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M/S. Shoeline v. The Commissioner of Service Tax

Civil Appeal · 2017 INSC 738Decided 10 Aug 2017
Civil Appeal No. 10214 of 2017
Justice A.K. Sikri · Justice Ashok Bhushan

Background

Shoeline, an exporter, was asked to pay service tax on commissions paid to overseas agents for securing export orders. After its objections were rejected and the tax demand confirmed by the Joint Commissioner in February 2008, Shoeline did not file a statutory appeal but instead paid the tax in instalments over several years. Only in March 2012, more than four years later, after other taxpayers had succeeded in similar litigation and a government circular clarified that such service tax liability only arose from 18 April 2006, did Shoeline file a writ petition challenging the demand, which both the Single Judge and Division Bench of the High Court dismissed as time-barred.

Decision Breakdown

The Supreme Court held that Shoeline was a "fence-sitter" who could not benefit from a favourable ruling obtained by others in separate litigation after itself choosing not to challenge the demand for over four years and instead paying it in instalments; such belated, opportunistic litigation is barred by laches and delay. However, since it was now settled law that service tax on such overseas commissions was not legally payable for the 2004-2006 period in question (the charging provision, Section 66A, only came into force on 18 April 2006), the Court held this declaration of law applied "in rem" to everyone, not just litigants, so while Shoeline could not claim a refund of the tax itself (having delayed too long), it could not fairly be made to pay interest and penalty on a tax that was never legally due. The appeal was therefore partly allowed, setting aside only the interest and penalty components.

Lesson Learnt

Delay in challenging a government demand can bar a taxpayer from getting a refund even if the underlying tax turns out to have been illegal, but courts may still grant partial relief (such as waiving interest/penalty) where fairness demands it, even when a refund of the principal amount is denied for being too late.

Official source (sci.gov.in)View Judgment (PDF)

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