L And T Hydrocarbon Engineering LTD. And Anr vs. The Union Of INDIA Through The Secretary, Ministry Of Finance, Dept. Of Revenue And Ors

Facts

The Petitioner, Larsen & Toubro Ltd. (formerly L & T Hydrocarbon Engineering Limited - LTHE), challenged a show cause notice dated October 23, 2018, issued by the Additional Director General, Directorate General of Goods & Services Tax Intelligence, Chennai. The notice, for the period 2013-14, proposed a service tax demand. This followed a scheme of arrangement approved by the Bombay High Court on December 20, 2013, which hived off LTHE as an independent unit from L&T, with an appointed date of April 1, 2013. The scheme stipulated that for the period between the appointed and effective dates, L&T would be deemed to have carried on the business for LTHE, and all compliances were to be done by L&T on behalf of LTHE. Investigations by the DGGI Chennai led to the issuance of the show cause notice, alleging contraventions of the Finance Act, 1994, despite the High Court's approval of the scheme. A similar show cause notice for excise duty issued by Gujarat Excise Officials was quashed by the Gujarat High Court.

Held

The Court held that the impugned show cause notice was issued without jurisdiction. It found that the Petitioner had made positive statements, supported by documentary evidence (letters dated June 5, 2014, July 23, 2017, September 30, 2014, April 13, 2017, May 31, 2017, September 7, 2017, November 14, 2017, December 7, 2017, January 23, 2018, and February 15, 2018), demonstrating that all details regarding service tax on outward services (forward charge) and imported services (reverse charge) for 2013-14 were furnished to the respondents and duly discharged by the transferor company, L&T. The Court noted that the respondents did not rebut these averments or dispute the contents of these letters. Furthermore, the Court acknowledged that the Gujarat High Court had already set aside a similar show cause notice concerning excise duty on identical grounds, and the Revenue had accepted this decision. The Court agreed with the Gujarat High Court's reasoning and exercised its discretion under Article 226 of the Constitution to quash the show cause notice, finding it to be without basis and lacking inherent jurisdiction. The writ petition was allowed, and the show cause notice was quashed and set aside.

Key Issues

1. Whether the impugned show cause notice dated October 23, 2018, issued by Respondent No. 2, is without jurisdiction, particularly in light of the Bombay High Court's order dated December 20, 2013, approving the scheme of arrangement, and whether the respondents are bound by this order? (Section 391 read with Section 394 of the Companies Act, 1956, and Article 226 of the Constitution of India). Petitioner's arguments: The impugned show cause notice is without jurisdiction as its foundation contradicts the Bombay High Court's order approving the scheme of arrangement. The transferor company (L&T) discharged all liabilities of the transferee company (LTHE) for 2013-14, making any recovery attempt double taxation and contrary to the scheme. The Gujarat High Court quashed a similar notice for excise duty on identical facts. The writ petition is maintainable as no disputed questions of fact are involved. Revenue's arguments: The Gujarat High Court's decision pertained to excise duty, while this case concerns service tax. However, the genesis of both notices was a common investigation. The Petitioner failed to provide details regarding domestic versus foreign customers for imported services, making it impossible to ascertain tax liability on a reverse charge basis.