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When Show Cause Notice is issued on the basis of allegation of “suppression of facts”, department must specify particulars of allegedly suppressed facts, otherwise such SCN issued by invoking extended period of limitation is bad in law.
Facts
Department initiated an enquiry in the year 1998 for levy of service tax under consulting engineer service. The petitioner clearly replied that they were engaged in civil engineering construction and therefore were not consulting engineers. An enquiry was again initiated in the year 2004 which was duly attended to. Thereafter summons were issued after almost 16 months which was also duly replied to. Finally, without making any reference to the previous notices, department issued a show cause notice in the year 2006 for the period October 2000 to March 2005 by invoking extended period of limitation on the ground of suppression of facts with an intention to evade service tax. A reply was filed to the said notice. Another show cause notice was issued in the year 2009 for the period September 2004 to June 2005. This notice culminated in an order in February, 2012. Thereafter in 2013 a personal hearing notice was received for the notice pertaining to 2006. The said notice invoking extended period by alleging suppression of facts which were actually known to the department since 1998 as well as the notice of hearing which was issued after almost 7 years is challenged in the present writ.
Held
The High Court firstly noted that the question of limitation is a question of jurisdiction and therefore the writ is maintainable. As regards allegations of suppression of facts, it was noted that all the enquiries raised by the department were diligently replied and the scope of business was also explained. Further the notice itself provided that the same was issued on basis of records submitted. In the notice there is no allegation of any conscious act constituting fraud, collusion or suppression of facts but a sweeping statement is made that had investigation not been conducted material facts would not have been unearthed. Relying upon various judicial precedents, i.e. CCE vs. Chennai Petroleum Corpn. Ltd. [2007] 8 STT 168, CCE vs. Chemphar Drugs and Liniments 1989 taxmann.com 612 (SC), Anand Nishikawa Co. Ltd. vs. CCE [2005] 2 STT 226 (SC), it was held that it is well known preposition that mere failure to disclose a transaction and pay tax thereon or mere misstatement or contravention of provisions of law is not sufficient for invocation of extended period of limitation. There has to be a positive, conscious and deliberate action, viz. a deliberate misstatement/suppression, in order to evade payment of tax. Once the information is supplied to the revenue authority and the same is not questioned, a belated demand has to be held as barred by limitation [CCE vs. Punjab Laminates (P.) Ltd. 2006 (202) ELT 578 (SC) replied upon]. Further while quashing the notice, the court also held that two show cause notices cannot be issued for the same period and further the notice issued with a pre-determined mind at the instance of a CERA Audit is also not sustainable. It was also held that a quasijudicial authority must act independently and not at the dictates of some other authority. Further on merits also it was held that Civil Engineering Construction carried on by the petitioner being a composite works contract cannot be vivisected to segregate the service element as held by the Supreme Court in the case of C,CE&C vs. Larsen & Toubro Ltd [2016] 60 taxmann.com 354. Thus the writ was allowed.
Note: Readers may note that, the case involves a principle which could be of use in matters involving extended period of limitation. Recently, Hon’ble Bombay High Court, in the case of Excel Production Audio Visuals (P.) Ltd vs UOI, [2016] 69 taxmann.com 94 (Bombay), quashed the adjudication order which was passed almost 16 months after the date of hearing and directed re-adjudication.
