By TIOL News Service

KOLKATA, APRIL 18, 2016: THE petitioner challenges a show cause-cum-Demand Notice dated 21st April, 2006 demanding service tax of Rs. 65.25 crores for the period 1st October, 2000 to 31st March, 2005 and also a hearing notice dated 13th August, 2013 issued more than seven years after issuance of the Show Cause-cum-Demand Notice, both of which according to the petitioner, are illegal and non est in the eye of law.

In an exhaustive submission while narrating the fate of other SCNs issued to the petitioner; doubling of demand and the enquiries conducted by the department and the fallacy in the allegations leveled against them; that the demand is time barred, the petitioner also mentioned that they had applied under the RTI Act, 2005 and enquired - ‘as to how many show cause notices issued by the department in the year 2006 or prior thereto were pending for adjudication'.

The answer given to this RTI application was 'NIL' and the petitioner informs that it is the same person, who affirmed the affidavit-in opposition in the instant proceeding on behalf of the department who had issued the reply to the petitioner's application under the RTI Act.

Inasmuch the petitioner contends that the respondents have maliciously issued the said hearing notice in respect of the impugned show cause notice which does not exist in the departmental records for adjudication .

It is further submitted that although there may be no time limit for adjudication of SCNs issued by the department, the same should be done within a reasonable period of time i.e. preferably within three years and not later than five years. Decisions of the apex Court were cited in this regard viz. State of Punjab-vs.-Bhatinda District Co-op. Milk P Union Ltd. = 2007-TIOL-176-SC-CT . , Government of India-vs.-Citedal Fine Pharmaceuticals = 2002-TIOL-680-SC-CX .

The Counsel for the department submitted that the petitioners are not entitled to approach the High Court merely against the issuance of a notice of personal hearing and that the SCN issued is also a valid one. Case laws by the dozen were cited in support viz. Apcotex Industries vs. Union of India = 2011-TIOL-78-HC-MUM-CUS , CST vs. The People's Choice = 2014-TIOL-431-HC-KAR-ST , JK Steel vs. Union of India = 2002-TIOL-332-SC-CX-LB , Daelim Industrial Co. = 2003-TIOL-110-CESTAT-DEL Jyoti Ltd. = 2007-TIOL-2337-CESTAT-AHM , CCE, New Delhi vs. Bhagsons Paints Indus. (India) = 2003-TIOL-21-SC-CX , CIT vs. Tara Agencies = 2007-TIOL-124-SC-IT ,

After considering the elaborate submissions made by both sides, the High Court observed thus -

Maintainability:

+ If it be held finally that the extended period of limitation was wrongly invoked by the authority in issuing the impugned show cause notice, the logical conclusion would be that the show cause notice was issued without jurisdiction. In that event, this Court will be justified in interfering with the show cause notice in the exercise of its Writ Jurisdiction. It is trite law that an authority cannot confer on itself jurisdiction to do a particular thing by wrongly assuming the existence of a certain set of facts, existence whereof is a sine qua non for exercise of jurisdiction by such authority. An authority cannot assume jurisdiction to do a particular thing by erroneously deciding a point of fact or law. In the instant case, since the petitioner has challenged the jurisdiction of the authority to issue the impugned show cause notice, in my view the Writ Petition cannot be rejected at the threshold. Whether or not the petitioner will ultimately succeed on merits is a different question altogether. However, it cannot be said that the Writ Petition is not maintainable at all and should not be entertained for adjudication .

Limitation:

+ The show cause cum demand notice is dated 21st April 2006 and pertains to the period 1st October, 2000 to 31st March, 2005.

+ In the impugned notice it is stated inter-alia as follows:-

"It would be evident from the foregoing that had the investigation not been conducted, the fact of providing such service by the said noticee would have remained unearthed. Hence, the extended period of 5 years is invocable for issuing show cause notice to the said noticee as per proviso to Section 73(1) of the said Act since the said noticee wilfully suppressed the material facts to the Department with intent to evade payment of service tax and education cess as stated in foregoing paragraphs."

+ A mere mechanical reproduction of the language of the proviso to Section 73(1) of the Finance Act, 1994 does not per se justify invocation of the extended period of limitation. A mere ipse dixit that the noticee willfully suppressed the material facts with intent to evade payment of service tax is not sufficient. The notice must contain particulars of facts and circumstance in support of such allegation. Even if such particulars are not included in the notice, the Department should be in a position to justify and/or substantiate its allegation of suppression of material facts on the part of the noticee.

+ It appears that the Petitioner was diligent in responding to all the notices issued by the Department and in its replies, the Petitioner clearly explained the nature and scope of its business. Specimen copies of contracts entered into by the Petitioner when its clients were also made available to the Department. In my view there was full and sufficient disclosure of the nature of the Petitioner's business to the Department and it cannot be said that the Petitioner suppressed material facts to keep the Department in the dark with an intent to evade payment of service tax.

+ Suppression of fact in the context of this case can only mean non-disclosure of correct information deliberately to evade payment of service tax. There must be an element of fraud and dishonest motive before a non-disclosure simplicitor can be called "suppression of facts". In the present case, the Petitioner suppressed nothing and maintained all through out that it did not carry on business as consulting engineer and as such was not liable to pay service tax under that head. Even if such perception of the Petitioner was founded to be erroneous subsequently still the same would not, in my mind, amount to suppression of fact. Unless a party deliberately conceals material facts with a dishonest motive of eroding some liability or making some unlawful gain, he cannot be said to be guilty of suppression of facts.

+ Once the information is supplied pursuant to the directions of the revenue authority and information so supplied has not been questioned, a belated demand has to be held to be barred by limitation. [ Commissioner of Central Excise, Chandigarh -Vs- Punjab Laminates Pvt. Ltd. = 2006-TIOL-109-SC-CX , Chennai Petroleum Corporation Ltd. = 2007-TIOL-66-SC-CX , Chemphar Drugs and Liniments, Hyderabad = 2002-TIOL-266-SC-CX , Anand Nishikawa Co. Ltd = 2005-TIOL-118-SC-CX , Bajaj Auto Ltd. = 2010-TIOL-94-SC-CX. relied upon.]

+ In view of the aforesaid the impugned show cause notice and consequently, the impugned notice of hearing cannot be sustained .

Other grounds:

+ There cannot be double assessment for the period 10th September, 2004 to 31st September, 2005 as the department has sought to do. The periods pertaining to which the show cause notice dated 21st April, 2006 and the show cause notice dated 7th September, 2009 were issued, overlapped to an appreciable extent. This is not permissible in law. Two show cause notices could not have been issued in relation to the same period. The impugned show cause notice, therefore, cannot be sustained.

+ It appears that the demand raised therein is pre-determined. The language of the notice suggests so. For example, the notice states, inter alia, that the noticee has rendered itself liable to penal action under Sections 76 and 78 of the Finance Act, 1994. Thus the Commissioner appears to have already made up his mind and come to a conclusion that the petitioner has evaded payment of service tax and education cess. When a demand is pre-determined, the same ceases to be in the realm of a show cause notice [ Siemens Ltd. = 2006-TIOL-190-SC-CESS refers].

+ It would appear from the documents on record as also the pleadings filed by the parties that the impugned show cause notice was issued by the Commissioner of Service tax in view of the observations of and at the instance of the audit team of CERA. It is well settled that a quasi-judicial authority must act independently and not at the dictates of some other authority. It is quite evident that the Commissioner issued the impugned show cause notice at the instance of CERA without any independent application of mind and, thereby, abdicated his powers and duty, which is not permissible in law. [ Orient Paper Mills Ltd. = 2002-TIOL-342-SC-CX refers]

+ Adverting to the Apex Court decision in Larsen & Toubro Ltd. [ 2015-TIOL-187-SC-ST ], the High Court concluded that service contracts simpliciter and not composite works contracts come within the service tax net under the provisions of the Finance Act; the petitioner is involved in performance of composite works contracts and vivisection of such contracts to segregate the service element and impose service tax on the same is not permissible.

The SCN dated 21st April 2006 and the impugned notice of hearing dated 13th August 2013 are quashed.

(See 2016-TIOL-779-HC-KOL-ST)