1. Challenge to service tax demand on commission paid to overseas agents under Business Auxiliary Service — Delay in filing writ petition — Application of Finance Act, 1994. (Para 1 , 2 , 4 , 5 )
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2017 Supreme(SC) 730
SUPREME COURT OF INDIA
A.K. SIKRI, ASHOK BHUSHAN, JJ.
M/S. SHOELINE – APPELLANT(S)
VERSUS
COMMISSIONER OF SERVICE TAX & ORS. – RESPONDENT(S)
CIVIL APPEAL NO. 10214 OF 2017
Decided On : 10-08-2017
Important Points
IMPORTANT POINTS
When a party keeps watching proceedings in other similar cases as a fence sitter, decision in those cases cannot furnish cause of action to the said party.
Interest and penalty cannot be levied on a tax which was not payable at all in law.
When a party keeps watching proceedings in other similar cases as a fence sitter, decision in those cases cannot furnish cause of action to the said party.
Interest and penalty cannot be levied on a tax which was not payable at all in law.
Subject
Delay and Laches - Writ Petition Dismissed Due to Delay
Act Referred
Headnote
(a) Administration of justice – Party not challenging an order by availing statutory appeal or approaching the High Court – Rather complying with the order albeit piecemeal – Watching proceedings in other similar cases – Thus a fence sitter – Decision in those cases cannot furnish cause of action to the said party. (Para 9)
(2015) 1 SCC 347; (1989) 2 SCC 356; (2003) 12 SCC 538; (2006) 11 SCC 464; Harwindra Kumar – Relied upon
(b) Finance Act, 1994 – Section 66A – Service tax – Not applicable to cases which were already over and were not pending on the date of enactment of section 66A, i.e., 18.4.2006. (Para 17)
(1975) 1 SCC 636 – Distinguished
(c) Finance Act, 1994 – Section 66A – Service tax – Service tax demand for the period from July 9, 2004 to March 31, 2006 – Supreme court holding the tax payable only from April 18, 2006 – Held as appellant approaching High Court belatedly, he is not entitled to refund of the tax already paid – As regards penalty and interest on such tax, held, appellant should not be called upon to pay any interest and penalty levied on a tax which was not payable at all in law. (Para 21)
(2015) 1 SCC 347 – Relied upon
Facts of the case:
Show cause notice dated August 23, 2007 was received by the appellant for non-payment of service tax on ‘commission paid to overseas agents’ under ‘Business Auxiliary Service’.
Rejecting the objections raised by the appellant, the Joint Commissioner confirmed the demand vide order dated August 27, 2008.
Writ petition was filed in the High Court in March, 2012. As it was filed four years after the demand was confirmed, for this reason, writ petition and writ appeal of the appellant have been dismissed.
It is alleged that the High Court totally overlooked and ignored the explanations given which furnished sufficient cause for approaching the Court in March, 2012.
Finding of the Court:
Appellant is not entitled to refund of the tax already paid, but he is not liable to pay penalty and interest as demanded.
Result: Appeal partly allowed.
Legal Category Hierarchy
Table of Contents
2. Appellant claims sufficient cause for delay and benefit of a government circular; Respondent contends the demand attained finality and was not a pending dispute. (Para 3 , 6 , 7 , 8 )
3. Appellant acted as a fence-sitter by not challenging the order timely; government circulars on pending disputes do not revive finalized demands. (Para 9 , 16 , 17 , 19 )
4. Laches and acquiescence bar relief for non-vigilant parties, but a declaration of law precludes penalty and interest on legally non-payable taxes. (Para 10 , 11 , 12 , 13 , 14 , 15 , 20 , 21 )
5. Appeal partly allowed — Demand for interest and penalty set aside — No refund of service tax paid. (Para 22 )
6. Does the success of similarly situated parties in other litigations excuse a delay in filing a writ petition?
No. A party who is not vigilant and chooses to sit on the fence while watching other proceedings cannot later claim relief based on those decisions. Laches and acquiescence are valid grounds to dismiss such claims. (Para 9 , 10 , 11 , 12 , 15 )
7. Does a government circular providing relief for pending disputes apply to cases where the demand was already finalized without appeal?
No. Such circulars are intended for disputes that are actually pending. They do not apply to cases that have already attained finality, as doing so would allow all parties who paid without protest to claim refunds. (Para 16 , 17 )
8. What is the difference between a judgment in rem and a judgment in personam regarding the extension of benefits?
A judgment in rem is a declaration of law intended to benefit all similarly situated persons, regardless of whether they approached the court. A judgment in personam benefits only the parties to the suit, requiring others to prove they are not barred by laches. (Para 20 )
9. Can a party be required to pay penalty and interest on a tax that is later declared legally non-payable, even if the party is barred by laches from seeking a refund?
No. While laches may prevent a refund of tax already paid, the court may balance equities by setting aside penalty and interest on a tax that was not payable in law. (Para 20 , 21 )
JUDGMENT
A.K. SIKRI, J.
By way of this appeal, correctness of the order dated June 22, 2016 passed by the Division Bench of the High Court is questioned. Vide the said order, Division Bench affirmed the order of the learned single Judge passed in the writ petition filed by the appellant herein and, thus, dismissed the writ appeal. Writ petition was filed in the High Court by the appellant challenging the validity of demand which was confirmed by the Joint Commissioner of service tax vide order dated February 27, 2008. Writ petition was, in fact, not considered on merits and was dismissed as barred by delay and laches of four years. The Division Bench has also concurred with the single bench thereby affirming its order.
2) Show cause notice dated August 23, 2007 was received by the appellant for non-payment of service tax on ‘commission paid to overseas agents’ under ‘Business Auxiliary Service’. The appellant contested the said show cause notice by filing his reply. However, rejecting the objections raised by the appellant, the Joint Commissioner confirmed the demand vide order dated August 27, 2008. Writ petition was filed in the High Court in March, 2012. As it was filed four years after the demand was confirmed, for this reason, writ petition and writ appeal of the appellant have been dismissed.
3) If one goes by the aforesaid facts alone, it may not be wrong to form an opinion that the challenge laid to the demand was belated. However, the question is as to whether the appellant had duly and satisfactorily explained the delay in approaching the Court after a period of four years. Entire focus of the arguments of the learned counsel for the appellant was on this aspect with the submission that the High Court totally overlooked and ignored the explanations given which furnished sufficient cause for approaching the Court in March, 2012.
4) In this behalf, the learned counsel referred to the following facts about which there is no dispute. As aforesaid, the show cause notice was issued to the appellant for non-payment of service tax on ‘commission paid to overseas agent’. It was for the period from July 9, 2004 to March 31, 2006 during which period the appellant was paying commission to the overseas agent. The Commission was being paid for the outsourcing of business of export of shoe-uppers for soliciting orders by the overseas agents on behalf of the appellant in foreign exchange. Simply put, the overseas agent was appointed by the appellant for securing export orders of shoe-uppers. On the orders which were so procured by the overseas agent and were given to the appellant, the appellant could make exports of shoe uppers. It is on these orders the appellant had paid commission to the foreign party. As per the respondent department, service tax was payable on the said commission as the said activity would come within the sweep of ‘Business Auxiliary Service’. That was a reason for issuing show cause notice and demand service tax from the appellant who was supposed to deduct the same on the payments made to a foreign agent.
5) The appellant had resisted the show cause notice by submitting its reply dated January 2, 2008 and stating that the liability of payment of service tax, on amounts being remitted to overseas agent, would not fall on the payment prior to June 16, 2005 in view of the inapplicability of The Finance Act, 1994. However, after the passing of the order by the Joint Commissioner on February 27, 2008 rejecting the aforesaid contention and confirming the demand of service tax, the said demand was not challenged immediately by filing statutory appeal which was available. Not only this, when the amount as confirmed vide order dated February 27, 2008 was not paid and the appellant was threatened with coercive action stating that his bank accounts would be attached, the appellant started making payments and paid the entire service tax in five instalments. Some of these instalments were paid in the year 2011 and one i
