Facts of the Case

The petitioner, M/s Chinnamanur Sri Annai Abirami Chit (P) Ltd., was a foreman to a chit fund under the Chit Funds Act and was registered under the service tax category of Banking and Financial Services. On the basis of intelligence gathered by the Superintendent of CGST and Central Excise, Theni Range, a letter dated 24.06.2019 was issued to the District Registrar, Periyakulam, seeking details regarding taxable services rendered by the petitioner and the amounts received from subscribers for such services.

Thereafter, Show Cause Notice No.06/2020-ST dated 23.07.2020 was issued proposing to treat Rs.75,62,940/- for the periods 2015-16 and 2016-17 as the value of taxable services. The petitioner filed a reply contending that abatement ought to be granted under Notification No.26/2012-ST dated 20.06.2012 and that invocation of the extended period of limitation was unwarranted.

The petitioner challenged Order-in-Original No.MDU-ST-AC-08-2021 dated 30.11.2021, passed under Section 73 of the Finance Act, 1994, alleging that the relevant objections had not been properly considered and that the adjudication order suffered from non-application of mind.

Issues Involved

The principal issues before the High Court were:

  1. Whether the writ petition under Article 226 of the Constitution of India was maintainable against the Order-in-Original when an effective statutory appellate remedy was available.
  2. Whether the adjudication order suffered from non-application of mind because the petitioner’s plea regarding abatement under Notification No.26/2012-ST had allegedly not been considered.
  3. Whether the petitioner’s objection against invocation of the extended period under the proviso to Section 73(1) of the Finance Act, 1994 had been ignored.
  4. Whether the availability of an alternative statutory remedy could be bypassed on the facts of the case.
  5. Whether there was any gross violation of principles of natural justice or lack of jurisdiction warranting interference under Article 226.

Petitioner’s Arguments

The petitioner contended that abatement was required to be granted in terms of Notification No.26/2012-ST dated 20.06.2012. It was also argued that invocation of the extended period of limitation was unwarranted.

According to the petitioner, these objections had not been duly considered by the adjudicating authority. Therefore, the impugned assessment/adjudication order allegedly suffered from non-application of mind and was liable to be interfered with in writ jurisdiction.

The petitioner thus sought quashing of Order-in-Original No.MDU-ST-AC-08-2021 dated 30.11.2021.

Respondents’ Arguments

The respondents contended that the petitioner’s objections had in fact been considered and that a reasoned order had been passed. It was further submitted that repeated opportunities of personal hearing were granted, but the petitioner failed to avail them.

The record referred to personal hearing opportunities on 22.10.2020, 03.12.2020, 19.01.2021, 09.03.2021 and 05.10.2021. The respondents therefore maintained that the adjudicating authority ultimately proceeded ex parte only after repeated non-appearance.

On the issue of abatement, the adjudication order recorded that Notification No.26/2012-ST, as amended by Notification No.8/2016-ST dated 01.03.2016, contemplated taxation of services provided by a foreman to a chit fund at an abated value of 70%, i.e. with 30% abatement, subject to the prescribed condition concerning non-availment of CENVAT credit. The authority found that the petitioner had not paid service tax, had not filed returns, and had not claimed abatement after fulfilling the stipulated conditions.

Regarding the extended period, the authority recorded that despite registration and rendering taxable services, the petitioner had neither paid service tax nor filed ST-3 returns and had not responded to departmental communications. The case was detected through third-party sources. On that basis, the authority concluded that the proviso to Section 73(1) was invocable and also referred to liability to penalty under Sections 76 and 78.

The respondents further argued that the writ petition should not be entertained because an effective statutory appellate remedy was available.

Court Order / Findings

The Madras High Court found merit in the respondents’ submission regarding the availability of a statutory remedy. The Court reiterated the normal rule that where a statutory remedy exists, it should not ordinarily be bypassed unless the impugned order suffers from a gross violation of principles of natural justice or is bad for want of jurisdiction.

The Court found that:

  • notice had been issued before passing the impugned order;
  • the petitioner’s objections had been considered;
  • personal hearing opportunities had been granted;
  • those opportunities were not availed by the petitioner; and
  • there was no sufficient reason to interfere with the order under Article 226 of the Constitution of India.

Accordingly, the High Court declined to exercise writ jurisdiction and held that the petitioner could challenge the Order-in-Original through the statutory appellate mechanism.

The writ petition was therefore dismissed, with no order as to costs, and the connected miscellaneous petition was closed.

Important Relief on Limitation

Significantly, the High Court clarified that if the petitioner chose to file a statutory appeal, the time spent in pursuing the writ petition under the bona fide belief that the impugned order could successfully be challenged through writ proceedings would be excluded for the purpose of reckoning limitation.

This clarification protected the petitioner against the adverse limitation consequences of having first pursued the writ remedy.

Important Clarification

The judgment does not finally determine on merits that the petitioner was substantively disentitled to abatement or that the extended period was conclusively valid in all respects. The High Court’s central determination was that, in the circumstances of the case, the petitioner should pursue the available statutory appellate remedy rather than invoke Article 226 as an alternative appellate mechanism.

The Court found no exceptional circumstance justifying writ interference because the adjudication order had followed notice, consideration of objections, and repeated opportunities of personal hearing.

Therefore, the key legal principle emerging from the decision is that Article 226 jurisdiction is discretionary and should ordinarily not be used to bypass an efficacious statutory remedy, particularly where there is no gross breach of natural justice or absence of jurisdiction.

Sections / Legal Provisions Involved

Section 73 of the Finance Act, 1994 – Recovery of service tax not levied, not paid, short-levied, short-paid or erroneously refunded.

Proviso to Section 73(1) of the Finance Act, 1994 – Extended period of limitation in circumstances involving fraud, collusion, wilful misstatement, suppression of facts or contravention with intent to evade payment of service tax, as applicable under the statutory framework.

Section 76 of the Finance Act, 1994 – Penalty provisions concerning failure to pay service tax, as applicable to the relevant period.

Section 78 of the Finance Act, 1994 – Penalty in cases involving specified elements such as fraud, suppression or wilful misstatement, subject to the applicable statutory provisions.

Article 226 of the Constitution of India – Extraordinary writ jurisdiction of the High Courts.

Notification No.26/2012-ST dated 20.06.2012, as amended by Notification No.8/2016-ST dated 01.03.2016 – Relevant to the claim concerning abated taxable value for services provided by a foreman to a chit fund, subject to prescribed conditions.

Link to download the order - https://mytaxexpert.co.in/uploads/1783334386_1138compressed.pdf

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