Sale Or Service Taxability Disputes Can Only Be Challenged Before Supreme Court: Telangana High Court

The Telangana High Court has held that disputes involving whether a transaction constitutes a “sale of goods” or a “service” raise questions of taxability and are not maintainable under Section 35G of the Central Excise Act, as such issues lie within the appellate jurisdiction of the Supreme Court under Section 35L.

A Division Bench of Justices P. Sam Koshy and Narsing Rao Nandikonda dismissed the appeal filed by the Commissioner of Central Tax & Customs against Zoom Technologies (India) Pvt. Ltd. The judges held:

“Wherever the question of law pertains to the rate of duty or the value of the goods or where the question of law raised is either the determination of the taxability part or the exicisability of the goods, an appeal would lie only to the Supreme Court and not to the High Court.”

The Court was hearing an appeal arising from an order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad, which had been challenged by the Department under Section 35G. The dispute related to the tax treatment of transactions involving grant of rights to use information technology software.

The Department contended that the transaction amounted to commercial exploitation of software and was taxable as Information Technology Software Service (ITSS) under the Finance Act, 1994. It further argued that the respondent was rendering taxable services and that the transaction attracted service tax. The respondent, however, objected to the maintainability of the appeal and disputed the classification of the transaction as a service.

The Court observed that the real issue was not merely contractual interpretation but the determination of taxability itself. It held that issues concerning taxability, excisability, classification of goods or services, and rate of duty fall within Section 35L and are appealable only before the Supreme Court, not the High Court.

Relying on decisions of the Karnataka, Bombay, and Gauhati High Courts, the Bench reiterated that such disputes cannot be examined under Section 35G. It observed:

“the grounds of challenge to the impugned order and the proposed substantial questions of law are not grounds which would be permissible for the appellant to challenge under Section 35G, rather these are grounds which would be perhaps available to the appellant under Section 35L of the Central Excise Act, 1994 only before the Supreme Court.”

Accordingly, the High Court dismissed the appeal as not maintainable, granting liberty to the Department to approach the Supreme Court.

For Appellant: Mr. Vijhay K. Punna, Senior Standing Counsel for the CBIC

For Respondent: Mr. Narendra Dave, Advocate