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ST - Very initiation of proceedings by issuance of SCN has been held to be bad in law, therefore, when adjudication itself was set aside assessee is entitled to refund: HC

By TIOL News Service

CHENNAI, NOV 14, 2017: IN the instant Civil Miscellaneous Appeal, the Commissioner of Central Excise, Puducherry Commissionerate, Pondicherry, appellant herein has challenged the order of refund.


The respondent assessee manufactures pipes and had utilised the service of Goods Transport Operators during the period from 16.11.1997 to 01.06.1998 but failed to pay service tax thereon.

The department issued a SCN by invoking the extended period of limitation, u/s 73 of the FA, 1994, demanding tax with interest and proposed to impose penalty for the delay in payment.

The adjudicating authority dropped the proceedings vide Order-in-Original dated 06.07.2004. However, the Revisional Authority, CCE, Puducherry, proposed to hold that the assessee is liable to pay service tax, in view of the retrospective amendments, brought to the FA, 1994, by the FA, 2003.

Accordingly, vide Order-in-Revision dated 30.11.2005, the assessee was held liable to pay service tax of Rs.8,15,650/-, on the freight charges paid by them, from 16.11.1997 to 01.06.1998.

This decision was challenged by the assessee in Appeal No. S/103/2006, before the CESTAT, Chennai.

In the meanwhile, on the strength of the decision of the Tribunal in  L.H.Sugar Factories Limited - 2004-TIOL-39-CESTAT-DEL, the assessee filed a refund claim on 13.07.2004.

In this case of LH Sugar Factories Ltd. , the Bench had held –

"…even the amended Section 73 takes in only the case of assessees who are liable to file return under Section 70. Admittedly, the liability to file return is cast on the appellants only under Section 71A. The class of persons who come under Section 71A is not brought under the net of Section 73. The above being the position show cause notices issued to the appellants invoking Section 73 are not maintainable.

9. We therefore come to the conclusion that the show cause notices issued to the appellants are not sustainable both under the provisions of Section 73 as it stood on the date of issue of show cause notice and also under the provisions as amended by Finance Act, 2003. In the result, we set aside the order impugned and allow the appeals."

Citing the Order-in-Revision dated 30.11.2005, the Deputy Commissioner rejected the claim.

However, the Commissioner (Appeals), vide O-in-A dated 05.09.2006, set aside the order of the Deputy Commissioner, against which, the department preferred an appeal in S/273/2006, before the CESTAT, Chennai.

In the matter of appeals filed by the assessee (against Revisionary order holding them liable to pay service tax) and that by the Revenue (against O-in-A allowing refund), the Single Member Bench of CESTAT had held thus –

Service Tax – Goods Transport Operator - The class of persons coming under Section 71A of the Finance Act, 1994 was not brought under Section 73 of the said Act and service tax was not recoverable under Section 73 from a recipient of GTO service - Assessee entitled for consequent relief of refund. (Para 3)

Assessee appeal allowed /Revenue appeal dismissed.

We reported this order 885, 886/08 dated 19.08.20082008-TIOL-2196-CESTAT-MAD .

In the present Civil Miscellaneous Appeal, the Commissioner of Central Excise, Puducherry Commissionerate, Pondicherry, appellant herein, has challenged the order of refund.

The following are the substantial questions of law -

(i) Whether the first respondent is justified in observing that service tax was not recoverable under Section 73 of the Finance Act, 1994 from a recipient of GTO service for the aforesaid period inasmuch as the show cause notice issued for the category of persons mentioned under Section 71A is rightly covered under Section 73 as explained above?

(ii) Whether the first respondent is justified in holding that the assessee had no liability to pay service tax, under Section 73 of the Finance Act, 1994, by following the apex Court's decision - 2005-TIOL-105-SC-ST in the case of L.H.Sugar Factories (supra) inasmuch as the liability is cast on the assessee, in terms of the amended provisions of Finance Act, 2000 & 2003 and the constitutionality of such amendments of the Finance Act, was upheld by the Apex Court in the case of Gujarat Ambuja Cement Ltd., (supra) and with reference to various case laws cited above?"

The Madras High Court inter alia observed –

++ In The  Commissioner of Central Excise, Puducherry Commissionerate, Pondicherry v. TEbma Shipyards Ltd., [C.M.A.Nos.3186 of 2008, 1066 of 2010, 3558 of 2008 and 660 of 2010, dated 24.10.2013], one of the orders challenged by the Commissioner of Central Excise, relates to the Final Order No.886 of 2008, dated 19.08.2008 , on the file of the CESTAT, Chennai, in the matter of  M/s.PSL Ltd, Madhuranthakam, Kancheepuram, the 2nd respondent herein. C.M.A.No.1066 of 2010  has been filed against the said order of the CESTAT, Chennai, wherein, the correctness of the adjudication order was tested…

++ While setting aside the adjudication order, a Hon'ble Division Bench of this Court, vide order, dated 24.10.2013, held as follows:

"8. As per the Finance Act, 2004, Section 73(1)(a) of the Finance Act was amended with effect from 10.09.2004 validating the notice issued to Goods Transport Operators Service recipients by removing the clause "the persons liable to file the returns under Section 70" from erstwhile Section 73 of the Finance Act. Therefore, the plea of the Department is that the show cause notices issued between 10.09.2004 and 13.11.2004 would be covered under Section 73(a)(a) of Finance Act, 1994. The learned Standing Counsel appearing for the Department submitted that show cause notices in respect of this period viz., 10.09.2004 and 13.11.2004, is valid.

9. As noticed above, the show cause notices in the present cases viz., C.M.A.No. 3186 of 2008 was issued on 10.01.2003, in C.M.A.No.3558/2008 was issued on 09.07.2002, in C.M.A.No.660/2010 was issued on 12.08.2002 and 09.04.2004 and in C.M.A.No.1066/2010, it was issued on 03.06.2002 . Out of the above said Civil Miscellaneous Appeal cases, the Department accepted the legal position and dropped the demand in respect of C.M.A.No.3558 of 2009 and C.M.A.1066 of 2010.

10. In the light of the above legal position, the very initiation of proceedings by issuance of show cause notice is bad in law. Accordingly, the order passed by the Customs, Excise and Service Tax Appellate Tribunal is justified. There is no ground to interfere with the order. Accordingly, the Civil Miscellaneous Appeals filed by the Department fails and the same are dismissed."

The High Court, therefore, concluded -

"When the adjudication itself has been set aside, the 2nd respondent is entitled for refund."

The Civil Miscellaneous Appeal is dismissed.

(See 2017-TIOL-2387-HC-MAD-ST)