A Show Cause Notice issued under Section 73 of the Finance Act, 1994 against a service recipient is procedurally invalid if it fails to account for the specific return-filing requirements under the machinery of Section 71A and the extended timelines validated by the Supreme Court.

Per Ajayan T.V.

Sri Lakshmi Saraswati Textiles, the appellant herein, is challenging the Order in Appeal No. 273/2017 (CXA-II) dated 22-05-2017 issued by the Commissioner of Central Excise (Appeals-II) (impugned order).

2. Brief facts are that the appellants are manufacturers of cotton yarn and are transporting the same for sale to various parts of India and also for exports. The appellant has paid freight charges for such transport of cotton yarn to the Goods Transport Operators (GTO) during the period 16-11-1997 to 01-06-1998. Section 88 of the Finance Act 1997 inter alia, provided for levy of service tax on the services rendered to goods transport operators which came into effect on 16-11-1997 vide Notification No.41/97-ST dated 05-11-97. The levy was subsequently withdrawn vide Notification No.49/98 - ST dated 02-06-98. Hence, service tax was payable on the services provided by GTOs during the period from 16-11-97 to 01-06-98. As per clause (d) of Sub Rule (1) of Rule 2 Service Tax Rules 1994 (as it stood prior to 16-10-98), in relation to services provided by the goods transport operator, the responsibility of payment of service tax shall be with every person who pays or is liable to pay the freight either himself or through his agent for transportation of goods by road in a goods carriage. As per Notification No.43/97 - ST dated 05-11-97, service tax on goods transport operator service shall be payable only by 8 categories of persons, which includes a company established under the Companies Act, 1956.

3. The appellant was issued a Show Cause Notice (SCN) dated 22-03-2002 proposing to demand service tax on the value of the taxable services rendered to the appellant by the goods transport operators during the period from 16-11-97 to 1-6-98 under Section 73 (a) of the Finance Act 1994 (Act) along with applicable interest and proposing penalties under Section 76 and 77 of the act for nonpayment of service tax and non-filing of quarterly returns. After due process of law, the adjudicating authority vide Order in Original No.1/2002-S.Tax dated 28-08-2002 confirmed the service tax demand along with interest but drop the proposed penalties. Aggrieved, the appellant filed an appeal before the Commissioner (Appeals) inter alia on the grounds that Section 116 of the Finance Act 2000 was invalid and that the validity of validating law depends upon whether the legislature possesses competence over the subject matter which is conspicuously absent in the present case since the honourable Supreme Court in the case of Laghu Udyog Bharati v. Union of India , 1999 (112) ELT 365 (SC) has held that the levy, in so far as it makes person other than the goods transport operators as being responsible for collecting the service tax, is ultra-vires the Act itself. The appellant also stated that the demand raised in the SCN is barred by limitation as the period involved in the present case is from 16-07-1997 to 31-08-99 and the SCN has been issued on 22-03-2002, which is beyond the period of limitation. It was also submitted that the Government of India, Ministry of Law, Justice and Company Affairs has clarified that the retrospective amendment reveals no feasibility of recovery of service tax from the person who has availed the services, initiated during the relevant period.

4. The Commissioner (Appeals) vide Order in Appeal No.45/03 (M-III) dated 24-06-2003 directed that the appeal be consigned to call book. Subsequently, the appeal was taken up for hearing and the Appellate Authority, vide the impugned order, upheld the impugned order primarily relying on the Supreme Court’s decision in Gujarat A