Case Law Details

Case Name : GVPR Engineers Limited Vs Union of India (Telangana High Court)
Appeal Number : Writ Petition No.6090 of 2019
Date of Judgement/Order : 22/01/2021
Related Assessment Year :

GVPR Engineers Limited Vs Union of India (Telangana High Court)

Conclusion: Where there was non-consideration of material evidence by a statutory authority, judicial review by the High Court in exercise of it’s power under Art.226 of the Constitution of India is permissible, and existence of alternative remedy is not a bar for exercise of such power.

Held: Assessee-company was engaged in different business activities such as Commercial or Industrial Construction and Erection, Commissioning and Installation in several States with their registered office at Hyderabad. It had obtained registration under the Finance Act, 1994 at Hyderabad and was paying service tax on such taxable services. It contended that it was paying service tax on all taxable services and filing periodical returns with the Department showing turnover of taxable services and exempted services, service tax payable and service tax paid etc; that it mainly executes works contracts relating to laying of electrical transmission lines and construction of canals for State Governments and also supplies materials needed for execution of these projects by the clients; that it had shown the turnovers of both taxable and ‘exempted’ services in its ST-3 returns; that there was no requirement of showing the trading turnover and ‘non-taxable’ services (for which service tax was not applicable) in the periodical ST-3 returns as the said return did not contain any column for the same; and hence the same were not reflected in the ST-3 returns. However, Commissioner of Central Tax issued a show cause notice proposing to levy service tax, interest and penalty on assessee in relation to works contract service and legal consultancy service by placing reliance on audited statements of profit & Loss account of assessee along with notes for the period 2011-12 to 2014-15 and ST-3 returns filed by assessee. It was held that when there was no such column in ST-3 returns dealing with “non-taxable turnovers”, assessee could not be blamed by Department for not indicating the ‘non-taxable’ turnovers in the ST-3 return and it could not be penalized for the same ignoring all the other material evidence which had already been submitted by assessee to department on various occasions including the audit reports relating to the audit of their accounts, work sheets, etc. Where there was non-consideration of material evidence by a statutory authority, judicial review by the High Court in exercise of it’s power under Art.226 of the Constitution of India is permissible, and existence of alternative remedy is not a bar for exercise of such power. Therefore, the matter was remitted back for fresh consideration.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

In this Writ Petition, petitioner challenges Order in Original No.HYD-EXCUS-Audit-com24-18-19 dt.23.01.2019 passed by the Principal Commissioner of Central Tax, Service Tax Commissionerate, Hyderabad (4th respondent) confirming the service tax of Rs.37,16,16,555/- on exempted non-taxable services during the period 2011-12 to 2014-15.

2. Petitioner is a Company registered under the Companies Act, 1956 and is engaged in different business activities such as Commercial or Industrial Construction and Erection, Commissioning and Installation in several States with their registered office at Hyderabad. It had obtained registration under the Finance Act, 1994 at Hyderabad and was paying service tax on such taxable services.

3. Petitioner contends that it was paying service tax on all taxable services and filing periodical returns with the 1st respondent-Department showing turnover of taxable services and exempted services, service tax payable and service tax paid etc; that it mainly executes works contracts relating to laying of electrical transmission lines and construction of canals for State Governments and also supplies materials needed for execution of these projects by the clients; that it had shown the turnovers of both taxable and ‘exempted’ services in its ST-3 returns; that there was no requirement of showing the trading turnover and ‘non-taxable’ services (for which service tax is not applicable) in the periodical ST-3 returns as the said return does not contain any column df,mgrdsz,hy56juh for the same; and hence the same were not reflected in the ST-3 returns.

4. It contends that:

a) canal construction works undertaken by it as works contracts or EPC contracts are excluded from levy of service tax earlier under Section 65(105)(zzzza) of the Finance Act, 1994, which defines the term “works contract” as construction of canal for the State Government which is not primarily for the purpose of commerce or industry; that there was specific exemption in that regard vide Notification No.41/2009-ST dt.23.10.2019; and after 01.07.2012, the construction of canals was again brought into exemption vide Notification No.25/2012-ST dt.20.06.2012;

b) activity of construction of roads undertaken by the petitioner in the State of Jammu & Kashmir cannot be subjected to levy of service tax because the Finance Act, 1994 was not applicable to the said State and it was a non-taxable territory;

c) trading of electrical equipment to the State Transmission Corporations and supply of goods is amenable to taxation under the Telangana VAT Act, 2005 and not service tax, and that petitioner was paying VAT on supply of goods and filing returns regularly under the said Act.

5. Since construction of canals and roads and trading of goods were outside the purview of service tax, petitioner contends that it did not reflect the details of the turnover of these activities in the periodical ST-3 returns filed with the respondents regularly, but all these activities undertaken by the petitioner were known to the respondents. Reference is made in para 13 of the affidavit filed in support of the Writ Petition to several show-cause notices issued by respondents 3 and 4 regarding the non-taxable and exempted services undertaken by the petitioner which were dropped or the amount paid was refunded after the petitioner replied to the same.

6. It is the contention of the petitioner that the respondents were aware of all the activities of the petitioner and that the services rendered by the petitioner were not liable to service tax.

7. Petitioner contends that in response to a letter dt.03.04.2017 issued by the Dy. Commissioner of Central Tax (Anti-evasion) Group-III, Hyderabad (5th respondent), it had submitted work sheets showing details of non-taxable services provided by it and also copies of work orders / agreements and gave details of the same in para 14 of the affidavit filed in support of the Writ Petition.

8. Petitioner has also filed as Annexure P.10, a letter dt.10.04.2017 submitted by it to the 5th respondent along with a work sheet showing the details of turnover in the Balance Sheet and ST-3 returns and the turnovers of exempted services and trading turnover. In the said letter, the petitioner pointed out inter-alia that the supply portion of the contracts in the ST-3 returns were not shown because the said return did not contain any provision for the same; and that all records of petitioner had been audited by March, 2017 for the period 2012-13 to 2014-15 and during the course of audit also, petitioner had submitted all the contracts/agreements undertaken for the services rendered and project-wise details up to financial year 2014-15. It contended that it was the duty of the 5th respondent to verify whether the turnovers were exempted or not and show-cause notice ought not to have been issued only on the basis of turnovers reflected in the balance sheet. It was also pointed out that there was no suppression of facts either.

9. However, the Commissioner of Central Tax (3rd respondent) issued a show cause notice dt.24.04.2017 proposing to levy service tax, interest and penalty on the petitioner in relation to works contract service and legal consultancy service by placing reliance on audited statements of profit & Loss account of the petitioner along with notes for the period 2011-12 to 2014-15 and ST-3 returns filed by the petitioner. Later, through a corrigendum, the adjudicating authority was changed from the 3rd respondent to the Principal Commissioner of Central Tax, Hyderabad GST Commissionerate (4th respondent).

10. A detailed reply dt.17.10.2017 (Annexure P5) was filed by the petitioner reiterating the stand taken by it in Annexure P10-Reply dt.10.04.2017,

11. According to the petitioner, during the course of personal hearing on 07.01.2019 before the 5th respondent, petitioner had stated inter-alia that the impugned notice was issued basing on Balance Sheet figures which contain values of exempted service, such as construction of canals and roads, though these details were submitted prior to the issue of show cause notice; that petitioner was paying service tax regularly on taxable services and filing returns also; that its records are regularly audited and notices were issued for the subject period also; and issuance of the show cause notice without making any enquiry and verifying the tax is irregular.

12. On 23.01.2019, the impugned order was passed by the 4th respondent confirming the demand of service tax as proposed in the notice and imposing interest and a penalty equal to the service tax under Section 78 of the Act.

13. This order is challenged in the Writ Petition.

14. Counsel for the petitioner contends that the 4th respondent had acted in an arbitrary manner and made a demand for tax without jurisdiction and so the Writ Petition is maintainable notwithstanding the availability of an alternative remedy as held in Sanghi Polyesters Limited v. Supdt. of Central Excise1.

15. Counsel also contended that the only ground taken by the 4th respondent for demanding the duty is mentioned in para 15.2 of the impugned order – failure of petitioner to produce documents to substantiate its claim that the services were exempted by properly submitting relevant copies of documents such as work orders, etc., and that petitioner had also failed to declare exempted category of its activities in the ST-3 returns; that the documents were submitted by petitioner to the respondents on more than one occasion and the officers of 3rd and 4th respondents conducted searches and also audits at the office of the petitioner as admitted in the impugned order itself (para 2 of the Order-in-Original dt.23.01.2019); that the 4th respondent had never called for any additional documents or information during the course of adjudication and even during the course of personal hearing when the petitioner had explained that he was not required to pay service tax since it provided non-taxable and exempted services; and all necessary evidence was produced before the 5th respondent and also in reply to the notice issued by the 3rd respondent.

16. According to the petitioner, in the ST-3 return there is no column for “non-taxable services” though there is a column for “exempted services”, that there is a distinction between the two and the petitioner cannot be faulted by the 4th respondent for not indicating in the ST-3 returns, the turnover relating to trading activity in goods or construction of canals and roads, which are in the non-taxable category.

17. According to the petitioner, in the letters addressed by it, it had explained the difference between its turnover as per the Balance Sheet and ST-3 returns and other documents, but the same had not been considered by the 4th respondent.

18. In the counter filed on behalf of the respondents, a stand is taken that in ST-3 returns, there is a specific column for “exempted services” and the petitioner is not correct in contending that such a column is not there in the ST-3 returns.

19. But, the Additional Standing Counsel for Union of India, Sri M.Vijay Kumar Goud, does not dispute that there is no column in ST-3 form dealing with “non-taxable turnovers” under the Finance Act, 1994, such as :

(a) turnover relating to supply of goods taxable under the VAT Act of electrical equipment to State Transmission Corporation;

(b) turnover relating to construction of roads in the State of Jammu & Kashmir because the Finance Act, 1994 was not extended to the said State, and

(c) turnover relating to construction of canals not primarily constructed for the purpose of commerce or industry,

which were also excluded from the levy of service tax prior to 01.07.2012 through Notification No.41/2009/ST dt.23.10.2009, and even subsequent to 01.07.2012 vide Notification No.25/2012-ST dt.20.06.2012.

20. When there is no such column in ST-3 returns dealing with “non-taxable turnovers”, petitioner cannot be blamed by the respondents for not indicating the ‘non-taxable’ turnovers in the ST-3 return and it cannot be penalized for the same ignoring all the other material evidence which has already been submitted by the petitioner to the respondents on various occasions as mentioned in para 13 of the affidavit filed in support of the Writ Petition and also the letters dt.10.04.2017 and dt.17.10.2017 including the audit reports relating to the audit of their accounts, work sheets, etc.

21. The 4th respondent ought to have examined the said material which was already available with the 1st respondent-department to test the petitioner’s defence i.e., that for the financial year 2011-12, petitioner had executed only irrigation and canal projects, which were exempt vide Notification No.41/2009/ST dt.23.10.2009, and that from 2012-13 onwards, petitioner was executing electrical works also and was discharging service tax liability on the taxable turnover, and the difference between the Balance Sheet and the ST-3 returns is because of this reason.

22. In our opinion, the 4th respondent could also have asked the petitioner to furnish such material, if he could not find it in the file during the course of the personal hearing, and he could not have penalized the petitioner on the said ground. Such action of the 4th respondent vitiates the impugned order.

23. In M.P. Special Police Establishment v. State of M.P.2 the Supreme Court held that non-consideration of material on record by an authority would vitiate the exercise of power by the said authority. It declared:

“30. It is well settled that the exercise of administrative power will stand vitiated if there is a manifest error of record or the exercise of power is arbitrary. Similarly, if the power has been exercised on the non-consideration or non-application of mind to relevant factors the exercise of power will be regarded as manifestly erroneous.”

24. Similar view was also taken in State of NCT of Delhi v. Sanjeev3 and it was declared :

“16. … If the power has been exercised on a non-consideration or non-application of mind to relevant factors, the exercise of power will be regarded as manifestly erroneous….”

25. In such situations where there is non-consideration of material evidence by a statutory authority, judicial review by the High Court in exercise of it’s power under Art.226 of the Constitution of India is permissible, and existence of alternative remedy is not a bar for exercise of such power.

26. Also, existence of an alternative remedy is not a bar to entertain a Writ Petition if a statutory authority acts without jurisdiction or violates fundamental rights or acts arbitrarily.

27. In Whirlpool Corpn. v. Registrar of Trade Marks4, the Supreme Court declared :

“15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the Fundamental Rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged.”

28. We are therefore of the opinion that the impugned Order In Original No.HYD – EXCUS – AUDIT – COM – 24-18-19 dt.23.01.2019 passed by the 4th respondent cannot be sustained and that the matter must be remitted to the 4th respondent to consider afresh.

29. Accordingly, the Writ Petition is allowed; the Order In Original No.HYD – EXCUS – AUDIT – COM – 24-18-19 dt.23.01.2019 passed by the 4th respondent, is set aside; the matter is remitted to 4th respondent for fresh consideration; the petitioner is granted four (04) weeks’ time from the date of receipt of copy of this order to file its written submissions with supporting material; a personal hearing shall be afforded to the petitioner’s representative by the 4th respondent; and then a reasoned order shall be passed by the 4th respondent in accordance with law and communicated to the petitioner. No costs.

30. Consequently, miscellaneous petitions, pending if any, shall stand closed.

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