Rattan India Power Limited Vs. Union of India

By this writ petition filed under Article 226 of the Constitution of India, the Petitioner seeks to quash and set aside the order passed by Respondent No. 3, the Principal Commissioner of Goods and Service Tax and Central Excise. This order levied service tax on the amount paid by the Petitioner to the State of Maharashtra for irrigation restoration charges. The Respondents have put forth a preliminary contention that the writ petition should not be entertained. They argue that the petitioner has an alternative and efficacious remedy of appeal to the Customs, Excise, and Service Tax Appellate Tribunal and that no exceptional circumstances exist to justify interference in writ jurisdiction. The primary issue to be decided is whether the writ petition should be entertained, given the availability of the alternative remedy. On 21 January 2003, Respondent No. 4, the State of Maharashtra, passed a government resolution concerning water allocation for non-irrigation purposes, such as industrial use. This resolution stated that the buyer would be responsible for paying the water charges. Additionally, on 21 February 2004, the State of Maharashtra issued a Circular outlining the procedure for calculating water charges. Regarding charges incurred by the Irrigation Department of the State of Maharashtra for constructing an irrigation network, the Circular specified that the capital cost would be considered. The charges recovered to compensate for the amount of land that could not be irrigated due to water being diverted for non-irrigation use were referred to as Irrigation Restoration Charges. According to the 2004 Circular, the buyer had the option not to pay the capital contribution cost but instead pay a higher interest rate on water charges. The irrigation restoration charges would then be quantified at Rs. 50,000/- per hectare. The petitioner contends that the imposition of service tax on irrigation restoration charges is erroneous as it fundamentally misinterprets the nature of the charges. They assert that these charges are not for any service rendered but are, in fact, in the nature of a compensatory levy for the water diverted from irrigation purposes to industrial use. The petitioner argues that the Circular and resolution by the State of Maharashtra clearly delineate the purpose and nature of these charges, which do not fit within the scope of ‘services’ as defined under the relevant tax provisions. Furthermore, the petitioner highlights that they had made representations and submissions before the Respondent authorities clarifying these points, which were not adequately considered in the impugned order. The petitioner emphasizes that the principle of natural justice has been violated, as the decision to levy service tax was taken without proper consideration of their explanations and the documentary evidence provided. The petitioner also argues that the writ petition is maintainable despite the existence of an alternative remedy. They contend that the case involves a substantial question of law regarding the interpretation of tax statutes and the classification of irrigation restoration charges, which warrants the intervention of the High Court in its writ jurisdiction. The petitioner cites precedents where courts have exercised their writ jurisdiction in cases involving clear misinterpretation of statutory provisions, gross injustice, or where the alternative remedy is not adequate or efficacious. They argue that the circumstances of their case fit within these exceptions. On the other hand, the Respondents maintain that the petitioner should exhaust the statutory appellate remedy provided under the tax laws. They argue that the issues raised by the petitioner can be effectively addressed by the appellate tribunal, which has the jurisdiction to examine the factual and legal aspects of the case comprehensively. The Respondents assert that allowing the writ petition would bypass the statutory procedure and set a precedent for litigants to circumvent the appellate mechanisms established by law. Given the arguments presented, the court needs to determine whether to entertain the writ petition or direct the petitioner to avail the alternative remedy of appeal. The decision hinges on the interpretation of the tax provisions concerning irrigation restoration charges, the adequacy of the alternative remedy, and the principles of natural justice.

The Petitioner, operating a thermal power plant in Amaravati district and registered with the Service Tax department under STC No. AALCS2063DST001, sought to secure a reliable water source for their operations. They identified the Upper Wardha Dam in Simbhora as a potential source and desired to construct a pump station on government land, which was allotted to them by the Vidarbha Irrigation Development Corporation. To facilitate this, the Petitioner approached the State Government for permission to draw 87,600 million litres of water per year. Despite their intentions and the significant volume of water required, the Petitioner had not paid any amount toward the proportional cost of the project’s capital outlay. On 22 May 2012, a formal agreement was reached between the State of Maharashtra and India-Bulls Power Ltd (the Petitioner’s previous name). As part of this agreement, the Petitioner deposited a security amount of Rs. 5,60,640 with the Executive Engineer, Upper Wardha. This deposit was intended to secure the necessary permissions and facilitate the construction and operation of the pump station. The complexity of the arrangements, coupled with the substantial financial and logistical commitments, underscores the Petitioner’s dedication to ensuring a sustainable and reliable water supply for their thermal power plant operations. However, complications arose when the Respondent No. 3, the Principal Commissioner of Goods and Service Tax and Central Excise, issued an order levying service tax on the amount paid by the Petitioner to the State of Maharashtra for irrigation restoration charges. The Petitioner has contended that these charges are fundamentally compensatory and not for any service rendered, thereby challenging the validity of the service tax levy. They argue that the nature of the charges, as defined by the State’s Circulars and resolutions, clearly indicates that these are compensatory levies for diverting water from irrigation to industrial use, and do not fit within the statutory definition of ‘services’ subject to tax. The Petitioner further asserts that despite their representations and clarifications submitted to the Respondent authorities, which explained the nature and purpose of these charges, the impugned order was passed without proper consideration of their submissions, violating principles of natural justice. This led to the filing of the writ petition under Article 226 of the Constitution of India, seeking the quashing of the order and a declaration that the levy of service tax on irrigation restoration charges was erroneous and beyond the scope of the tax provisions. The Petitioner argues that this matter involves a substantial question of law regarding the interpretation of tax statutes and the classification of such charges, justifying the intervention of the High Court in its writ jurisdiction despite the availability of an alternative remedy. They emphasize that the alternative remedy of appeal to the Customs, Excise, and Service Tax Appellate Tribunal is not adequate or efficacious given the specific legal questions involved and the potential for a gross misinterpretation of statutory provisions. On the other hand, the Respondents maintain that the Petitioner should pursue the statutory appellate remedy provided under tax laws, asserting that the issues raised can be effectively addressed by the appellate tribunal, which has the jurisdiction to examine both factual and legal aspects comprehensively. They argue that allowing the writ petition would set a precedent for bypassing established appellate mechanisms, undermining the statutory procedure. The court must now decide whether to entertain the writ petition or direct the Petitioner to exhaust the alternative remedy of appeal, with the decision resting on the interpretation of tax provisions concerning irrigation restoration charges, the adequacy of the alternative remedy, and the principles of natural justice. The backdrop of this case includes significant administrative and financial interactions between the Petitioner and the State Government, involving complex agreements and substantial deposits, all aimed at securing a vital water supply for the thermal power plant, and now entangled in legal challenges over tax classifications and statutory interpretations.

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