The Gujarat High Court has dismissed a writ petition challenging a service tax show cause notice issued under Section 73(1) of the Finance Act, 1994, holding that the department remains empowered to initiate and continue service tax proceedings even after the repeal of the service tax provisions following the introduction of the GST regime. 

The bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati referred to saving provisions under Section 174(2)(e) of the CGST Act which states that the legislature expressly intended to preserve the power of authorities to continue and even institute proceedings concerning service tax liabilities despite the repeal of Chapter V of the Finance Act, 1994. 

The petitioner had challenged the jurisdiction of the service tax authorities to issue and pursue proceedings under the Finance Act, 1994 after the enactment of the Central Goods and Services Tax Act, 2017 (CGST Act). The principal contention was that Chapter V of the Finance Act, 1994, which governed service tax, stood omitted by virtue of Section 173 of the CGST Act and therefore fresh proceedings could not be initiated thereafter. 

The petition specifically sought quashing of the show cause notice issued under Section 73(1) of the Finance Act, 1994, through which the department proposed recovery of service tax along with applicable interest and penalties. 

During the hearing, counsel for the petitioner fairly conceded that the issue raised in the writ petition had already been conclusively decided by a Coordinate Bench of the High Court in Sahitya Mudranalaya Pvt. Ltd. v. Additional Director General, reported in 2021 (46) GSTL 245 (Guj.). The petitioner therefore requested that it be relegated to the adjudication proceedings. 

The Court examined the earlier decision, which had interpreted Sections 173 and 174 of the CGST Act. While Section 173 omitted the service tax provisions, Section 174 contains a comprehensive saving clause preserving ongoing and future investigations, inquiries, audits, assessments, adjudications, recovery proceedings, and other legal actions relating to taxes that existed before GST. 

The Bench noted that the Coordinate Bench had already held that investigations, inquiries, verifications, assessments, adjudications, and recovery proceedings could continue “as if” the Finance Act, 1994 had not been repealed. Consequently, the argument that tax authorities lacked jurisdiction to initiate fresh service tax proceedings after GST came into force was rejected. 

According to the Court, the respondent authorities remain fully empowered to institute and continue legal proceedings concerning service tax liabilities notwithstanding the enactment of the GST regime. 

The Gujarat High Court held that the writ petition did not merit consideration and dismissed it. However, the Court clarified that the dismissal of the writ petition should not prejudice the petitioner during adjudication and directed that the adjudicating authority independently examine the matter in accordance with law. The Rule was accordingly discharged.

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