By TIOL News Service

AHMEDABAD, DEC 09, 2014: THE petitioner is a proprietary concern and is engaged in the business of construction and related services &enjoys Service Act registration for such purpose.

They had executed work order for laying, installation, construction, testing and commissioning of Polyethylene Gas Pipeline's network between April 2008 to September 2012. According to the petitioner, service tax liability for such execution of work was also discharged. The DGCEI, Ahmedabad Zonal Unit, however, initiated inquiry against the petitioner with respect to such liability by issuing summons dated 26.02.2013 under Section 14 of the CEA, 1944, which was served on the petitioner on 04.03.2013. Another summon was also issued on 28.2.2013 but served to the petitioner on 05.03.2013.

In response to such summons, the petitioner appeared before the authority. Statements were recorded, various documents were collected and SCDN was issued to the petitioner on 21.10.2013.

In the meantime, w.e.f. 10.05.2013, the ST VCES, 2013 made its appearance by the Finance Act, 2013.

The petitioner made a declaration on 24.12.2013 declaring total tax dues of Rs.14,85,460/ and also depositing the 50% tax dues of Rs.7,42,730/-. Along with covering letter dated 24.12.2013, the petitioner also enclosed a copy of summons dated 26.02.2013 received from the department.

The applicant petitioner was issued a SCN calling upon to explain as to why the declaration made under Section 106 of the FA, 2013 should not be not rejected. This was on the premise that by virtue of issuance of summon dated 26/28.02.2013, inquiry or investigation was already initiated before 01.03.2013 and, therefore, in terms of Section 106(2)(a) of the FA, 2013, the petitioner was not entitled to make a declaration of tax dues.

This is what s.106(2) reads -

(2) Where a declaration has been made by a person against whom,-

(a) an inquiry or investigation in respect of a service tax not levied or not paid or shortlevied or shortpaid has been initiated by way of-

(i) search of premises under section 82 of the Chapter; or

(ii) issuance of summons under section 14 of the Central Excise Act, 1944 (1 of 1944), as made applicable to the Chapter under section 83 thereof; or

(iii) requiring production of accounts, documents or other evidence under the Chapter or the rules made thereunder; or

(b) an audit has been initiated,

and such inquiry, investigation or audit is pending as on the 1st day of March, 2013 then, the designated authority shall, by an order, and for reasons to be recorded in writing, reject such declaration.

The petitioner opposed the SCN by filing a reply dated 27.01.2014. It was contended that the summons though issued on 26.02.2013 was served only on 04.03.2013 and, therefore, in view of s.37C of the CEA, 1944 it cannot be said that the summons was served prior to 01.03.2013 &, therefore, inquiry or investigation cannot be stated to have been initiated. Inasmuch as initiation of inquiry can be completed only upon service of summon, under Section 14 of the CEA, 1944 & not by merely issuance of summons.

The Asstt.Commr., by order dated 23.06.2014, rejected the petitioner's contention and disallowed the petitioner's application for declaration under the ST VCES, 2013.

This order is challenged by the petitioner in a Special Civil application before the Gujarat High Court. The petitioner prayed for consequential relief permitting the petitioner to deposit remaining 50% of the tax dues as per the declaration and for acceptance of such declaration.

The counsel for the Revenue submitted that what Section 106 of the Finance Act, 2013, requires is issuance of summon and not service thereof.Since in the present case the summon was issued before 1.03.2013 the Petitioner's case was covered by the exclusion clause contained in the Scheme of 2013.

The High Court after extracting the relevant provisions of the ST VCES, 2013 Scheme inter alia observed -

++ Under Clause (a), an inquiry or investigation shall be stated to have been initiated by way of any of the three modes referred to in three sub clause thereof. In particular, Sub clause (ii) refers to issuance of summons under Section 14 of the Central Excise Act, 1944. Thus, if summons under Section 14 of the Central Excise Act, 1944 has been issued; for the purpose of Clause (a) inquiry or investigation in respect to the service tax not paid shall be stated to have been initiated.

++ What is, therefore, sufficient for the application of Sub section (2) of Section 106 is issuance of summons under Section 14 of the Central Excise Act, 1944. The other condition required to be verified is whether such an inquiry or the investigation or an audit was pending as on 01.03.2013. Sub clause (ii) thus refers to issuance of summons and not to service of summons on the petitioner. In other words, therefore, if summon under Section 14 of the Central Excise Act, 1944, is issued, an inquiry or the investigation as referred to in Clause (a) of Sub section (2) of Section 106 can be stated to have been initiated.

++ Admittedly in the present case, summons were issued on 26 and 28.2.2013. Mere fact that summons were served after 01.03.2013 shall be of no consequence. Thus the first condition of Section 106(2) that such an inquiry or the investigation was initiated before 1.3.2013 was satisfied. The later condition of such an inquiry or the investigation being still pending as on 01.03.2013 was also satisfied. The designated authority was justified in rejecting the declaration of the petitioner.

++ The said provision (s.37C of CEA, 1944) would not have any application on the interpretation of Sub section (2) of Section 106 of the Finance Act.

++ Equally, merely because the petitioner filed a declaration and summons along with such declaration would not compel the department to accept the same dehors to the provisions of the scheme. Mere filing of the declaration and disclosure of issuance of summons before 01.03.2013 do not give any vested right to the petitioner that such a declaration must be accepted irrespective of the provisions of the scheme.

The petition was dismissed.

In the matter of the prayer of the petitioner for refund of the 50% tax dues paid, the High Court observed that it was open for the petitioner to apply to the authority for such purpose and if such request is rejected for some reasons, it will be open to agitate the same before the appropriate forum.

(See 2014-TIOL-2175-HC-AHM-ST)