Exercise of Writ Jurisdiction at Show Cause Notice stage

PJ/Case Laws/2010-11/1039

Case: M/s L R Sharma & Co v/s Union of India & ORS

Citation: 2011-TIOL-07-HC-DEL-ST

Issue:-Whether the writ jurisdiction can be exercised at the stage of show cause notice itself? Whether the public utility services like laying of pipelines for carrying of drinking water, sewerage, untreated effluent water for Delhi Jal Board will be liable for service tax?

Brief Facts:- Petitioner is engaged in laying of long distance pipelines for the purpose of carrying of drinking water, sewerage, untreated effluent water for Delhi Jal Board. Department alleged that the said service was a taxable service and Petitioner was liable to pay service tax for providing the said service.

Petitioner had made a representation to the Revenue that they were not liable to pay the service tax as the activities carried on by it pertain to the public utility service on behalf of the Delhi Jal Board and Delhi Metro Rail Corporation Ltd. Representation was rejected. Thereafter, writ petition was filed and order was passed providing that as this was only a preliminary inquiry and not demand, taking of coercive action did not arise. It was also provided that the concerned authority was required to give an opportunity of hearing to the petitioner.

Thereafter, Revenue issued show cause notice to the petitioner. Against the issuance of show cause notice, petitioner has filed writ petition before the High Court.

Petitioner’s Contentions:- Petitioner has prayed for issue of writ of Certiorari for quashing of the show cause notice on the ground that the same is without jurisdiction and violative of the provisions of law and further to issue a writ of Mandamus/ direction declaring that the provisions is not liable to pay service tax in respect of laying of long distance pipelines.

Petitioner submitted that the notice to show cause is absolutely vulnerable as the levy is totally impermissible. Reference is made to various provisions of the Finance Act, 1994 and to the Circular No. 80/10/2004-ST which has clarified, as pleaded, that the construction of the buildings which are used by government organization established for charitable or philanthropy purposed, etc. are non-commercial in nature and would not attract service tax.

Petitioner also referred to the amendment that was incorporated in the Finance Act, 1994 by the Act by introducing another taxable service as “Works Contract” of the Finance Act, 1994 and in the service tax vide notification No. 23/2007 dated 22.5.2007. Also drawn inspiration from the Circular No. 123/5/2010-TRU dated 24.5.2010 whereby the certain aspects have been clarified.

It was urged by the petitioner that in order passed pursuant to their representation that no coercive action would be taken against them. It was submitted that despite of this order, Revenue have taken a decision directing the petitioner to submit various documents including ST-2 registration certificate, complete contracts for all works done, year wise bills for providing and copy of audited balance sheets for the period 2005-06 to 2009-10.

It is contented that the same has been demanded regardless of the said order passed by this court and a show cause notice has been issued. Petitioner submitted that the show cause notice is barred by limitation. Petitioner has relied upon the decisions rendered in A. Suresh v. State of Tamil Nadu [AIR 1997 SC 1889], Gupta Sanitary Stores v. Union of India [AIR 1985 Del. 122, 132 (FB)], Sub-Divisional Inspector of Post, Vaikam and others v. Theyyam Jospeh and others [AIR 1996 SC 1271], Baktawar Singh Bal Kishan v. UOI & Ors. [(1988) 2 SCC 293], CC, Calcutta & Others v. Indian Oil Corporation and another [(2004) 3 SCC 488], ITW Signode India Ltd. V. Collector of Central Excise [2003 (158) E.L.T. 403 (SC)], Hindustan Poles Corporation v. Commissioner of C. Ex., Calcutta [2006 (196) E.L.T 400 (SC)] andState of Punjab v. Bhatinda District Co-op. Milk P. Union Ltd. [2007 (217) E.L.T. 325 (SC)].

Respondent’s Contentions:- Respondent submitted that in the notice to show cause the statutory provisions have been referred to and a prime facie opinion has been formed but that does not necessarily mean the stand and stance put forth by the petitioner has been totally brushed aside. Moreover, an opportunity of hearing has been extended in the show cause notice to the petitioner.

Reasoning of Judgment:- The High Court found that the plea of the Petitioner is that it is not required to get itself registered and is not liable to pay service tax. There can be no bar that the petitioner cannot contented before the statutory authority that it is not liable to pay the service tax and hence, there is no necessity for getting itself registered.

Further, the High Court perused the judgment relied upon by the petitioner in the cases of ITW Signode India Ltd, Bhatinda District Co-op Milk P. Union Ltd and Hindustan Poles Corporation.

On a perusal of the aforesaid decisions, the High Court was of the opinion that the present notice to show cause is not a one where the question of limitation can be decided straightaway on law without adverting to intrinsic facts. It is also not a case where it can be said that the revenue has sent an indiscriminate show cause without proper application of mind.

In the opinion of the High Court the issues involved in this case require to be adjudicated by the Adjudicating Authority and the show cause notice on the grounds urged cannot be lanceted. Liberty was granted for filing reply within prescribed time as the reply to the show cause has not been filed.

Decision:- Petition disposed off accordingly.

Comment:- The first issue in this decision is that the writ cannot be filed at the issuance of show cause notice. The alternative remedy is available with the party. The second issue is that whether the laying of pipelines for drinking water is chargeable to service tax under “Commercial construction services”. The wording under this service is that it should be for commerce or industry. But this is not for commerce or industry. The department has changed the stand now and says that it falls under installation and commissioning. There is no clause under these categories that it should be used for commerce or industry. Even while classifying under works contract also, they say that laying of pipeline is not construction service but it is installation of pipeline.

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PJ/Case Laws/2010-11/1039

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