Matrix Forex Services PVT. LTD. vs. Union Of INDIA And Ors.

Held

The Court held that the petitioner's contention that proceedings for recovery of service tax are not maintainable after the omission of Chapter V of the Finance Act, 1994, is insubstantial. The Court found that the understanding that a right for recovery of service tax accrues to the State only upon initiation of proceedings is erroneous. The petitioner, as an assessee, had an obligation to pay the correct service tax due under Chapter V of the Finance Act. This obligation was crystallized prior to the enactment of the CGST Act. Section 174(2) of the CGST Act, specifically clauses (c) and (e), ensures that any right, privilege, obligation, or liability acquired, accrued, or incurred under the amended Act (Finance Act) is not affected. Furthermore, clause (e) explicitly states that any investigation, inquiry, verification, assessment proceedings, adjudication, and other legal proceedings or recovery of arrears in respect of any duty, tax, penalty, interest, etc., may be instituted, continued, or enforced as if the Acts had not been amended or repealed. The Court found no merit in the petitioner's reliance on the distinction between 'accrued rights' and 'hopes or expectations' as interpreted in the cited Supreme Court cases, stating that the impugned SCN was issued in exercise of the duty to ensure compliance with the provisions of Chapter V of the Finance Act, and the proceedings were to ensure the discharge of the petitioner's existing obligation. The Court also found no merit in the contention that the issues were not covered by earlier decisions of this Court in Aargus Global Logistics Pvt. Ltd. and Vianaar Homes Pvt. Ltd.

Facts

The petitioner, Matrix Forex Services Pvt. Ltd., engaged in foreign exchange business, filed a writ petition challenging letters dated July 29, 2019, and July 30, 2019, and a Demand Cum Show Cause Notice (SCN) dated October 18, 2019. These communications from the Assistant Commissioner of Central GST Audit-II, Delhi, sought service tax payments, interest, and penalties for Financial Years 2014-15 to 2017-18 (April-June). The petitioner argued that Chapter V of the Finance Act, 1994, under which service tax was levied, was omitted by Section 173 of the CGST Act, 2017, and no proceedings were pending against them as of July 1, 2017. Therefore, they contended that no fresh proceedings for assessment or recovery of service tax were maintainable.

Key Issues

1. Whether proceedings for the recovery of service tax, including interest and penalty, initiated after the omission of Chapter V of the Finance Act, 1994, by Section 173 of the CGST Act, 2017, are maintainable, specifically concerning the period from Financial Years 2014-15 to 2017-18 (April-June), when no proceedings were pending against the petitioner as of July 1, 2017. This issue turns on the interpretation of Section 174(2) of the CGST Act, 2017. Petitioner's Arguments: The petitioner argued that the omission of Chapter V of the Finance Act, 1994, meant that the provisions under which service tax was levied no longer existed. They contended that Section 174(2) of the CGST Act, when read with Section 174(2)(d) and (e), only saved proceedings that were already initiated or related to duties/taxes that were due or would become due from such initiated proceedings. They relied on the principle that a mere 'hope or expectation' of acquiring a right is not preserved under Section 6 of the General Clauses Act, citing the Supreme Court's decision in Bansidhar & Ors. v. State of Rajasthan and State of Odisha & Anr. v. State of Maharashtra. Revenue's Arguments: The revenue contended that Section 174(2) of the CGST Act, particularly clauses (c) and (e), expressly saves the operation of the amended Act and any right, privilege, obligation, or liability acquired, accrued, or incurred. They argued that the petitioner had an obligation to pay service tax, which crystallized prior to the CGST Act, and the proceedings initiated were to enforce this existing obligation. They relied on the decisions of this Court in Aargus Global Logistics Pvt. Ltd. v. Union of India & Anr. and Vianaar Homes Pvt. Ltd. v. Assistant Commissioner.