RENUKA BOREWEL V. THE DEPUTY COMMISSIONER

WP/101940/2024

AI Insights

The case involves Renuka Borewel, who was engaged in drilling bore wells for agricultural purposes and did not register for service tax or pay the due tax for the financial year 2015-16. The tax authorities, based on income tax return data, issued a show cause notice for non-payment of service tax. The petitioner contended that their services were exempt under the negative list entry for agricultural services. However, the authorities argued that the petitioner was liable for service tax and penalties, invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994. The court dismissed the petition, supporting the authorities' decision and emphasizing the availability of an alternative remedy through the appellate authority.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 696182 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 26-06-2024
• Assessment Year: misc
• Other Referred Cases: M/s.Rishu Enterprise vs. Commissioner of CGST and Excise Debrugarh, M/s Luit Developers Private Limited vs. Commissioner of CGST & Central Excise, Dibrugarh
• Laws Referred To: Finance Act 1994, Constitution of India
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: SHIVARAJ BALLOLI
• Assessee Lawyers: YADAWAD SHRINIVAS
• Keywords: Extended Period of Limitation; Service tax; Negative List Entry; Agricultural Sector Exemption
• Section: 73(1); 77(1)(a); 77(2); 66(D)(3)

Judgement Text

" - 1 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 26TH DAY OF JUNE, 2024 BEFORE THE HON'BLE MR JUSTICE PRADEEP SINGH YERUR WRIT PETITION NO.101940 OF 2024 (T-RES) BETWEEN: RENUKA BOREWEL, NO.35, NEAR JAMBAGI PETROL PUMP, YARAGATTI ROAD, MUNUVALLI-591117, (R/BY MR. SHRI. VEERAPPAN KUMAR, AGE: 45 YEARS, AUTHORIZED SIGNATORY). … PETITIONER (BY SRI YADAWAD PRAMOD SHRINIVAS, ADVOCATE) AND: 1. THE DEPUTY COMMISSIONER, CGST AND CENTRAL EXCISE, BELAGAVI RURAL DIVISION, BELAGAVI, 1ST FLOOR, GST BHAVAN NO.71, CLUB ROAD, BELAGAVI-590001. 2. THE ASSISTANT COMMISSIONER CGST AND CE, 1ST FLOOR, BELAGAVI RURAL DIVISION, GST BHAVAN NO.71, CLUB ROAD, BELAGAVI-590001. 3. THE SUPERINTENDENT OF CGST AND CENTRAL EXCISE, GOKAK RANGE, RURAL DIVISION, BELAGAVI-591307. … RESPONDENTS (BY SRI SHIVARAJ S. BALLOLI, ADVOCATE FOR R1-R3) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO WRIT OF CERTIORARI QUASHING THE IMPUGNED ORDER OIO (ORDER IN ORIGINAL) SL.NO. BEL-EXCUS-000-DIV-RURAL-AC-RK-63-2022-23 (ST) UNDER DIN 20230257TC0000777C37 DATED 31/01/2023 PASSED BY THE RESPONDENT NO.2 U/S 73(1) OF THE ERSTWHILE BHARATHI H M Digitally signed by BHARATHI H M Location: HIGH COURT OF KARNATAKA DHARWAD BENCH Date: 2024.07.09 11:35:55 +0530 - 2 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 FINANCE ACT 1994 BY INVOKING THE EXTENDED PERIOD OF LIMITATION FOR THE PERIOD FROM APR 2015 TO MAR 2016 (2015- 2016) VIDE ANNEXURE-A AND ETC. THIS PETITION COMING ON FOR PRLIMINARY HEARING THIS DAY, THE COURT MADE THE FOLLOWING: ORDER Heard the learned counsel for petitioner Sri Pramod Yadwad and learned counsel Sri Shivaraj S. Balloli, for respondents No.1 to 3. 2. This petition is filed seeking to quash the impugned order passed by respondent No.2 under section 73(1) of the erstwhile Finance Act, 1994, by invoking the extended period of limitation for the period from April 2015 to March 2016, vide Annexure-A. It is the contention of learned counsel for the petitioner that petitioner is engaged in carrying out drilling of bore wells in agricultural lands pertaining to agriculturists, which falls under the exemption under negative list entry under section 66(D)(3) of the Finance Act of 1994 (‘the Act’ for short). 3. Respondent No.2, based on the income tax returns data supplied by the CBDT, came to the conclusion that petitioner was liable to pay service tax for the financial - 3 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 year 2015-16 but was not registered with the Service Tax Department and hence he was the party short listed for verification of service tax liability. 4. Petitioner had declared total gross receipt in their ITR for financial year 2015-16 from services to be Rs.65,09,825/- but did not obtain service tax registration and pay any service tax. The Range Superintendent, Gokak Range by his letter dated 24.09.2019, and letter dated 06.11.2020, requested the petitioner to furnish the documents, explain the reasons for non declaration of taxable services for the financial year 2015-16 for the amount of Rs.65,09,825/-. The petitioner, vide letter dated 18.11.2021 replied by stating that he was involved in the drilling of bore wells for agricultural work and done the Government work to Government departments and hence was under the impression that he is exempted from service tax for agricultural sector, hence did not obtain service tax number and pay any service tax. Therefore he was not liable to pay the service tax. - 4 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 5. Based on the reply, a personal hearing was held on 24.01.2023, an authorized representative on behalf of the petitioner appeared before the authorities, submitted the documents and took up the same contention that he was not liable for the service tax for the reasons as already mentioned hereinabove that he would fall under the category of negative list entry under section 66 of Finance Act, 1994. However, respondent No.2 came to the conclusion that on the income of Rs.65,09,825/- earned by the petitioner would fall within the category of services and he would be liable for payment of service tax and accordingly issued show cause notice for the period of 2015-16 to be correct. 6. The adjudicating authority found that the show cause notice issued demanding a sum of tax of Rs.9,43,925/- on the value of Rs.65,09,825/- raised in the show cause notice for the year 2015-16 is correct and sustainable. In view of the extended period which is beyond the period of 30 months, respondent No.2 confirmed the demand of service tax to the tune of Rs.9,43,925/- and also imposed penalty of Rs.10,000/- each under section 77(1)(a) - 5 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 and section 77(2) of the Finance Act, 1974. It is this order of the respondent, the petitioner is aggrieved, which is passed under section 73(1) of the erstwhile Finance Act, 1994 by invoking the extended period of limitation for the period for from April 2015 to March 2016. 7. It is the vehement contention of learned counsel for the petitioner that the very issue of show cause notice itself is bad in law as the petitioner would not fall in the category of section 73(1) of the Act for the extended period of limitation, which is beyond the period of 30 months and the show cause notice invoked under section 73(1) of the Act for the extended period would not apply to the petitioner in the case on hand as no cogent reasons are specified as stipulated in proviso to section 73(1) of the Act which is not forthcoming in the show cause notice. Therefore, the very jurisdiction of issuing the show cause notice under section 73(1) of the Act for the extended period is not sustainable in law and the same is illegal, erroneous and requires to be quashed. - 6 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 8. Learned counsel further contends that in the normal circumstances the show cause notice for any tax which is not been paid, levied or short paid or short levied or erroneously refunded could be issued within 30 months from the relevant date, whereby a notice is served to the person chargeable with the service tax. In this case, the same is not done within 30 months. An extended period is provided by virtue of the proviso to Section 73(1) of the Act, which says that where it falls within the category of the proviso A to E, the words 30 months should be read as five years. This is substituted by Finance Act 2016 dated 14.05.2016. 9. It is vehemently contended by learned counsel for the petitioner that the entire onus is now on the revenue to show cause that the petitioner would fall within the category of 73(1) of the Act extended period to be falling outside the category of 30 months and for an extended period i.e., five years. He relies on the master circular on show cause notice adjudication and recovery issued by the Government of India, Ministry of Finance, Department of Revenue, Central Board of Excise and Customs, dated the 10.03.2017, which - 7 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 he has annexed along with his written submission, which deals with the show cause notice and the demand made by the revenue in several situations. 10. Learned counsel for the petitioner brings to the notice of this Court the ingredients required for the extended period at 3.2 of the said circular, which reads as under: 3.2 Ingredients for extended period: Extended period can be invoked only when there are ingredients necessary to justify the demand for the extended period in a case leading to short payment or non-payment of tax. The onus of establishing that these ingredients are present in a given case is on revenue and these ingredients need to be clearly brought out in the Show Cause Notice alongwith evidence thereof. The active element of intent to evade duty by action or inaction needs to be present for invoking extended period. 11. He also relies on 3.6 of the circular where power to invoke extended period is conditional. It is vehement contention of learned counsel for the petitioner that the onus of establishing that these ingredients are present in a given case where it falls within the extended period is on the revenue and the ingredients needs to be clearly brought out in the show cause notice along with evidence thereof. The - 8 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 active element of intent to evade duty by inaction or inaction needs to be present for invoking the extended period. Hence, it is his contention that by invoking the extended period, the show cause notice does not specifically state or contain anywhere with regard to the mandate mentioned or contained under the proviso to Section 73(1) of the Act which is the requirement to be fulfilled for coming within the category of the extended period. 12. Under these circumstances, in view of these necessary mandatory requirements having not been fulfilled in the show cause notice issued by the revenue, the very issuance of show cause notice is bad in law and thereafter, the adjudication further by the revenue is further not sustainable. Hence, he seeks interference of this Court to quash the show cause notice as respondents are beyond jurisdiction to issue such a show cause notice or want for fulfillment of proviso to Section 73(1) of the Act. Under these circumstances, he seeks the interference of this Court. 13. Learned counsel also relies on two other judgment in the case of M/s.Rishu Enterprise vs. - 9 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 Commissioner of CGST and Excise Debrugarh passed by the Excise Tax Appellate Tribunal, Kolkata, in service tax appeal No.75509/2022. He relies on paragraph No.8 which reads as under: “8. In view of the judicial pronouncement of this Tribunal, we hold that merely on the basis of Form 26AS issued by the Income Tax Department, the demand of Service Tax is not sustainable against the appellant.” 14. In view of judicial pronouncement of this Tribunal, we hold that merely on the basis of form 26AS is issued by the Income Tax Department, the demand of service tax is not sustainable against the appellant under paragraph No.11. In view of this, we hold the impugned demand is not sustainable against the appellant on the basis of details provided by income tax department in form 26AS and the extended period of limitation is not invocable. 15. In the case of M/s Luit Developers Private Limited vs. Commissioner of CGST & Central Excise, Dibrugarh passed by the Customs Exercise Service Tax Appellate Tribunal, Kolkata, in Service Tax Appeal - 10 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 No.75792/2021, he relies on para No.11 which reads as under: 11. I also find force in the submission of the Ld Counsel for the appellant that figures reflected in Forrn 26AS cannot be used to determine Service Tax liability unless there is any evidence shown that it was due to a taxable service as held in Kush Constructions(supra). Also, figures shown to Income Tax authorities cannot be used to determine Service Tax as held in Synergy Audio Visual Workshop Pvt Ltd(supra) and Deluxe Enterprises(supra). 16. On these grounds he contends that merely relying upon the information from the income tax returns, the demand cannot be made and the show cause notice cannot be issued and adjudication could not have been made. Hence, he seeks for quashing of the show cause notice and consequently to allow his petition. 17. Per contra learned counsel representing the revenue has filed his detailed statement of objections and he contends that apparently it is not disputed by the petitioner that he is in the contract service of drilling service with the government departments and other agencies. Though he has - 11 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 filed income tax returns, he is not registered with the service tax department and he has not paid the service tax which is not in dispute. 18. Learned counsel further contends that in view of non payment of service tax, he was short listed for verification of the service tax liability by the revenue and accordingly, based on the ITR for the financial year 2015-16, show cause notice was issued to the petitioner for which he has replied and he was given a fair hearing, he was heard and adjudication was made. He has failed to explain the reasons with documentary evidence like bills, invoices, etc., for not getting and registering service tax registration and for non payment of the service tax which is due to the revenue. Accordingly, after due process of law, invoking the proviso to Section 73(1) of the Act for the extended period beyond 30 months, the show cause notice is issued and after giving a fair opportunity of hearing, an adjudication order came to be passed against the petitioner by directing the petitioner to pay the service tax and also the penalty. The primary objection of learned counsel for the revenue is that - 12 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 the petition itself is not maintainable. In view of a fact that there is an alternative efficacious remedy available under Section 85 of the Finance Act 1994. He also contends that the arguments canvassed by the learned counsel for the petitioner would be unsustainable in law, both on facts and law as he has not disputed that he is an income tax assessee. He has also not disputed that he is providing services of conducting drilling machine to the agencies and government departments and he would fall within the bracket of the service tax to be paid and to be registered under the service tax. 19. The main contention of argument of the learned counsel for petitioner that the revenue could not have issued show cause notice under proviso to Section 73(1) of the Act which is beyond the period of 30 months by showing proper reasons as provided under the proviso, would probably not be applicable to the petitioner on hand, for the reason that there is clear suppression of facts and willful misstatement by the petitioner in not registering himself under the service tax and not paying the service tax and there is a - 13 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 contravention of the provisions of the chapter to evade payment of service tax. These requirements are enshrined in the proviso to Section 73(1) of the Finance Act 1994. 20. The further argument put forth by the learned counsel for the petitioner that merely on the basis of information secured from the ITR or the tax department, proceedings could not have been initiated against the assessee, would also not be sustainable for the reason that on the basis of information obtained from the ITR, the revenue issued show cause notice, called for reply, which was furnished, a fair opportunity of hearing was given to the assessee/petitioner, asking him to produce necessary documents and details wherein the only defence taken by the petitioner was that he was under the impression that he would not fall within the category of registration under the service tax and therefore, he is exempted from making payment of service tax, is not sustainable hence negatived. 21. To rebut this argument of the revenue, it is a vehement contention of learned counsel for the petitioner that in the show cause notice issued by the revenue, there is - 14 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 no specific plea or specific averment made as to for what reason and what purpose as contemplated under the proviso to section 73(1) of the Act, the show cause notice is issued. Nothing specific is mentioned as contained in the proviso to 73(1) for the petitioner to answer or rebut by way of rebuttal to the revenue, but however, the reply to the show cause notice is given by the petitioner. Admittedly, the show cause notice is issued under 73(1) of the Finance Act to the petitioner and why the imposition of penalty for failure to take service tax registration and payment of tax should not be imposed on the petitioner. These are forthcoming at paragraph No.8 of the order passed by the authority vide Annexure-A. The reply is also reproduced at paragraph No.9 where the petitioner has stated that he was under the impression that service tax is exempted for agricultural sector. Hence, he has not obtained service tax number and has not paid any service tax and therefore, he would not be liable to pay any service tax. Having noted these relevant details in the order impugned while providing the show cause notice and an opportunity to reply and recording - 15 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 the personal hearing, the impugned order came to be passed by the revenue, holding the petitioner to be liable for service tax to the tune of Rs.9,43,925/- for the period 2015-16 under the proviso to Section 73(1) of the erstwhile Finance Act, 1994 by invoking the extended period of limitation. 22. Having heard learned counsel for both the parties, this Court is of the opinion that to invoke the proviso to Section 73(1) of the erstwhile Finance Act of 1994, the necessary mandatory requirements are contemplated in the Act of 1994, which is ingrained in the proviso to section 73(1) of the Act. The same has been stated in the show cause notice with regard to the petitioner being liable to pay the service tax and why penalties should not be imposed except for narrating in detail with regard to the requirements as contemplated under proviso to Section 73(1) of the Act of 1994. 23. It is not the case of the petitioner that he was not provided an opportunity to reply and so also it is not his case that he was not given a personal hearing or opportunity of hearing. The petitioner was asked to provide details with - 16 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 regard to why he has not registered under the service tax and not paid the service tax. The answer to it is extracted in paragraph No.9 of the order, where he is stated that he was under the impression that he is exempted for payment of service tax and for agricultural sector and hence, he did not obtain service tax number and did not pay the service tax. Pursuant to which, an opportunity was given to the petitioner and even in the hearing, he had participated and same thing was narrated with regard to carrying on the drilling of bore wells for agricultural land and hence, he would not fall within the category of the service tax registration. 24. Therefore, it is apparently clear that once the show cause notice is issued under the proviso to Section 73(1) of the erstwhile Finance Act, invoking the extended period of limitation beyond the 30 months and once an inquiry is conducted, opportunity is given to file reply when adjudication is held the grounds whatever urged by the petitioner herein would have to be challenged by way of an appeal provided under the Act of 1994, rather than challenging the jurisdiction of the revenue for issuance of the - 17 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 show cause notice. It cannot be said that the revenue does not have the jurisdiction to issue show cause notice under Section 73(1) of the Act as it is not specified in detail with regard to the requirement under proviso to Section 73(1) of the Act. As subsequently in the course of the show cause notice and the hearing, the opportunity was provided to the petitioner to substantiate the same by answering the requirement of not registering himself under the service tax registration and payment of service tax. 25. Learned counsel for the revenue has relied on the judgment of the Hon’ble Apex Court in the case of State of Maharashtra and others vs. Greatship (India) Limited reported in AIR 2022 SC 4408 wherein the learned counsel for the revenue has relied on paragraph No.6 which reads as under: 6. The Act has been enacted with a view to provide a special procedure for recovery of debts due to the banks and the financial institutions. There is a hierarchy of appeal provided in the Act, namely, filing of an appeal Under Section 20 and this fast-track procedure cannot be allowed to be derailed either by taking recourse to proceedings Under Articles 226 and 227 of the Constitution or by filing a - 18 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 civil suit, which is expressly barred. Even though a provision under an Act cannot expressly oust the jurisdiction of the Court Under Articles 226 and 227 of the Constitution, nevertheless, when there is an alternative remedy available, judicial prudence demands that the Court refrains from exercising its jurisdiction under the said constitutional provisions. This was a case where the High Court should not have entertained the petition Under Article 227 of the Constitution and should have directed the Respondent to take recourse to the appeal mechanism provided by the Act. 26. After giving thoughtful consideration to the submissions made by the learned counsel for both parties, it is apparently clear that the invocation of the writ jurisdiction under Article 226 of the Constitution of India whether could be entertained when there is an alternative efficacious remedy of appeal available under this statute. It is not in dispute, but in the present case, Section 85 of the Act, 1994 provides for appeal against any orders passed by the authorities. If at all the petitioner is aggrieved by the order of the authorities, he would have to approach the appellate authority rather than invoking the writ jurisdiction. - 19 - NC: 2024:KHC-D:8686 WP No. 101940 of 2024 27. I do not find any good ground made or cogent reasons of the revenue having not provided sufficient cause and reasons to invoke the proviso to section 73(1) of the Act, 1994, for the extended period of limitation. Under the circumstances, I pass the following: ORDER i) The petition is dismissed. ii) If any appeal is already preferred or filed by the petitioner, the appellate authority shall deal with the matter strictly in accordance with law. Sd/- JUDGE MRK-para 1 to 5. SSP-para 6 to end. CT:BCK LIST NO.: 1 SL NO.: 29 "