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Judgment
1.Heard Mr. KN Choudhury, learned Senior counsel for the petitioner. Also heard Mr. B Sarma, learned Standing counsel, Central Excise
Department.
The petitioner is an autonomous non-profit society set up by the Ministry of Power, Govt. of India and is engaged in the following activities:
(i) To function as a National Society for training in the field of (a) operation and maintenance of Power Stations, (b) all other aspects of Electrical
Energy Systems including Transmission, Sub Transmission & Distribution.
(ii) To act as an apex body for initiating and coordinating training programs in the power sector.
(iii) To establish and run training institutes for Engineers, Operators Technicians and other Personnel in the Power Sector.
It is the case of the petitioner that the service tax was first introduced by the Finance Act of 1994 whereby tax was levied on 3 services, namely,
telecommunication, general insurance and stock-broker. Therefore, it is the contention of the petitioner that the said levy of tax is a positive
classification meaning thereby that only the aforesaid three services were taxable under the service tax and any other items would not be so taxable.
An amendment was brought to the Finance Act of 1994 by the Finance Act of 2012 whereby a specific list was provided in respect of services
which are not taxable under the Service Tax Act. In other words, the said list is a negative list, inasmuch as, all other items not included in the list are
taxable whereas the items specified therein are not taxable. Accordingly, the petitioner had registered themselves under the service tax on 08.08.2012
as from 01.07.2012 they are otherwise liable for service tax.
The respondent authorities, on the other hand, relies upon the amendment brought in the year 2010 whereby the expression taxable service under
Section 65(105) of the Finance Act, 1994 was amended and the provision of Sub-Section zzc was introduced and the services provided or to be
provided to any person by a commercial training or coaching service in relation to coaching was also brought under the purview of service tax with
retrospective effect from the year 2003.
Based upon such amendment of the year 2010, the respondent authorities had issued the communication dated 16.09.2013 to the petitioner institute
requiring them to provide certain data in the format prescribed therein pertaining to the last five financial years therefrom. In the communication, it is
stated that the departmental authorities had learnt that the petitioner institute has been providing ‘scientific or technical consultancy services’
and ‘commercial training or coaching service’ to different organizations. Accordingly, in the communication it was explained that scientific and
technical consultancy means any advice, consultancy or scientific or technical assistance rendered in any manner, either directly or indirectly by a
scientist or a technocrat, or any science and technology institute or organization to any person, in one or more disciplines of science or technology. It
was accordingly provided that the said service became taxable from 09.07.2001 under the Finance Act of 1994 and, therefore, the aforesaid
information was being sought for.
The petitioners in reply to the said communication through their communication of 04.10.2013 had provided the information regarding the total
taxable income, year wise, for the years 2008-2009 to 2012-2013 with further information that an amount of Rs.20,03,029/- has been paid as service
tax for the year 2012-2013. The petitioner had also stated that their Institute is not doing any scientific or technical consultancy services and that they
are charging the service tax from their clients only from 2012-2013.
The departmental authorities had issued the communication dated 18.10.2013 wherein it was concluded that from the reply of the petitioner dated
04.10.2013, it is evident that the taxable income was earned by the petitioner during the financial year 2008-2009 to 2012-2013, whereas the service
tax registration was taken only on 08.08.2012.
Based on the aforesaid communication of 18.10.2013, wherein it was stated that from the reply of the petitioner, it is evident that taxable income
was earned by the petitioner, a summons dated 16.12.2013 under Section 14 of the Central Excise Act, 1944 was issued. The said summons of
16.12.2013 has been assailed in this writ petition primarily on the ground that under Section 14 of the Central Excise Act, 1944, the appropriate Central
Excise Officer may have the power to summon any person whose attendance he considers necessary either to give evidence or to produce
documents but in the instant case there is no such material for the Central Excise Officer to arrive at a conclusion as to why he so considers it
necessary to issue the summons.
Mr. B Sarma, learned Standing counsel, Excise Department, per contra, submits that the communication dated 18.10.2013 is the basis upon which
the Central Excise Officer considered it necessary to issue the summons to the petitioner under Section 14. As already taken note of, in the
communication dated 18.10.2013 it is stated that the conclusion of the authorities that the petitioner is earning a taxable income is based on the reply of
the petitioner dated 14.10.2013. In order to examine the correctness of such stand, it is apposite for this Court to examine the reply of the petitioner
dated 14.10.2013 referred in the communication dated 18.10.2013. The said reply referred is in fact the reply of the petitioner which was made
pursuant to the communication of the department dated 16.09.2013. In the communication dated 16.09.2013, the department had stated that it was
learnt that the institute has been providing scientific or technical consultancy services, where in response thereof, the petitioner by its communication
of 04.10.2013 had taken a definite stand that the petitioner institute is not providing any scientific or technical consultancy services. Accordingly, on a
plain reading of the communication of 16.09.2013 and the reply of 04.10.2013, it is apparent that on one hand, the Department is making an assertion
that the petitioner institute has been providing scientific or technical consultancy services and commercial training or coaching services whereas the
petitioner institute has denied to such assertion by stating that they are not doing any scientific or technical consultancy services.
When the contents of the two communications are examined, i.e., the one from the department raising an assertion and the other being the reply
from the petitioner denying such assertion, the conclusion arrived at by the department in their communication of 18.10.2013 that from the reply dated
04.10.2013, it is evident that taxable income have been earned by the petitioner during the year 2008-2009 to 2012-2013 cannot be accepted. It is
noticed that the communication of 18.10.2013 merely states that the petitioner institute have been earning a taxable income is evident from the reply
dated 04.10.2013. But whereas from the said reply it cannot be concluded that there was any such indication by the petitioner that they have earned
any taxable income. On the other hand, the petitioner in their communication dated 04.10.2013 had denied that they are doing any scientific or
technical consultancy services meaning thereby that they have not earned any taxable income for the given period.
In such view of the matter, this Court cannot arrive at a conclusion that the Central Excise Officer while issuing the summons dated 06.12.2013
under Section 14 of the Central Excise Act, 1944 had the appropriate material before it to arrive at a conclusion as to why he considers it necessary to
issue the summons under Section 14.
In this respect, the decision relied upon by Mr. KN Choudhury, learned Senior Counsel for the petitioner rendered by the Hon’ble Supreme
Court in Sheo Nath Singh Vs. Appellate Assistant Commissioner of Income Tax, Calcutta reported in (1972) 3 SCC 234 would also be relevant. In
paragraph 10 thereof the Hon’ble Supreme Court has held as follows:
“10. In our judgment, the law laid down by this Court in the above case is fully applicable to the facts of the present case. There can be no manner
of doubt that the words “reason to believe†suggest that the belief must be that of an honest and reasonable person based upon reasonable
grounds and that the Income Tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income Tax
Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to
the belief required by the section. The Court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot
be investigated by the Court.â€
On a reading of paragraph 10 of the aforesaid Judgment of the Hon’ble Supreme Court, it is to be understood that the expression ‘reasons
to believe’ would require the appropriate authority to have certain reasonable ground either based on direct or circumstantial evidence and the
same cannot be based upon a mere suspicion, rumour or presumption. In the instant case, when the expression ‘he considers necessary’ as
appearing in Section 14 is examined, it is found that the purpose and purport of the said expression is similar to that of ‘reasons to believe’ and,
therefore, the law pronounced by the Hon’ble Supreme Court in respect of the expression ‘reasons to believe’ would also be applicable for
understanding the expression ‘he considers necessary’.
In the instant case, as submitted by Mr. B Sarma the basis for the authorities to arrive at a conclusion that the Central Excise Officer considers it
necessary to summon the petitioner under Section 14 is the communication dated 18.10.2013, where the said communication provides that from the
reply of the petitioner, it is evident that the taxable income has been earned by the petitioner. In other words, the reasons for arriving at such
satisfaction is the reply of the petitioner dated 04.10.2013. But as concluded above, when the communication dated 04.10.2013 is looked into, it is
noticed that all that the petitioner states is that they are not engaged in any scientific and technical consultancy services. A mere denial by the
petitioner cannot be the basis or reasons for the purpose to conclude that the petitioner is engaged in earning taxable income and in order to arrive at
such conclusion some further materials leading to such satisfaction would be necessary.
Further, Section 14 of the Central Excise Act, 1944 is as under: Power to summon persons to give evidence and produce documents in inquiries
under this Act. -
(1) Any Central Excise Officer duly empowered by the Central Government in this behalf, shall have power to summon any person whose attendance
he considers necessary either to give evidence or to produce a document or any other thing in any inquiry which such officer is making for any of the
purposes of this Act. A summons to produce documents or other things may be for the production of certain specified documents or things or for the
production of all documents or things of a certain description in the possession or under the control of the person summoned.
(2) All persons so summoned shall be bound to attend, either in person or by an authorised agent, as such officer may direct; and all persons so
summoned shall be bound to state the truth upon any subject respecting which they are examined or make statements and to produce such documents
and other things as may be required: Provided that the exemptions under Sections 132 and 133 of the Code of Civil Procedure, 1908 (5 of 1908) shall
be applicable to requisitions for attendance under this Section.
(3) Every such inquiry as aforesaid shall be deemed to be a ""judicial proceeding"" within the meaning of Section 193 and Section 228 of the Indian
Penal Code, 1860 (45 of 1860).
From a reading of Section 14, it is apparent that a condition precedent to issue a summons under Section 14 is that the concerned Central Excise
Officer has to ‘consider it necessary’ that the summons is required to be issued in order to compel the person concerned to provide with the
required evidence as indicated therein. Therefore, if the element of ‘he considers necessary’ is absent in a given case, the condition precedent
is not satisfied and any such summons issued under Section 14 of the Central Excise Act. 1944 would be unsustainable.
In such view of the matter, this Court is of the view that the summons dated 06.12.2013 under Section 14 of the Central Excise Act, 1944 is not
sustainable in the present form. However, if the department is of the view that the petitioner is earning certain taxable income, it is also prerogative of
the department to arrive at an appropriate satisfaction and conclusion that they are in fact doing so.
Accordingly, it is deemed that the interest of justice would be met, if the petitioners are required to submit a substituted reply to the communication
dated 10.09.2013 providing all the relevant materials to enable the Department to arrive at a conclusion that they are not doing any scientific or
technical consultancy services. Upon such material being produced, it would be appropriate for the department to arrive at a conclusion as to whether
the petitioners had earned any taxable income or not.
In terms of the above, this writ petition is disposed of. The petitioner may now submit a substituted reply to the communication dated 16.09.2013 in
order to enable the department to arrive that they are not doing any scientific or technical consultancy services and upon such reply being submitted
the department shall proceed and arrive at their own conclusion.
As the summons issued under Section 14 has been interfered with on a technical ground, it is also provided that the petitioner shall submit their
substituted reply to the communication dated 16.09.2013 within a period of 1(one) month from today and thereupon the department shall proceed as
per law.