Madras High Court

Union Of India vs M/S. Trinity'S Clearing And ... on 30 March, 2022

                                                                               W.A.No.772 of 2022

                                  IN THE HIGH COURT OF JUDICATURE AT MADRAS

                                                DATED : 30.03.2022

                                                      CORAM

                         THE HONOURABLE MR.JUSTICE R. MAHADEVAN
                                           and
                   THE HONOURABLE MR.JUSTICE J. SATHYANARAYANA PRASAD

                                           Writ Appeal No.772 of 2022
                                                        &
                                             CMP. No. 5392 of 2022

                  1. Union of India,
                     represented by its Secretary to Govt.,
                     Department of Revenue,
                     Ministry of Finance,
                     North Block, New Delhi.

                  2. The Assistant Commissioner of GST
                      & Central Excise,
                     Egmore Division, Chennai North
                     Commissionerate, Newry Towers,
                     1st Floor, Plot No.2054, I Block,
                     II Avenue, 12th Main Road, Anna Nagar,
                     Chennai 600 040                                          .. Appellants

                                                       Versus

                  M/s. Trinity's Clearing and Shipping Agencies,
                  represented by its Partner S.Alexander
                  No.20, II Lane Beach, III Floor, Room No.6,
                  Chennai 600 001.                                           .. Respondent

                        Writ Appeal filed under Clause 15 of Letters Patent against the order
                  dated 5.11.2020 passed by this Court in W.P.No.26189 of 2018

                  For Appellants            :      Mr. A.P.Srinivas,
                                                   Senior Standing Counsel
https://www.mhc.tn.gov.in/judis


                  1/9
                                                                                     W.A.No.772 of 2022

                  For Respondent                :     Mr. K. Jeyachandran

                                                       JUDGMENT

(Judgment of the Court was delivered by R. Mahadevan, J)

This Writ Appeal is directed against the order dated 5.11.2020 passed

in W.P. No. 26189 of 2018, in and by which, the learned Judge quashed the

show cause notice dated 19.4.2018 issued by the 2nd appellant.

2. According to the respondent, they are engaged in the business of

providing Custom House Agent Service, Transport of Goods by Road Service

and Business Support Services with valid Service Tax registration. During the

course of their business, the Principal Commissioner of Service Tax issued

show cause notices proposing to demand service tax on the value of “non

taxable services” by invoking Rule 5(1) of Service Tax (Determination of

Value) Rules for the period from April, 2012 to September 2013 and from

October 2103 to March 2015 and subsequently confirmed the proposal by

order dated 21.1.2016. The respondent therefore filed WP. Nos. 14747 to

14749 of 2016 challenging Rule 5 of the said Rules and also the order passed

by the Principal Commissioner of Service Tax dated 21.01.2016. On

22.04.2016, this Court admitted the writ petitions and granted interim stay.

https://www.mhc.tn.gov.in/judis

W.A.No.772 of 2022

3. The respondent further states that in identical case,

Intercontinental Consultants case reported in 2013 (29) STR 9 the Delhi High

Court passed an order to the effect that Rule 5 of Service Tax (Determination

of Value) Rules was held to be ultra vires and void. Aggrieved by the said

order passed by the Delhi High Court, the Department preferred an appeal

before the Honourable Supreme Court. The Honourable Supreme Court

affirmed the order passed by the Delhi High Court in the decision reported in

the case of Union of India vs. Intercontinental Consultants and

Technocrafts Private Limited reported in 2018 (10) G.S.T. L. 401 (SC).

During the pendency of the appeal before the Honourable Supreme Court, the

writ petitions which were pending before all the High Courts were ordered to

be transferred to the Honourable Supreme Court and accordingly, WP Nos.

14747 to 14749 of 2016 were also transferred and disposed of by the

Honourable Supreme Court.

4. However, the second appellant issued a show cause notice dated

19.4.2018 proposing to demand service tax on the non taxable service such as

CFS, CCTL etc. invoking section 67 of the Finance Act read with Rule 5 of the

Service Tax (Determination of Value) Rules, which was already held to be void

by the Apex Court. Aggrieved by the said show cause notice dated 19.04.2018, https://www.mhc.tn.gov.in/judis

W.A.No.772 of 2022

the respondent has filed the writ petition in W.P. No. 26189 of 2018.

5. The learned Judge, by the order dated 05.11.2020, allowed the

writ petition by concluding that the impugned show cause notice issued by the

second appellant is contrary to the decision of the Hon'ble Apex Court and

therefore it is legally not sustainable. Aggrieved against the same, the present

writ appeal is filed before this Court.

6. The learned Standing counsel appearing for the appellants would

submit that the Finance Act, 1994 was amended on 14.5.2015 with reference

to Section 67, wherein the explanation for clause (a) was substituted by which

the reimbursable expenditure or cost incurred by the Service provider has been

included under the definition of “consideration” under section 67 of the Act.

As per the notes on clause No.111 of the Finance Act, the Act amends Section

67 of 1994, so as to substitute clause (a) of the explanation to amplify the

scope of the term “consideration”. Thus, it is clear that the legal intent of the

Government is clearly spelt and articulated that reimbursable expenditure or

cost incurred by the Service Provider forms part of “consideration”. Even

otherwise, when show cause notice was issued by an authority having

jurisdiction, the respondent cannot subject it to challenge before this Court by https://www.mhc.tn.gov.in/judis

W.A.No.772 of 2022

invoking Article 226 of The Constitution of India. The respondent has got a

statutory remedy before the quasi judicial authority, but without exhausting the

same, the present writ petition has been filed. He would further contend that

the learned Judge has not taken note of the fact that the department has raised

the demand only in respect of the period prospective to the amendment brought

in under section 67 of the Act, which was also upheld by the Apex Court.

While so, the learned Judge, without directing the respondent to file a statutory

appeal, has allowed the writ petition. Thus, he prayed this Court to set aside

the order passed by the learned single Judge.

7. The learned counsel appearing for the respondent would submit

that the show cause notice was issued by the appellants demanding service tax

invoking Section 67 of Finance Act read with Rule 5 of the Service Tax

(Determination of Value ) Rules. Admittedly, Rule 5 of the said Rules was

held ultra vires by the Delhi High Court, which was subsequently affirmed by

the Honourable Supreme Court. While so, invoking such a rule, which was

already held ultra vires, the show cause notice has been issued, which is

legally not sustainable. On the date of issuing the notice dated 19.4.2018, Rule

5 of Service Tax (Determination of Value ) Rules was held ultra vires and

Section 67 also was not available and therefore, the proposal to demand service https://www.mhc.tn.gov.in/judis

W.A.No.772 of 2022

tax itself is invalid. After taking note of the same, the learned Judge rightly set

aside the said show cause notice by the order impugned herein, which warrants

no interference at the hands of this Court

8. Heard the submissions of Mr. A.P. Srinivas, learned Senior

Standing Counsel appearing for appellants / department and

Mr.K.Jeyachandran, learned counsel appearing for the respondent.

9. In the order dated 05.11.2020, which is impugned in this appeal,

the learned Judge, while allowing the writ petition, observed as follows:-

'In view of the aforesaid decision of the Hon'ble Supreme Court of India, the impugned show cause notice in the present case invoking Rule 5(1) of the Rules cannot be sustained. The show cause notice in respect of other provisions, viz., Rule 6(1) of the Service Tax Rules, 1994 read with Section 68 of the Finance Act, 1994, and Rule 7 of the Service Tax Rules, 1994 read with section 70 of the Finance Act, 1994, are merely procedural in nature and consequential to Rule 5(1) of the Rules and as such, they cannot independently exist. Accordingly, the impugned show cause notice in entirety is quashed. However, this shall not be construed as precluding the petitioner from carrying out its obligations under other statutory provisions as required by law.

10. We have no disagreement with the legal proposition laid down in https://www.mhc.tn.gov.in/judis

W.A.No.772 of 2022

the decision rendered by the Honourable Supreme Court. However, it is to be

pointed out that what was challenged before the learned Judge is only a show

cause notice issued by the second appellant and it was not a final notice of

demand. In such an event, it is open to the respondent to submit the

explanation to the show cause notice dated 19.04.2018 in which all the

grounds, canvassed in the writ petition, can be raised by the respondent.

Therefore, we hold that the writ petition filed by the respondent is not

maintainable as against the show cause notice issued by the second appellant.

Accordingly, the order passed by the learned Judge is set aside and the matter

is remanded back to the second appellant to pass appropriate orders on the