Karnataka HC Sets Aside Service Tax Demand for Advocates & directs reconsideration

Sri Chokkareddy Vs Principal Commissioner of Central Tax Gst (Karnataka High Court)

In Sri Chokkareddy vs. Principal Commissioner of Central Tax GST, the Karnataka High Court set aside a service tax demand order issued to the petitioner, an individual advocate. The advocate challenged the order, asserting that as a practicing lawyer, he was exempt from service tax and GST under prevailing tax laws. He argued that the tax demand was legally unjustified and that the respondent’s decision was arbitrary, lacking jurisdiction. The petitioner cited a similar judgment by the Bombay High Court in Adv. Pooja Patil vs. Deputy Commissioner, which reinforced the exemption of legal services provided by individual advocates from service tax under Section 65B of the Finance Act, 1994.

The High Court reviewed the case, noting that the petitioner was not given a reasonable opportunity to respond to the tax notices and that the respondent failed to consider the exemption claim and relevant case law. In light of these procedural lapses, the court concluded that the order was issued without proper evaluation of the petitioner’s arguments. Consequently, the court annulled the tax demand order and remanded the case for reconsideration, allowing the petitioner to submit additional evidence and arguments. This ruling underscores the court’s stance on ensuring that tax demands adhere to procedural fairness, especially in cases where statutory exemptions may apply.

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

In this petition, petitioner seeks quashing of the impugned order at Annexure – A dated 27.09.2023 passed by the respondent No.2.

2. Heard learned counsel for the petitioner and learned counsel for the respondents and perused the material on record.

3. Learned counsel for the petitioner invited my attention to the impugned order in order to point out that the petitioner being an individual practicing advocate, who was exempt from payment of service tax as well as GST and consequently the impugned order passed by the respondent holding that activities carried on by the petitioner is a service in terms of Section 65B(44) of the Finance Act, 1994 and taxable in terms of Section 65B(51) and service tax under Section 66B of the said Finance Act, 1994 was illegal, arbitrary and without jurisdictional or authority of law and the same deserves to be set aside. In support of his contention, reliance is places upon the judgment of Bombay High Court in the case of Adv. Pooja Patil Vs The Deputy Commissioner WP. No.1085/2024 dated 24.01.2024. It is submitted that respondent No.2 has failed to consider the said aspects of the matter and as such the impugned order is to be set aside and the matter remitted back to the respondents for reconsideration afresh in accordance with law. Per contra, learned counsel for the respondents/petitioners submits that there is no merit in the present petition and the same is liable to be dismissed.

4. It is further submitted that sufficient and reasonable opportunity was not provided to the petitioner and on this ground also the impugned order deserves to be set aside.

5. A perusal of the material will indicate that apart from the fact that the petitioner had not submitted his reply/response to the notices issued by the respondent, the aforesaid contentions of the petitioner and the judgment of the Bombay High Court in Pooja Patil’s case supra have undisputedly not been considered by the respondent. Under these circumstances I deem it just and appropriate to set aside the impugned order and remit the matter back to the respondents for reconsideration afresh in accordance with law.

6. In the result, I pass the following:

ORDER

(i) The petition is hereby allowed.

(ii) The impugned order at Annexure – A dated 27.09.2023, is hereby set aside.

(iii) Matter remitted back to the respondents for reconsideration afresh in accordance with law.

(iv) Liberty is reserved in favour of the petitioner to submit his pleadings, documents before the respondents who shall consider the same and proceed further in accordance with law.