M/S Sigpack Associates Vs the Commissioner — Writ and Judicial Review | Karnataka HC (2025)

M/S Sigpack Associates Vs the Commissioner — Writ and Judicial Review | Karnataka HC (2025)

What the court decided

AI extract

Outcome

Writ petition allowed; the OIO dated 07.01.2014 (Annexure-C), corrigendum dated 25.02.2014 (Annexure-D), Order-in-Appeal dated 28.02.2015 (Annexure-E) and recovery notice dated 30.12.2015 (Annexure-F) stand quashed.

Issue for consideration

Whether the adjudication, appellate and recovery proceedings against the petitioner could survive when the entire service tax, interest and penalty had been paid or appropriated long before issuance of the show cause notice, leaving nothing payable or recoverable.

Court's answer

There is nothing today to be paid by the petitioner: long before the show cause notice of 2013, an amount of Rs. 20,64,849/- had been paid (as recorded by the authority), and a further amount was appropriated by the authority during investigation towards the demand.

Ratio / Principle

The proceedings continued only to the satisfaction of the Department although nothing was payable or recoverable from the petitioner; they were redundant as regards the principal amount, and the interest also was either paid by the petitioner or appropriated by the Department.

Key takeaways

The Division Bench decision in C.C.E. & S.T., LTU, Bangalore v. Adecco Flexione Workforce Solutions Ltd., 2012 (26) STR 3 (Kar), interpreting Sections 73 and 76 of the Finance Act, 1994, becomes apposite to the circumstances of this case.ratio¶88
The judgment of the Apex Court in National Spot Exchange Limited v. Anil Kohli (AIR 2021 SC 4339), relied upon by the Revenue as answering the lis, is distinguishable on the facts, since there was nothing to be paid by the petitioner.ratio¶99

Detailed headnote1 paragraphs

Service Tax – Works Contract Service – Petitioner-proprietorship engaged in construction/installation/maintenance of petrol bunks of HPCL/BPCL, classified under s.65(105)(zzzza) of the Finance Act, 1994; registration obtained 19.06.2009 and entire tax, interest and late fee (Rs 20,64,849/-) paid long before the show cause notice dated 10.10.2013 – OIO dated 07.01.2014 nonetheless confirmed demand of Rs 19,35,575/- with interest and penalties under ss.76/77; corrigendum (25.02.2014), Order-in-Appeal (28.02.2015) and recovery notice (30.12.2015) followed – Held, with the entire dues paid or appropriated, there was nothing left payable or recoverable and the proceedings were redundant; the Division Bench ruling in C.C.E. & S.T., LTU, Bangalore v. Adecco Flexione Workforce Solutions Ltd., 2012 (26) STR 3 (Kar) on ss.73 and 76 of the Finance Act, 1994 applies, and National Spot Exchange Ltd. v. Anil Kohli, AIR 2021 SC 4339 is distinguished on the facts – Writ petition under Arts.226/227 allowed; all impugned orders and notices quashed.

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IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH

DATED THIS THE 6^TH DAY OF JANUARY, 2025

BEFORE THE HON'BLE MR. JUSTICE M.NAGAPRASANNA

WRIT PETITION NO.101492 OF 2016 (T-RES)

BETWEEN:

M/S SIGPACK ASSOCIATES, PLOT NO.23, SHANTI NAGAR, BENGERI, KESHAVAPUR, HUBBALLI, DISTRICT: DHARWAD – 580 023, REPRESENTED BY ITS PROPRIETOR SRI.CHELLAPPAN PRASATHAN, AGED ABOUT 55 YEARS, OCC: BUSINESS, R/O: HUBBALLI, TALUK: HUBBALLI, DISTRICT: DHARWAD, PLOT NO.23, SHANTI NAGAR, BENGERI, KESHAVAPUR, HUBBALLI.

…PETITIONER

(BY SRI G. I. GACHCHINAMATH, ADVOCATE)

VISHAL NINGAPPA PATTIHAL

Digitally signed by VISHALNINGAPPA PATTIHAL Location: High Court ofKarnataka Dharwad Bench Date: 2025.01.21 12:19:10 +0530

AND:

THE COMMISSIONER, CENTRAL EXCISE AND SERVICE TAX, NO.71, CLUB ROAD, BELAGAVI – 590 001, DISTRICT: BELAGAVI.

THE ADDITIONAL COMMISSIONER, CENTRAL EXCISE CUSTOMS AND SERVICE TAX, NO.71, CLUB ROAD, BELAGAVI – 590 001, DISTRICT: BELAGAVI.

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THE COMMISSIONER, CENTRAL EXCISE AND SERVICE TAX (APPEALS) CENTRAL EXCISE COMMISSIONERATE NO.S-1, VINAYA MARGA, SIDDHARTHA NAGAR, MYSURU – 570 011.

THE SUPERINTENDENT, SERVICE TAX, RANGE-A, ASHWATH NILAYA, VIDYANAGAR, OPP KIMS MAIN GATE, HUBBALLI, TALUK: HUBBALLI, DISTRICT: DHARWAD.

…RESPONDENTS

(BY SRI GIRISH S. HULMANI, ADVOCATE FOR R1 TO R4)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO, QUASH THE IMPUGNED ORDER DATED 07.01.2014 BEARING NO. OIO SL.NO.BEL-EXCUS-ooohbl-DIV-ADC-HRB-02 (ST) 13-14 (C.NO.V/WCS/15/105/2013-ST ADJN) PRODUCED AS ANNEXURE - C PASSED BY THE RESPONDENT NO.2 IMPUGNED CORRIGENDUM DATED 25.02.2014 BEARING NO. OIO SL.NO. BEL - EXCUS-ooohbl-DIV-ADC-HRB-02 (ST) 13-14 (C.NO.V/ WCS/15/ 105/ 2013-ST ADJN) ISSUED BY THE RESPONDENT NO.2 PRODUCED AS ANNEXURE-D AND ALSO THE IMPUGNED ORDER DATED 28.02.2015 BEARING ORDER-IN-APPEALNO.BGM-EXCUS-OOO-HUB-ADC-APP-HAB-030-2015(A.NO.101/ 14/BM/ST/1517/15 PRODUCED AS ANNEXURE-E PASSED BY THE RESPONDENT NO.3 AND ALSO THE IMPUGNED NOTICE DATED 30.12.2015 BEARING O.C.NO.2054/2015 ISSUED BY THE RESPONDENT NO.4 PRODUCED AS ANNEXURE-F BY ISSUED OF WRIT OF CERTIORARI OR ANY OTHER SUITABLE WRIT OR ORDER OR DIRECTIONS AND ETC.,

THIS WRIT PETITION, COMING ON FOR PRELIMINARY HEARING ‘B’ GROUP HEARING, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

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ORAL ORDER

(PER: THE HON'BLE MR. JUSTICE M.NAGAPRASANNA)

The petitioner – Proprietorship concern is

knocking at the doors of this Court in the subject petition calling in question the orders dated 07.01.2014 and 28.02.2015 and all other subsequent orders passed for non-payment of Service Tax for a particular period, all orders passed by the respective respondents herein.

Heard the learned counsel Shri G.I.

Gachchinamath appearing for the petitioner and the learned counsel Shri Girish S.Hulamani appearing the respondents.

Facts in brief germane are as follows:

The petitioner is said to be in the business of establishment / construction of petrol pumps. He was not assessed the Service Tax at the time when he began his avocation of construction of petrol pumps. Learned counsel for the petitioner submits that this was due to mistaken notion that Service Tax was not applicable to a works

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contract, that he undertakes of establishment of petrol

pumps, Service Tax had not been paid.

A show cause notice comes to be issued on 10.10.2013 for the first time demanding payment of Service

Tax, the petitioner then furnishes his reply and pays the entire Service Tax including penalty. This can be gathered from the order passed by the second respondent who captures in his order, the case of the petitioner. Therefore, to quote the order becomes necessary, it reads as under:

“FINDINGS

6. I have perused the case proceedings, show cause notice, reply to show cause notice and relevant documents placed in the file. The issue before me for decision are:

(a) Whether the service of construction, installation & maintenance of petrol bunks owned by M/s. HPCL and M/s BPCL are classifiable under the category of 'Works Contract Service' under the provisions of Section 65(105)(zzzza) of the Finance Act, 1994?

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(b) Whether the tax not paid/levied is recoverable under Section 73 (1) of the Finance Act, 1994?

(c) Whether the service provider is liable for penalty under Sections 76, 77 and 78 of the Finance Act, 19947

I find that Shri Chellappan Prashanthan, proprietor of M/s Sigpac Associates, Keshwapur, Hubli is engaged in the activity of Construction, Installation & Maintenance of Petrol Bunks owned by M/s. Hindustan Petroleum Corporation Ltd., Belgaum and M/s BPCL, Belgaum and Bangalore and has been appropriately classified under the category of 'Works Contract Service' as defined in Section 65(105)(zzzza) of the Finance Act, 1994 and chargeable to service tax under the provisions of Section 66 read with Section 65 (105) (zzzza) of the Finance Act, 1994. The service provider has also accepted the classification of the services provided by him under the Works Contract Service with effect from 01.4.2008 and after obtaining service tax registration has paid appropriate service tax on the services rendered by him.

7. The Superintendent HPU-II, Belgaum made a reference to proprietor of the firm, Shri Chellappan Prashanthan, vide letter dated 22.5.2009 seeking details of service provided and payment of service tax. Thereafter, the proprietor responded immediately to the department's letter, discussed the issue with the

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preventive Superintendent and applied for service tax registration on line. He has obtained Service Tax Registration No. ABHPN1440NST001 on 19.06.2009 and paid service tax dues along with interest for the financial year 2007-08 vide GAR.7 Challan dated 23.10.2009 and intimated to the preventive Superintendent. Further, I also find from records that the service provider vide his letter dated 26.09.2012 submitted copies of relevant balance sheets and profit and loss accounts of his firm including copies of Challans evidencing payment of service tax and interest amounting to Rs 20,64,849/-. I also find from the case proceedings drawn on 07 Oct 2013 that there is a mention of the service provider having accepted the liability of service tax with effect from 01.4.2008 under the Works Contract Service and after obtaining service tax registration has paid total service tax totalling to Rs.19,35,575/for the period from 01.04.2008 to 31.03.2012 along with interest including late fees of Rs 16,000/- for delay in filing of periodical ST.3 returns totally amounting to Rs 4,06,129/- by Challans. The Challan details are as per the data available in ACES/NSDL challan database.

7. Having answered the issue of classification of the services provided by the service provider and their service tax liability, I now take up the issue whether the service provider is liable for imposition of penalties under Sections 76, 77 and 78 of the Finance Act, 1994? 1 find from records that the assessee had failed to

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register themselves within 30 days of the commencement of service as required under Section 69 of the Finance Act, 1994, therefore, they are liable for imposition for penalty under Section 77 of the Finance Act, 1994. They have also failed to pay service tax payable within due dates prescribed under Section 68 of Finance Act, 1994, accordingly, I hold that the service tax not paid is liable to be recovered along with interest at applicable rates in terms of provisions of Section 73 and Section 75 of Finance Act, 1994. They are also liable for imposition of penalty under Section 76 of the Finance Act, 1994. The late fee demanded under the provisions of Section 70 of the Finance Act, 1994 read with Rule 7C of Service Tax Rules, 1994 and the amount of Rs 16,000/- already paid for non-filing of periodical returns is also liable for appropriation towards the penalty imposable.

8. As regards imposition of penalty under Section 78 of the Finance Act, 1994, I find from the case records that the service provider have responded immediately to the departments letter dated 22.5.2009 seeking details of service provided and payment of service tax. Thereafter, the proprietor responded to the department's letter, discussed the issue with the preventive Superintendent and applied for service tax registration on line. He has not contended for payment of service tax. Instead, expressed that they were unaware of the fact that their services providing to their clients were chargeable to service tax. He has

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obtained Service

Tax

Registration No.

ABHPN1440NST001 on 19.06.2009 and paid service tax dues along with interest and late fees for late filing of ST.3 returns. Hence, I do not find any suppression of facts. The service provider has discharged all the service tax and interest liabilities which act of them clearly shows that there was no maläfide intention to evade duty or an intention whatsoever to wilfully evade the provisions of ervice tax laws and that and I accept that there was reasonable cause for non payment of service tax. The Hon'ble High Court of Punjab & Haryana in the case of CCE Jalandhar vs Dharmania Telecon reported in 2009 (14) STR 145 have held that if reasonable cause is shown for failure to pay tax and file returns, penalty not imposable despite the provisions under Section 78 of the Finance Act, 1994. A similar view has also been taken by the Hon'ble High Court of Allahabad in the case of CCE vs Auto World reported in 2010 (18) STR.5. Taking into consideration the case laws quoted by them and since I have already imposed penalty under Section 76 of the Finance Act, 1994 and penalty cannot be imposed under both the sections ie. Section 76 and 78, I refrain from imposing penalty under Section 78 of the Finance Act, 1994.

9. In view of the foregoing facts, I pass the following order.

ORDER

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a) I order classification of the service provided by them for the period from 01.04.2008 to 31.03.2012, in Construction, Installation & Maintenance of petro! bunks owned by M/s. HPCL and M/s BPCL under the category of 'Works Contract Service' under the provisions of Section 65(105) (zzzza) of the Finance Act, 1994.

b) I confirm the demand of service tax including EC and S&H EC amounting to Rs. 19,35,575/- (Rupees Nineteen Lakhs thirty five thousand five hundred and seventy five only), for the services rendered for the period from 01.04.2008 to 31.03.2012 under the category of 'Works Contract Service

c) I order appropriation of service tax of Rs. 19,35,575/- (Rupees Nineteen Lakhs thirty five thousand five hundred and seventy five only) Service Tax including EC and S&H EC already paid by them towards the demand above.

d) I confirm the demand of interest to be recovered from them under Section/s of the Finance Act, 1994 on the above amount.

e) I order appropriation of interest of Rs. 3,90,129/- (Rupees Three Lakhs ninety thousand one hundred and twenty nine only) paid during investigation towards the demand at (d) above.

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f) I impose Penalty on them under the provisions of Section 76 of the Finance Act, 1994 for failure to pay service tax by due dates.

g) I impose Penalty of Rs 10,000/- under the provisions of Section 77 of the Finance Act, 1994, for failure to obtain registration within the stipulated time

h) I demand Late Fees under the provisions of Section 70 of the Finance Act, 1994 read with Rule 7C of Service Tax Rules 1994, and appropriate an amount of Rs.16000/- already paid during investigation against the demand.”

A perusal at the order is indicative of an

unequivocal fact that after issuance of the show cause notice, the petitioner has paid the entire amount of Service Tax including the penalty, long before the issuance of show cause notice in the year 2009 itself. The show cause notice

as observed hereinabove comes to be issued in the year 2013. The proceedings are instituted after the receipt of the entire amount of arrears and default Service Tax and penalty on the score that the entire penalty or interest is not paid by the petitioner. The order quoted captures the

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fact that the amount of Rs.3,19,129/- is also appropriated by the authority during the investigation towards the demand. Therefore, there is nothing today to be paid by the petitioner as long before the show cause notice, an amount of Rs.20,64,849/- had been paid which is recorded by the authority at paragraph No.7 supra . The order also records that it was the payment of service tax and interest that was paid by the petitioner and later on account of the proceedings, an amount of Rs.3,19,129/is also appropriated.

In that light, the proceedings have gone on only to the satisfaction of the respondents – Department as there was nothing to be paid or recovered from the hands of the petitioner. The proceedings itself were redundant insofar as the principal amount was concerned and the interest is also paid by the petitioner or appropriated by the department from the petitioner. Reference being made to the judgment rendered by the Division Bench of this Court

in the case of C.C.E. & S.T., LTU, BANGALORE VS.

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ADECCO FLEXIONE WORKFORCE SOLUTIONS LTD.,¹ in

the circumstance becomes opposite and the Division Bench interpreting Sections 73 and 76 of the Finance Act, 1994 has held as follows:

“[Judgment per: N. Kumar, J.] Both these appeals are preferred by the assessee challenging the order passed by the Tribunal as well as the Appellate Commissioner who have held that the assessee is not liable to pay any penalty under Section 76 of the Finance Act, 1994 and therefore, set aside the order passed by the lower authorities imposing penalty.

2. Facts are not in dispute. The assessee has paid both the service tax and interest for delayed payments before issue of show cause notice under the Act. Sub-sec. (3) of Section 73 of the Finance Act, 1994 categorically states, after the payment of service tax and interest is made and the said information is furnished to the authorities, then the authorities shall not serve any notice under sub-sec. (1) in respect of the amount so paid. Therefore, authorities have no authority to initiate proceedings for recovery of penalty under Sec. 76 of the Act.

3. Unfortunately the assessing authority as well as the appellate authority seem to think. If an assessee does not pay the tax within the

1 2012 (26) S.T.R. 3 (Kar.)

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stipulated time and regularly pays tax after the due date with interest. It is something which is not pardonable in law. Though the law does not say so, authorities working under the law seem to think otherwise and thus they are wasting that valuable time in proceeding against persons who are paying service tax with interest promptly. They are paid salary to act in accordance with law and to initiate proceedings against defaulters who have not paid service tax and interest in spite of service of notice calling upon them to make payment and certainly not to harass and initiate proceedings against persons who are paying tax with interest for delayed payment. It is high time, the authorities will change their attitude towards these tax payers, understanding the object with which this enactment is passed and also keep in mind the express provision as contained in sub-sec. (3) of Sec. 73. The Parliament has expressly stated that against persons who have paid tax with interest, no notice shall be served. If notices are issued contrary to the said Section, the person to be punished is the person who has issued notice and not the person to whom it is issued. We take that, in ignorance of law, the authorities are indulging in the extravaganza and wasting their precious time and also the time of the Tribunal and this Court. It is high time that the authorities shall

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issue appropriate directions to see that such tax payers are not harassed. If such instances are noticed by this Court hereafter, certainly it will be a case for taking proper action against those law breakers.”

Learned counsel for the respondents – Revenue would submit that the issue in the lis stands answered by the judgment of the Apex Court in the case of NATIONAL SPOT EXCHANGE LIMITED VS. ANIL KOHLI² . The said judgment is distinguishable on the facts, noticed hereinabove, as there was nothing to be paid by the petitioner. Therefore, the petition deserves to be succeed.

8. For the aforesaid reasons, the following: ORDER

(i) The writ petition is allowed.

(ii) The impugned order dated 07.01.2014 vide Annexure-C passed by respondent No.2; impugned corrigendum dated 25.02.2014 vide Annexure-D issued by respondent

2 AIR 2021 SC 4339

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No.2; impugned order dated 28.02.2015 vide Annexure-E passed by respondent No.3 & the impugned notice dated 30.12.2015 vide Annexure-F issued by respondent No.4 stand quashed.

Sd/(M.NAGAPRASANNA)

JUDGE

VNP/CT-ASC List No.: 1 Sl No.: 133