2014 (11) TMI 1023 - HC - Service Tax

Challenge to the Show Cause notice - demand of service tax on import on drilling activities and levy of tax on import of taxes for the period from 1-4-2006 to 17-4-2006. - challenge to the Circular No. 80/10/2004/S.T. dated 17-9-2004 - Held that - the impugned circular cannot be considered as sole evidence and not the sole guiding factor for issuance of show cause notice. Further it is stated in the counter affidavit that the circular is of not the basis to levy service tax but to clarify the position. Hence the petitioner need not have any apprehension about the circular however shall give reply to the notice and the respondent in turn shall consider the facts of the petitioner s case and also bear in mind the principles pointed out by the Supreme Court by examining the scope of the Service Tax Act under Section 65(104a) and Section 65(105)(zzv) of the Finance Act. Hence the challenge to the impugned circular is to necessarily fail and no ground is made to interfere with the impugned circular dated 17-9-2004 - Writ petition dismissed - Decided against the assessee.

Summary

Issues:
Challenge to show cause notice proposing tax on import drilling activities and import of taxes; Challenge to Circular No. 80/10/2004/S.T. regarding service tax on survey and exploration of minerals.

Analysis:
In the present case, M/s. Cairn Energy India (P) Ltd. filed two writ petitions challenging a show cause notice proposing tax on import drilling activities and import of taxes, and Circular No. 80/10/2004/S.T. regarding service tax on survey and exploration of minerals. The petitioner, engaged in oil and gas exploration, argued that the impugned circular exceeded statutory powers by including drilling activities under survey and exploration beyond the scope of the Finance Act, 1994. The petitioner contended that drilling is not a taxable service under the relevant sections of the Act, violating constitutional provisions.

The petitioner maintained that the impugned circular was without jurisdiction and contrary to the Act. However, the respondent argued that the circular merely clarified accepted industrial practices and fell within the scope of the Finance Act. The respondent asserted that drilling is integral to mineral exploration and covered under "Survey and Exploration of minerals," thus subject to service tax. Reference was made to authoritative sources supporting the necessity of drilling in mineral exploration, emphasizing its significance in the industry.

The Court referred to a Supreme Court decision highlighting the non-binding nature of circulars as sole evidence for issuing show cause notices. The Court emphasized that circulars serve to clarify positions rather than levy taxes, urging the petitioner to respond to the notice while the respondent considers the case in line with statutory provisions. Consequently, the challenge to the impugned circular failed, leading to the dismissal of the writ petition challenging the circular and the show cause notice. The petitioner was granted an opportunity to reply to the notice within 30 days for further consideration by the respondent.