Rajasthan HC Declines To Quash ₹1.24-Crore Service-Tax Notice Against Freight-Corridor Contractor, Leaves Exemption Claim To Adjudication

The petitioner challenged summonses issued under Section 70 of the Central Goods and Services Tax Act, 2017 (CGST Act), and a show cause notice dated 22 October 2021 proposing a service-tax demand of ₹1,24,39,722 for 2016–17 and the first quarter of 2017–18.

The demand concerned earthwork and related construction performed by the petitioner as a subcontractor on the Western Dedicated Freight Corridor.

The petitioner claimed exemption for works-contract services, while the department alleged that the services were taxable and that the extended limitation period applied.

The petitioner sought writ relief before adjudication of the notice.

A writ petition against a show cause notice is ordinarily premature; interference is warranted where the notice is wholly non est for absolute want of jurisdiction, not where the challenge concerns matters for adjudication (*The Special Director v. Mohd. Ghulam Ghouse* and *Union of India v. Kunisetty Satyanarayana*).

Section 174(2)(e) of the CGST Act preserves and permits institution of investigations and proceedings relating to liabilities under the former law; under Section 83 of the Finance Act, 1994, Section 14 of the Central Excise Act, 1944 applies to service tax. A wrong statutory reference does not invalidate an action where the power exists under another provision (*N. Mani v. Sangeetha Theatres*; *Collector of Central Excise v. Pradyumna Steel Ltd.*).

Under the former service-tax regime, Section 73 governs limitation; the extended period requires fraud, collusion, wilful misstatement, suppression, or a specified contravention with intent to evade. Suppression requires deliberate failure to disclose with intent to evade, and mere non-payment is insufficient (*Continental Foundation Joint Venture v. Commissioner of Central Excise*; *Uniworth Textiles Ltd. v. Commissioner of Central Excise*).

Classification, exemption and disputed factual questions are ordinarily for the statutory adjudication and appeal process.

Section 174(2)(e) preserved the authority’s power to investigate and adjudicate the pre-GST service-tax liability; the citation of Section 70 of the CGST Act and the reference to an omitted definition did not establish an absence of jurisdiction.

Whether the petitioner’s contracts involved a transfer of goods leviable to tax as a sale, whether the subcontracted work qualified for exemption, and whether the petitioner suppressed material facts depended on contracts, invoices, measurement records and other evidence.

The limitation defence likewise depended on whether the extended-period conditions were proved, so those issues could not be resolved on affidavits at the notice stage.

The pre-show-cause consultation circular excluded offence-related notices, and this notice arose from an Anti-Evasion investigation following searches.

The statutory adjudication and appeal mechanisms were therefore the appropriate forum.

It left all issues open and permitted the petitioner to reply to the show cause notice; the competent authority was directed to grant a personal hearing and pass a reasoned order, uninfluenced by the dismissal or the Court’s prima facie observations.