year of
2013-14 they have closed the Service Tax registration
and don't have the copy of it.
05.2 Whereas from the P&L Account for the period 2015-
16, it is observed that he has received an amount of Rs.
16,73,969/- as Contract receipts. Hence, not satisfied
with the compliance submitted by the assessee, the
Superintendent called for further details viz. P&L etc. for
the period 2016-17 and 2017-18 vide mail dated
27/11/2020.
05.3 In response assessee submitted the P&L account
for further period from 2016-17 and 2017-18 through
mail.
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05.4 It is observed from P&L account for the period
2016-17, it is observed that he has received an amount of
Rs.38,22,524/- as Contract receipts, and for the period
2017-18 he has received an amount of Rs. 3,79,511/- as
Contract receipts. Since the Assesee did not submit the
contract receipts month-wise for the period 2017-18
contract receipts for whole year is taken into account.
05.5 Hence, from the above this, it appears that the
assessee has deliberately suppressed a part of the
taxable value for the financial year 2015-16 with intent to
evade payment of service tax. It appears that the
assessee has suppressed an amount of Rs. 16,73,969/-
for the year 2015-16, Rs. 38,22,524/- for the year 2016-
17 and Rs.3,79,511/-for the year 2017-18, totalling to
Rs. 58,76,004/- towards taxable value and failed to
discharge applicable Service Tax thereon. The Service Tax
liability on the said taxable value works out to
Rs.8,73,031/- (Service Tax of Rs.8,22,641/-, Swatch
Bharat Cess of Rs.29,380/- and Krishi Kalyana Cess of
Rs.21,010/-) as detailed in the Annexure to this Show
Cause Notice, and same appears liable to be recovered
from him under the provisions of the Finance Act, 1994.
Invocation of extended period:
06. From the discussions in above paras, it appears that
the assessee have got himself registered with the
department voluntarily with the Registration No.
AFOPK5065JST001, for providing taxable service of
"MAINTENANCE OR REPAIR SERVICE". The assessee is
aware of the provisions of Service Tax in as much as they
already hold Service Tax Registration and have been
paying Service Tax on the taxable services provided by
him. It appears that the assessee for the Financial Year
2015-16, 2016-17 and 2017-18 has suppressed an
amount of Rs.58,76,004/-towards taxable value and
failed to discharge applicable Service Tax thereon.
07. However it is noticed that the assessee appears to
have wilfully not filed the ST-3 Return the above said
period. The said wilful mis-statement appears to have
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been done by the assessee with an intention to evade
payment of Service Tax by not declaring taxable value.
Hence, the Service Tax not paid by them appears to be
recoverable from them, under the provisions of clause (c)
of proviso to Section 73(1) of the Act for the extended
period of five years.
07.1 Service Tax is levied as per the provisions of the Finance
Act, 1994 and the Rules made there under wherein a system of
self-assessment and self-disclosure, through periodical returns
is prescribed. In other words, it is the legal responsibility of the
assessee to assess and discharge the tax liability as per the
provisions of the said Act, and also to declare the same through
the prescribed periodical returns. In self-assessment system,
the department comes to know about the service provided and
payment of Service Tax only during the scrutiny of the statutory
returns filed by the service providers as per Rule 7 of the
Service Tax Rules, 1994 read with Section 70 of the Finance Act,
1994. The Service Provider is required to correctly assess their
Service Tax liability and discharge it within the prescribed dates.
It places greater onus on the service provider in this trust based
regime to conform to the highest standards of integrity in
disclosure of information in the statutory returns. Thus the
entire responsibility of making disclosure of rendering a service
voluntarily is on the service provider under the system of self-
assessment. The said evasion of Service Tax would not have
come to light but for the investigations conducted by the
Department.
07.2 Therefore, in view of the above, it appears that Service
Tax of Rs. 8,73,031/-(inclusive of all Cesses) for the period from
01.04.2015 to 31.03.2018, is liable to be recoverable from the
assessee by invocation of extended period under proviso to
Section 73(1) of the Finance Act, 1994.
08. Other Contraventions:
Whereas, the assessee, in view of the above omissions
and commissions, has also appears to have contravened the
following provisions of the Finance Act, 1994 and Service Tax
Rules, 1994:
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08.1 The assessee has failed to deposit the Service Tax
amounting to Rs. 8,73,031/-(inclusive of all Cesses) pertaining
to the period 01.04.2015 to 30.06.2017 within the period
prescribed to the Government exchequer as per the provisions
of Section 68 of the Act read with Rule 6 of the Service Tax
Rules, 1994. Hence, it appears that the assessee is required to
pay interest for the non payment of the above amount of
Service Tax in terms of Section 75 of the Finance Act, 1994.
08.2 Whereas, the assesee for the Financial Year 2015-16,
2016-17 and 2017-18 (April-June, 2017) has failed to file Form
ST-3 Returns on ACES application. The provisions of the Finance
Act, 1994 and Service Tax rules relating to furnishing of
periodical returns are as under:
08.2.1 As per Section 70 of the of the Finance Act, 1994 -
(1) Every person liable to pay the service tax shall himself
assess the tax due on the services provided by him and
shall furnish to the Superintendent of Central Excise, a
return in such form and in such manner and at such
frequency and with such late fee not exceeding twenty
thousand rupees, for delayed furnishing of return, as
may be prescribed.
08.2.2 As per Rule 7C of the Service Tax Rules, 1994 -
(1) Where the return prescribed under rule 7 is furnished
after the date prescribed for submission of such return,
the person liable to furnish the said return shall pay to
the credit of the Central Government, for the period of
delay of-
(i) fifteen days from the date prescribed for submission of
such return, an amount of five hundred rupees;
(ii) beyond fifteen days but not later than thirty days from
the date prescribed for submission of such return, an
amount of one thousand rupees; and
(iii) beyond thirty days from the date prescribed for
submission of such return an amount of one thousand
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rupees plus one hundred rupees for every day from the
thirty first day till the date of furnishing the said return:
(2) [XXXX]
Provided that the total amount payable in terms of
this rule, for delayed submission of return, shall not
exceed the amount specified in section 70 of the Act
08.2.3 Whereas due dates for filing of Form ST-3 for the period
2015-16 and 2016-17 is as mentioned in Table below.
Period Return Period Due Date for -ST-3Filed on
filing ST-3
2015-16 April-September-2015 25/10/2015 Not filed
October-March-2016 25/04/2016 Not filed
2016-17 April-September-2016 25/10/2016 Not filed
October-March-2017 25/04/2017 Not filed
2017-18 April-June-2017 15-08-2017 Not filed
Whereas, since the assessee failed to file any Form ST-3 Return
for the said period it appears that in terms of Section 70 of the
Finance Act, 1994 read with Rule 7C of the Service Tax Rules,
1994 the assessee is liable for maximum late fee of Rs.
20,000/- for each for such returns, totalling to Rs.1,00,000/-
(Rs. 20,000 X 5).
08.3 Whereas, it appears that the assessee, have violated the
provisions of Section 88 of the Act read with Rule 6 of the
Service Tax Rules, 1994, in as much as they have suppressed
the fact of rendering of taxable services valued at Rs.
58,76,004/- during the period April, 2015 to March, 2018, hence
have wilfully mis-stated the taxable value to that extent in the
Form ST-3 returns filed for the said period with an intention to
evade payment of Service Tax on it amounting to Rs. 8,73,031/-
(inclusive of all Cesses). Hence, it appears that they have
rendered themselves liable to penalty which shall be equal to
hundred per cent. of the amount of such service tax in terms of
Section 78(1) of the Finance Act, 1994.
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8.3.1 However, as per proviso to Section 78(1) ibid - where
service tax and interest is paid within a period of thirty days of
the date of service of notice under the proviso to (i) sub-section
(1) of section 73, the penalty payable shall be fifteen per cent.
of such service tax and proceedings in respect of such service
tax, interest and penalty shall be deemed to be concluded.
09. Now, therefore, the assessee, Shri Gauribidanur Kumar,
No 102, Plot No. 39, Siddhivinayak Apartment,
Adhyapaknagar, Hubballi- 580032, is hereby called upon to
show cause to the Assistant Commissioner of Central Tax,
Hubli Division, 1st Floor, C R Building, Navanagar, Hubli-
580025, as to why-
(i) the amount of Service Tax short paid of
Rs.8,73,031/- (rupees eight lakh seventy three
thousand and thirty one only) (Service Tax of
Rs.8,22,641/-, Swatch Bharat Cess of Rs.29,380/-
and Krishi Kalyana Cess of Rs.21,010/-) should not
be demanded and recovered from them, under
proviso to Section 73(1) of the Finance Act, 1994,
as amended;
(ii) applicable interest on the Service Tax amount
demanded at Sl. No.(i) above should not be
demanded and recovered from them under Section
75 of the Finance Act, 1994;
(iii) Late fee of Rs. 100,000/- for not filing of Form ST-
3 for the period 2015-16, 2016-17 and 2017-18
should not be recovered from them under Section
70 of the Finance Act, 1994.
(iv) Penalty equal to amount demanded at Sl.No.(i)
above should not be imposed on them, under
section 78 of Finance Act, 1994.
The Penalty, however, will be reduced to 15% of
amount demanded at Sl.No.(i) above, in terms of the
proviso to Section 78(1) of Service Tax Act, 1994
(Section 114 of Finance Act, 2015) provided the whole of
such service tax amount demanded, interest leviable
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thereon, along with reduced penalty is paid within 30
days of the date of service of this notice.
10. The provisions/rules are invoked of the relevant period
when the contraventions occurred and the Show Cause Notice is
issued as read with the provisions of Section 173 & 174 of the
CGST Act, 2017.
11. In terms of Section 142(8) (a) of CGST Act 2017, where
in pursuance of an assessment or adjudication proceedings
instituted, whether before, on or after the appointed day, under
the existing law, any amount of tax, interest, fine or penalty
becomes recoverable from the person, the same shall, unless
recovered under the existing law, be recovered as an arrear of
tax under CGST Act, 2017 and the amount so recovered shall
not be admissible as input tax credit under CGST Act 2017.
12. The assessee may also like to opt for settlement of case
in terms of provisions contained under Chapter V of the Central
Excised Act, 1944, which, is made applicable to the Service Tax
matters by Section 83 of the Finance Act, 1994, subject to
fulfilment of conditions contained in the respective Act.
13. The assessee, are further required to produce at the time of
showing cause all the evidence upon which they intend to rely in
support of their defence. The assessee should indicate in their
written reply as to whether they desire to be heard in person
before the case in adjudicated. If no mention is made in their
written reply to the Show Cause Notice, it would be presumed
that they do not desire to be heard in person.
13. If no cause is shown against the action proposed to be
taken within 30 days of receipt of this notice or it they do not
appear before the adjudicating authority when the case is
posted for hearing, the case will be decided ex-parte.
14. Reliance is placed on the following documents for issue of
this notice.
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Sl. Relied Upon Documents
No.
Letters dtd 10.9.2020, 24.9.2020 and 26.11.2020, issued to
1. assessee by the Superintendent of Central Tax, Hubballi-B
Range"
This is replied to by the petitioner on appearing before the Authority
for personal hearing. Two detailed replies are rendered in
justification of the same. It becomes apposite to notice one such
reply dated 28-08-2023, which reads as follows:
"28-08-2023
From
Gauribidanur Venkatakrishna Kumar
101, Siddhi Vinayak Apartment, Adhyapak Nagar,
Hubli, Karnataka, 580032
ST No: AFOPK5065JST001
To,
Assistant Commissioner
Hubballi Division
Navanagar
Respected Sir,
Subject: Response to Personal Hearing Notice
Ref: SCN No 89/2020-21/664/23 ST Dated 27-06-2023
I am writing to you today in response to the personal hearing
notice that I received from your office on 27-06-2023.
I would like to bring your kind notice that my business
primarily involves the supply of goods manufactured by
renowned companies such as HP, Toshiba, Canon Xerox
etc. The goods supply are intended for government
organisations, and any related services such as
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installation, manufacturing and technical support are
explicitly managed by the respective manufacturing
companies. I do not provide these services directly; they
are bundled with the products and handled by the
manufacturers.
To substantiate my claims, I have attached copies of purchase
orders from various government organisations that clearly
indicate the nature of the transactions.
Additionally, I would like to address the matter of the
service tax liability mentioned in the show cause notice. I
kindly request to reconsider this liability, as the nature of
my business is aligned with the supply of goods only. The
services, as stated earlier, are directly managed and
performed by the respective manufacturing companies.
Furthermore, it has come to my attention that certain
government customers have been deducting TDS under
section 194C, treating my supply of goods as a contract
service. I would like to clarify that despite their
categorization, my transactions are strictly related to the
supply of goods and not the provision of services. I am in
communication with these customers to rectify this
misclassification and ensure accurate reporting in the
future.
I kindly request a fair consideration of my case based on the
evidence provided and humbly request you to drop the further
proceedings.
Thanking you
Yours faith fully
Gauribidanur Venkatakrishna Kumar
(Proprietor)
Date: 28-08-2023
Place: Hubballi."
(Emphasis added at each instance)
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8. A perusal at the show cause notice or the demand notice
would indicate that for the first time the jurisdictional Range Officer
had communicated in electronic mail asking the assessee to explain
the difference of ₹16,73,969/- for the year 2015-16. The mail was
on 23-10-2019 and the show cause notice is on 18-12-2020.
Therefore, the notice admittedly is issued after thirty months. It,
therefore, becomes necessary to notice the bar in the jurisdiction as
obtaining under Section 73(1) of the Act. Section 73(1) reads as
follows:
"73. Recovery of service tax not levied or paid or
short-levied or short-paid or erroneously refunded. --
(1) Where any service tax has not been levied or
paid or has been short-levied or short-paid or
erroneously refunded, Central Excise Officer may,
within thirty months from the relevant date, serve
notice on the person chargeable with the service tax
which has not been levied or paid or which has been
short-levied or short-paid or the person to whom such
tax refund has erroneously been made, requiring him
to show cause why he should not pay the amount
specified in the notice :
Provided that where any service tax has not
been levied or paid or has been short-levied or short-
paid or erroneously refunded by reason of --
(a) fraud; or
(b) collusion; or
(c) wilful mis-statement; or
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(d) suppression of facts; or
(e) contravention of any of the provisions of this
Chapter or of the rules made thereunder with
intent to evade payment of service tax,
by the person chargeable with the service tax or
his agent, the provisions of this sub-section shall have
effect, as if, for the words "thirty months", the words
"five years" had been substituted.
Explanation.-- Where the service of the notice is
stayed by an order of a court, the period of such stay shall
be excluded in computing the aforesaid period of thirty
months or five years, as the case may be."
Section 73(1) mandates demand of service tax from an assessee
within an outer limit of thirty months from the relevant date. In
cases of suppression or willful misstatement or fraud, it is five years
in terms of the proviso. The financial year for the tax that is
demanded in the case at hand is admittedly 2015-16 and the notice
is issued on 18-12-2020. Therefore, it is admittedly beyond thirty
months. The canopy under which the revenue takes shelter is
suppression, by combining three years of assessment into a single
show cause notice, to cover up the issue of limitation. The
suppression that is projected is also untenable for the reason that
when the assessee had already paid VAT on sale of goods regularly,
the question of paying service tax would not arise in the light of the
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judgment of the Apex Court in COMMISIONER OF SERVICE TAX-
V, MUMBAI v. UFO MOVIEZ INDIA LIMITED1, wherein it is held
as follows:
".... .... ....
2. In the facts of the present case as it is not
disputed that the respondent had regularly paid amount
towards value added tax liability in respect of the subject
goods during the relevant period, the question of
claiming service tax thereon does not arise.
3. Accordingly, in the facts of the present case, the civil
appeal is dismissed."
9. The further case of the revenue is that when possession of
goods is transferred with effective control on the said goods, there
is deemed sale. The revenue seeks to contend that the transfer of
maintenance and services to another establishment would indicate
that it is deemed sale and service tax would become applicable. The
Madras High Court considers an identical circumstance and holds
that what would be chargeable to VAT would be under the Sales
Tax law and not service tax as demanded. The Madras High Court in
1
2022 SCC OnLine SC 959
20
ANANDCINE SERVICE (P) LTD. v. COMMISSIONER OF
SERVICE TAX-II, CHENNAI2, holds as follows:
".... .... ....
19. The clauses in the agreement, reproduced
above, make it clear that the possession and effective
control has been transferred. If it is not so, why will the
owner reserve a right to inspect the equipments as and
when required. If the possession and effective control is
still with the owner, he would not need the hirers'
permission to inspect. If effective possession and control
has not been transferred, why the hirer has to make it
known to the owner regarding loss or destruction or
damage, after such loss or damage occurs. If possession
and effective control has not been transferred and it is
still with the owner, why will the hirer give an
undertaking not to part with possession or undertake not
to sell, hypothecate or pledge the equipments and have
the equipments insured at its full value at his own cost. If
possession and effective control is still with the owner or
has not been transferred to the hirer, why would the hirer
make a statement that he has taken inspection of the
goods and he is satisfied with the condition thereof and
the owner shall not be liable for any defects.
20. The attributes outlined by the apex court in Bharat
Sanchar Nigam Ltd. v. Union of India [(2006) 3 VST 95 (SC);
(2006) 282 ITR 273 (SC); (2006) 145 STC 91 (SC); (2006) 6
RC 276; (2006) 3 SCC 1; 2006 SCC OnLine SC 258; (2006) 2
STR 161 (SC).] at paragraph 97 thereof are available in the
transaction undertaken by the appellant with the hirer, Chennai
Cinema Private Limited, as evidenced by the clauses quoted
above.
21. In fact, the adjudicating authority has in its
findings accepted the legal position that for levy of VAT
2
2025 SCC OnLine Mad 2282
21
under sales tax law, it is not necessary that the
possession of goods must be transferred and that if the
person has been provided with effective control of the
goods, it would tantamount to transfer of right to use the
goods and service tax is not chargeable. Since in the case
at hand possession and effective control of the goods has
been transferred to the hirer, it will amount to transfer of
right to use goods and service tax is not chargeable.
22. To reiterate, there shall be a deemed sale where
there is transfer of the right to use any goods for any
purpose-whether or not for a specified period, for cash,
deferred payment or other valuable consideration. From
the documents and particularly from the clauses
reproduced above, it is quite clear that there has been a
transfer of the right to use equipments for valuable
consideration. Even in clause (29A) of article 366 of the
Constitution of India, the only requirement is there
should be transfer of the rights to use the goods for
valuable consideration. Factually, there has been."
10. The Apex Court, long before the onset of GST regime had
considered the interplay between service tax and value added tax in
IMAGIC CREATIVE (P) LTD. v. COMMISSIONER OF
COMMERCIAL TAXES3 and the observations of the Apex Court was
that Service Tax and VAT are mutually exclusive. Therefore, they
should be held to be applicable having regard to the parameters of
Service Tax and the Sales Tax. The Apex Court has held as follows:
".... .... ....
3
(2008) 2 SCC 614
22
32. Payments of service tax as also VAT are
mutually exclusive. Therefore, they should be held to be
applicable having regard to the respective parameters of
service tax and the sales tax as envisaged in a composite
contract as contradistinguished from an indivisible
contract. It may consist of different elements providing
for attracting different nature of levy. It is, therefore,
difficult to hold that in a case of this nature, sales tax
would be payable on the value of the entire contract,
irrespective of the element of service provided. The
approach of the assessing authority, to us, thus, appears to be
correct."
For all the facts being thus, (i) the show cause notice itself is issued
beyond limitation, (ii) the petitioner paying value added tax cannot
be charged with service tax for the same period and for the same
purpose and the observation of the Apex Court that they are
mutually exclusive, the show cause notice itself becomes without
jurisdiction. If the show cause notice is without jurisdiction and all
further proceedings that are taken thereto would also become
without jurisdiction. If they are in their entirety without jurisdiction,
writ petition would be entertainable and this Court would not direct
the petitioner to follow the statutory remedy of filing an appeal and
then approach this Court. The issue stands answered by the
judgment of the Apex Court in WHIRLPOOL CORPORATION v.
23
REGISTRAR OF TRADE MARKS, MUMBAI4 wherein it is held as
follows:
".... .... ....
14. The power to issue prerogative writs under
Article 226 of the Constitution is plenary in nature and is
not limited by any other provision of the Constitution.
This power can be exercised by the High Court not only
for issuing writs in the nature of habeas corpus,
mandamus, prohibition, quo warranto and certiorari for
the enforcement of any of the Fundamental Rights
contained in Part III of the Constitution but also for "any
other purpose".
15. Under Article 226 of the Constitution, the High
Court, having regard to the facts of the case, has a
discretion to entertain or not to entertain a writ petition.
But the High Court has imposed upon itself certain
restrictions one of which is that if an effective and
efficacious remedy is available, the High Court would not
normally exercise its jurisdiction. But the alternative
remedy has been consistently held by this Court not to
operate as a bar in at least three contingencies, namely,
where the writ petition has been filed for the
enforcement of any of the Fundamental Rights or where
there has been a violation of the principle of natural
justice or where the order or proceedings are wholly
without jurisdiction or the vires of an Act is challenged.
There is a plethora of case-law on this point but to cut down this
circle of forensic whirlpool, we would rely on some old decisions
of the evolutionary era of the constitutional law as they still hold
the field."
4
(1998) 8 SCC 1
24
This judgment is later followed in GODREJ SARA LEE LIMITED v.
EXCISE AND TAXATION OFFICER-CUM-ASSESSING
AUTHORITY5 wherein the Apex Court has held as follows:
".... .... ....
4. Before answering the questions, we feel the urge
to say a few words on the exercise of writ powers
conferred by article 226 of the Constitution having come
across certain orders passed by the High Courts holding
writ petitions as "not maintainable" merely because the
alternative remedy provided by the relevant statutes has
not been pursued by the parties desirous of invocation of
the writ jurisdiction. The power to issue prerogative writs
under article 226 is plenary in nature. Any limitation on
the exercise of such power must be traceable in the
Constitution itself. Profitable reference in this regard may be
made to article 329 and ordainments of other similarly worded
articles in the Constitution. Article 226 does not, in terms,
impose any limitation or restraint on the exercise of
power to issue writs. While it is true that exercise of writ
powers despite availability of a remedy under the very
statute which has been invoked and has given rise to the
action impugned in the writ petition ought not to be made
in a routine manner, yet, the mere fact that the petitioner
before the High Court, in a given case, has not pursued
the alternative remedy available to him/it cannot
mechanically be construed as a ground for its dismissal.
It is axiomatic that the High Courts (bearing in mind the
facts of each particular case)have a discretion whether to
entertain a writ petition or not. One of the self-imposed
restrictions on the exercise of power under article 226
that has evolved through judicial precedents is that the
High Courts should normally not entertain a writ petition,
where an effective and efficacious alternative remedy is
available. At the same time, it must be remembered that
mere availability of an alternative remedy of appeal or
revision, which the party invoking the jurisdiction of the
5
2023 SCC OnLine SC 95
25
High Court under article 226 has not pursued, would not
oust the jurisdiction of the High Court and render a writ
petition "not maintainable". In a long line of decisions,
this court has made it clear that availability of an
alternative remedy does not operate as an absolute bar
to the "maintainability" of a writ petition and that the
rule, which requires a party to pursue the alternative
remedy provided by a statute, is a rule of policy,
convenience and discretion rather than a rule of law.
Though elementary, it needs to be restated that
"entertainability" and "maintainability" of a writ petition
are distinct concepts. The fine but real distinction
between the two ought not to be lost sight of. The
objection as to "maintainability" goes to the root of the
matter and if such objection were found to be of
substance, the courts would be rendered incapable of
even receiving the lis for adjudication. On the other hand,
the question of "entertainability" is entirely within the
realm of discretion of the High Courts, writ remedy being
discretionary. A writ petition despite being maintainable
may not be entertained by a High Court for very many
reasons or relief could even be refused to the petitioner,
despite setting up a sound legal point, if grant of the
claimed relief would not further public interest. Hence,
dismissal of a writ petition by a High Court on the ground
that the petitioner has not availed the alternative remedy
without, however, examining whether an exceptional
case has been made out for such entertainment would
not be proper.
5. A little after the dawn of the Constitution, a
Constitution Bench of this Court in its decision reported in
[1958] SCR 595 (State of Uttar Pradesh v. Mohammad Nooh)
had the occasion to observe as follows :
"10. In the next place it must be borne in mind
that there is no rule, with regard to certiorari as there is
with mandamus, that it will lie only where there is no
other equally effective remedy. It is well established
that, provided the requisite grounds exist, certiorari will
lie although a right of appeal has been conferred by
statute, (Halsbury's Laws of England, 3rd Edn., Vol. 11,
p. 130 and the cases cited there). The fact that the
26
aggrieved party has another and adequate remedy may
be taken into consideration by the superior court in
arriving at a conclusion as to whether it should, in
exercise of its
discretion, issue a writ of certiorari to quash the
proceedings and decisions of inferior courts subordinate
to it and ordinarily the superior court will decline to
interfere until the aggrieved party has exhausted his
other statutory remedies, if any. But this rule requiring
the exhaustion of statutory remedies before the writ will
be granted is a rule of policy, convenience and discretion
rather than a rule of law and instances are numerous
where a writ of certiorari has been issued in spite of the
fact that the aggrieved party had other adequate legal
remedies.. . ."
6. At the end of the last century, this court in
paragraph 15 of its decision reported in (1998) 8 SCC 1
(Whirlpool Corporation v. Registrar of Trade Marks,
Mumbai) carved out the exceptions on the existence
whereof a writ court would be justified in entertaining a
writ petition despite the party approaching it not having
availed the alternative remedy provided by the statute.
The same read as under :
(i) where the writ petition seeks
enforcement of any of the fundamental
rights ;
(ii) where there is violation of principles of
natural justice ;
(iii) where the order or the proceedings are
wholly without jurisdiction ; or
(iv) where the vires of an Act is challenged.
7. Not too long ago, this court in its decision reported in
[2021] SCC Online SC 884 (Assistant Commissioner of State Tax
v. Commercial Steel Limited)* has reiterated the same
principles in paragraph 11.
8. That apart, we may also usefully refer to the
decisions of this Court reported in (1977) 2 SCC 724
(State of U. P. v. Indian Hume Pipe Co. Ltd.)** and
(2000) 10 SCC 482 (Union of India v. State of Haryana).
27
What appears on a plain reading of the former decision is
that whether a certain item falls within an entry in a sales
tax statute, raises a pure question of law and if
investigation into facts is unnecessary, the High Court
could entertain a writ petition in its discretion even
though the alternative remedy was not availed of ; and,
unless exercise of discretion is shown to be unreasonable
or perverse, this Court would not interfere. In the latter
decision, this court found the issue raised by the appellant to be
pristinely legal requiring determination by the High Court
without putting the appellant through the mill of statutory
appeals in the hierarchy. What follows from the said
decisions is that where the controversy is a purely legal
one and it does not
* (2021) 93 GSTR 1 (SC).
** (1977) 39 STC 355 (SC).
involve disputed questions of fact but only questions of
law, then it should be decided by the High Court instead
of dismissing the writ petition on the ground of an
alternative remedy being available."
(Emphasis supplied at each instance)
In the light of the aforesaid reasons, the petition deserves to be
entertained.
11. For the aforesaid reasons, the following:
ORDER
(i) Writ Petition is allowed.
(ii) Order dated 31-08-2023 passed by the respondent and
issued on 25-09-2023 stand quashed.
(iii) The petitioner becomes entitled to all consequential
benefits that would flow from quashing of the impugned
order.
Sd/-
(M.NAGAPRASANNA)
JUDGE
bkp
CT:SS
