Vijayakumar. K vs. The Union Of INDIA

Facts

The petitioner, K. Vijayakumar, a registered contractor executing works contracts for government authorities, filed a writ petition challenging Notification No. 06/2015-Service Tax dated March 1, 2015, and a consequential order dated September 5, 2022, passed by the Deputy Commissioner GST and Central Excise. The petitioner sought quashing of these, or alternatively, a direction for respondents 3 to 6 (Government of Tamil Nadu and its departments) to pay the service tax, penalty, and interest demanded by the second respondent for the period October 1, 2015, to June 30, 2017. The petitioner was previously exempted from service tax until March 31, 2015, under Notification No. 25/2012-ST. The impugned notification withdrew this specific exemption for work contracts. The petitioner argued that he cannot pay tax from his own pocket as it must be collected from the service recipient, the third respondent, who had not paid it.

Held

The Court noted that the petitioner's contention regarding the liability of work contractors to pay tax and recover it from clients had already been decided by a Division Bench of the same High Court in W.P.No.24996 of 2019 batch, vide order dated November 30, 2022. This judgment held that work contractors are liable to pay the tax but must recover it from their clients. The Supreme Court had also dismissed a Special Leave to Appeal against this judgment. The Court also observed that the petitioner had not attended the personal hearing before the respondent authorities, leading to an ex-parte order. Following the Division Bench's approach of granting time to file appeals, the Court directed the petitioner to file an appeal within 30 days from the receipt of the order. The appellate authority was instructed to consider this appeal without insisting on the limitation period within twelve weeks from its filing. The Court did not decide on the validity of Notification No. 06/2015-Service Tax or the petitioner's claim for exemption.

Key Issues

1. Whether Notification No. 06/2015-Service Tax dated March 1, 2015, which withdrew the exemption for work contracts, is liable to be quashed, and consequently, whether the petitioner should be granted exemption from paying service tax on non-commercial works contracts rendered to government bodies, with effect from April 1, 2015? (Question of law, relating to the validity and interpretation of Notification No. 06/2015-Service Tax and the scope of exemption under the Finance Act, 1994). Petitioner's contentions: The petitioner argued that the withdrawal of exemption via Notification No. 06/2015 was illegal and arbitrary. He contended that as a contractor, he cannot be expected to pay service tax from his own funds, as it is the service recipient's liability to pay, and in this case, the third respondent (Government of Tamil Nadu) had not paid the service tax. He relied on the principle that tax statutes should not compel a contractor to bear the tax burden. He also referred to an interim injunction granted in a related appeal (W.A.No.756 of 2018) restraining the demand of service tax on receipts from government departments for works executed. Respondents' contentions: The respondents contended that as per amended provisions, exemption is given only to the Government from paying service tax, and private individuals are not entitled to any exemption. They relied on the amended provisions of the Finance Act and the subsequent notifications.