Hotel’s Service Tax Demand Challenge Must Go Through Statutory Appeal Route: Gauhati HC [Read Order]

The Gauhati High Court has ruled that a hotel’s challenge to a service tax demand and penalty confirmed through adjudication cannot be entertained in a writ petition, holding that the assessee must pursue the statutory appellate remedy available under Section 85 of the Finance Act, 1994.

The petitioner, M/s Hotel Gateway Grandeur, a unit of Prerona Infrastructure Pvt. Ltd., engaged in hotel operations and registered under the Goods and Services Tax Act, 2017, the Finance Act, 1994 and the Assam Value Added Tax Act, 2003, was issued a Demand-cum-Show Cause Notice (SCN) alleging suppression of taxable services during the Financial Year 2016-17.

The proceedings culminated in an Order-in-Original dated 5 July 2022 passed by the Additional Commissioner, Central Goods and Service Tax and Central Excise, Guwahati, confirming a service tax liability of ₹72,33,010 under Section 73(2) of the Finance Act, 1994, along with interest under Section 75 of the Finance Act, 1994 and penalties under Section 78 of the Finance Act, 1994. The adjudicating authority also appropriated service tax of ₹73,20,352 and interest of ₹6,85,455 previously deposited by the petitioner.

The case arose from information received through departmental data indicating alleged discrepancies between income reported to the Income Tax Department and taxable turnover declared under service tax. The adjudicating authority held that the petitioner had not filed ST-3 returns for 2016-17 and invoked the extended limitation period of five years for suppression of facts.

Represented by N. Hawelia, the appellant argued that the SCN was barred by limitation as under Section 73 of the Finance Act, 1994, a notice must be issued within thirty months from the relevant date unless the extended five-year limitation is justified by fraud, wilful misstatement, or contravention with intent to evade tax. The appellant asserted that all tax dues for 2016-17 ₹73,20,352 in service tax and ₹6,78,455 in interest were fully paid in 2017, well before the issuance of the SCN.

Therefore, there was no intention to evade tax and the invocation of the extended period was without legal basis. It was contended that once tax and interest were already paid, no penalty could be imposed in view of Section 73(3) of the Finance Act, 1994.

Represented by S. C. Keyal, the respondents argued that the writ petition was not maintainable as Section 85 of the Finance Act, 1994 provides a complete statutory appellate mechanism to challenge any adjudication order. The petitioner had bypassed this mandatory route.It was submitted that the SCN was based on material received from the Income Tax Department.

On merits, it was contended that the extended limitation was rightly invoked because the petitioner failed to file ST-3 returns for 2016-17 and never informed the department in writing regarding payment of service tax for the relevant period. The Department relied on backend portal data to show non-compliance.

The Bench of Justice Kardak Ete held that the writ petition was not maintainable as the Finance Act, 1994 provides an efficacious statutory appellate remedy under Section 85 before the Commissioner of Central Excise (Appeals). The Court clarified that disputes relating to limitation, invocation of the extended period, factual findings and legal issues arising from adjudication squarely fall within the jurisdiction of the appellate authority.

Without entering into the merits, the Court dismissed the writ petition. However, it granted liberty to the petitioner to file a statutory appeal and directed that the time spent in writ proceedings be excluded for computing limitation.

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