Confirmation of demand on different ground without hearing

PJ/Case Study/2011-12/18

CASE STUDY

Prepared By:
CA Pradeep Jain,
Sukhvinder Kaur, LLB [FYIC]
And Megha Jain, B. Com

Introduction: -

“No man should be condemned unheard” is one of the Principle of Natural Justices which are unwritten law but are always present in all the legal provisions and are required to be followed. Otherwise justice will not be served. In the tax matters, the giving of opportunity of hearing to the assessee is of utmost importance, otherwise he will be saddled with liability to pay duty/tax without even being heard. Therefore, the said principle is required to be followed strictly. In the case under study, hearing was given only in respect of one SCN out of 6 SCNs and the impugned order was passed on the basis of a ground on which no averments were made by the assessee.

M/s Tirupati Fibres & Industries Ltd v/s Assistant Commissioner, Jodhpur
[Order-In-Appeal no. 204(CB)ST/JPR-II/2011, Dated: 25.04.2011]

Brief facts of the case: -

- Appellant-assesee is a manufacturer of yarns. He was registered with BIFR and provided his factory under an agreement for operation to M/s Marudhar Yarn (P) Ltd.

- Department alleged that the said operation agreement fall in category of “Banking & Other Financial Services” as the amount was paid on monthly basis during the period from May 2005 to March 2009. It was alleged that the Appellant were required to pay service tax which they have not paid.

- Six show cause notices were issued between 2006 to 2009 demanding service tax with interest and imposition of penalty was also proposed. In five show cause notices, the demand was given under “Banking and financial services” and last show cause notice was given under “Renting of immovable property”.

- Personal hearing was held only in respect of one show cause notice dated 17.10.2008. No hearing was held for the remaining 5 show cause notices.

- The Adjudicating Authority passed order in respect of all 6 show cause notices wherein the demand of service tax by classifying the service under “Banking and other financial services” was dropped. But the last show cause notice, the Adjudicating Authority confirmed the demand of service tax under the category of Renting of immovable property has been upheld.

- Aggrieved by the impugned order-in-original to the extent it confirms the demand of service tax under Renting of Immovable property, appellant filed appeal before the Commissioner (Appeal).

Appellant’s Contention: -

The appellant made the following submissions before the Commissioner (Appeal) as under:

- That the impugned order in original has been passed in respect of six show cause notices, out of which personal hearing has been granted in respect of only one show cause notice dated 17.10.2008. For the remaining show cause notice no personal hearing has been granted to them. It was submitted that it has been held in various courts of law that an order passed without granting personal hearing is not justified and is liable to be withdrawn. It has been held by the highest Court of India that the order passed without giving personal hearing is not justified. It has been held in the case of AndhraAgencies v/s Stateof AP [2008-TIOL-228-SC-CT]that the decision passed without giving personal hearing is not sustainable. It was submitted that the analysis of these decisions makes it clear that an order passed without giving effective opportunity of being heard is not legally sustainable.

- Appellant reiterate that the hearing was granted to them in respect of only one show cause notice dated 17.10.2008, in which demand was proposed to be raised under the category of banking and other financial services. But no submissions were given in respect of demand raised under the category of renting of immovable property services. Therefore, the impugned demand being confirmed without giving opportunity of being heard is not justified and is liable to be set aside.

- Appellant further submit that if the opportunity of personal hearing would have been granted to them, they would have made their submissions with regard to renting of immovable property.

- Without prejudice to the above stated grounds, the appellant submit that the “Renting of immovable property services” were brought under the category of taxable services w.e.f. 01.06.2007. The definition of taxable service in this case was given in section 65(105)(zzzz) was referred and it was submitted that a bare study of this section clarifies that only services rendered in relation to renting of immovable property were chargeable to tax under service tax. Renting by itself is not chargeable to service tax. Since the services provided by the appellant is renting which is not taxable under this category.

- The appellant submitted that Central Government had issued Notification No. 24/2007-ST dtd. 22.5. 2007 which reduced the taxable value of this service by the value of property tax levied on such property by the local authorities. As such, by virtue of this notification, taxable value of this service was to be gross value less property taxes. This is another issue. The relevant part of this notification is that the notification also used the words “taxable service of renting immovable property ”, thereby giving an indication that renting itself is a taxable service, even though such a thing was not explicitly mentioned in section 65(105)(zzzz). Later on, CBEC circular no. 98/1/2008 – ST dtd. 4.1.2008, which was issued for clarifying the matters pertaining to the Commercial and industrial construction services once again tried to convey that “right to use immovable property” is leviable to service tax under the renting of immovable property service.” The language contained in both of the above circular and notification started a phase of litigation between the assessees and the Government. It was alleged that the government has issued the circular and notification that are beyond the scope of section 65(105)(zzzz) of the Finance Act, 1994 and that the service tax net is being extended to the service tax on renting of immovable property instead of services in relation to renting of immovable property. Since the impugned order is also confirming the demand that is going beyond the provisions of the charging section, it is not sustainable and is liable to be quashed.

- It is further submitted that Hon'ble Delhi High Court in case of Home Solutions Retail India Ltd and Others Vs. Union of India [2009] 20 STT 129 (Delhi)] had delivered a landmark judgment on 18 th April 2009 on the above issue. This judgment quashed the rights of the Government to recover service tax on renting of immovable property. Central Government appealed against the Delhi High Court order to the Supreme Court and Supreme Court had admitted the SLP. However Supreme Court declined to grant any interim stay to the Government.

- In continuation to above it is submitted that during pendency of the SLP, CBEC issued an instruction no. F. No 336/10/2009 – TRU dtd. 15th July 2009 wherein it was informed to the service tax officials that the Department had filed an appeal against the said order of the Delhi High Court, and the dispute has not reached finality. As such, it was instructed to continue with collection and recovery of service tax from such assessees. Against these instructions, fresh writ petitions were filed before Delhi High Court. Hon’ble High Court in the case of SSIPL Retail Ltd. v. UOI [2010] 24 STT 571 had held that during the pendency of the SLP, the judgment of the High Court was applicable and in the absence of any stay from the Supreme Court, the service tax department was bound to follow the same. As such, the service tax department cannot pursue the assessees for payment of service tax. As such, due to applicability of decision of hon’ble High Court; action cannot be taken against the appellant for recovery of service tax on the impugned services. Therefore, the demand raised in the impugned order in original has no legal validity as such it is liable to be quashed.

- Further, in the Finance Bill 2010, it is proposed to amend the section 65(105) (zzzz) retrospectively w.e.f. 1.7.2007 thereby specifically levying service tax on renting on immovable property. This is done to nullify the effect of judgment of Hon’ble High court. It is proposed that the amendment will have effect as if it was so right from the beginning of the levy, irrespective of anything contained in any judgment, decree or order of any court, tribunal or other authority. As such, it is aimed so as to levy the service tax on renting of immovable property as such. But the recent judgments have once again given favour to the assessees. The petition has been filed with Delhi High Court for challenging the retrospective amendment proposed by the Finance Bill. The hon’ble high court has granted stay in this case of Home Solution Retail Ltd v. Union of India and others 2010-TIOL-341-HC-DEL-ST. Moreover, the AP High Court, in the case of Trent Limited v. Union of India and Others 2010-TIOL-402-HC-AP-ST, has stayed the recovery of service tax for the period June 1, 2007 to March 31, 2010. As such, there is ample confusion regarding the matter, so benefit of doubt should be extended to the appellant and the impugned order should be quashed.

- The appellant submit that the demand has been confirmed vide impugned order in original without giving personal hearing which is void ab intio as it has been done by denying the principle of natural justice. Further, even if the submissions of the appellant were heard (if personal hearing was given), then too the case was not sustainable. It is ample clear from the submissions made here above in respect of renting of immovable property services. As such, the confirmation of demand of service tax under the category of renting of immovable property services is not at all sustainable and is liable to be quashed. The appeal should therefore be allowed.

Issue:

Whether the impugned order confirming the demand of service tax on the basis of a ground on which assessee was not given opportunity to submit his averments and was not given personal hearing would be sustainable?

Judgment of the Appellate Authority:-

The learned Commissioner (Appeal) held as under:

- The Commissioner (Appeal) observed that in this case 6 show cause notices have been decided by Adjudicating Authority out of which proceedings under five show cause notices have been dropped for demand of tax under "Banking & other Financial Services" for the period from May 2005 to March 2008 being not leviable as demanded under wrong category of service. However, demand under show cause notice dated 13.08.2009 for the period from April 2008 to march 2009 raised for "Renting of Immovable property Services" has been confirmed.

- It was noted that the appellant has contended on ground of natural justice that personal hearing was granted in respect of only one show cause notice dated 17.10.2008 in which demand was proposed to be raised under category of Banking & Others Financial Services" and submission were also pertaining to this show cause notice only. As such no submissions were given in respect of demand raised under the category of "Renting of Immovable Property Services". Therefore, the impugned order confirmed demand without giving opportunity of being heard is not justified and is liable to be set aside.

- It was noted that the appellant has also informed that perusal of all the five Show Cause Notices confirm that show cause notices were issued for providing "Renting of Immovable Property Services" and proper reply submitted by the advocate vide letter dated 15.09.2010. This information received from Deputy Commissioner, Central Excise, Jodhpur was contrary to the facts and findings under the impugned order in as much as the Adjudicating Authority has dropped the demands on the ground that Show Cause Notices have been issued for "Banking and financial Services" which is wrong.

- It was held thatpPerusal of all the five Show Cause Notices reveals that these were issued for the demand of Tax under category of "Banking & Financial Services" and not under the category of "Renting of Immovable property services". Thus findings of the Adjudicating Authority are found to be correct as against the information given by Dy. Commissioner, C. Excise Division, Jodhpur vide his letter dated 3.3.2011.

- The Commissioner (A) found that personal hearing notices were issued were in respect of show cause notices where in demand were issued in respect of 'Banking & other Financial Services" and hearing, held for the same as submission made in show cause notices were reiterated as asserted by appellant and no reference as to the hearing on "Renting of Immovable Property Services" is found either in record of hearing or in para 4 of impugned order where submission made during hearing are discussed. As such demand in respect of Renting of Immovable Property Services was confirmed without giving any chance of proper hearing and no submissions were made out by appellant on the said service which is against the right of appellant to personally explain their case and is in violation of natural justice.

- In the end, it was held that the impugned order is not sustainable on the said ground alone.

Decision:-

Appeal allowed.

Conclusion:-

It was rightly held by the learned Commissioner (Appeal) that when hearing in the matter was given on the basis of one ground then the order could not have been passed deciding the matter on the basis of an altogether different ground. This amounts to giving a decision without giving an opportunity of hearing to the assessee to give his submissions on the ground based on which impugned order has been passed. This is clear violation of principles of natural justice and such an order passed by violating the said principles is not sustainable in the eyes of law.

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03 August 2011

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PJ/CASE STUDY/2011-12/18
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