In a recent judgment of Calcutta High Court in Simplex Infrastructure Ltd. vs. Commissioner of Service Tax, Kolkata (2016) 42 STR 634 (Calcutta), the doctrine, the question of limitation is a question of jurisdiction, although an established law has been examined at great length with reference to show cause notices issued for recovery of service tax. Therefore a brief analysis of observations of the Hon. High Court in the said case is provided below:
Petitioner’s case in brief:
The petitioners in the instant case were engaged in civil construction activity. They obtained registration under construction service in October, 2004. Prior to this, the department had initiated inquiry in June 1998 regarding applicability of service tax as consulting engineer. This was replied to by the petitioner promptly stating that they were engaged in civil construction and were not liable to pay service tax as consulting engineer. Since the matter was not pursued further for six years it was understood as concluded by the petitioner. Again in April, 2004, the petitioners on receipt of the inquiry, denied their liability to pay service tax as consulting engineer. Again, there was no communication for 16 months till the department issued summons in September 2005. This was followed by a show cause notice in April, 2006 invoking longer period of limitation alleging suppression and demanding service tax for the period October 2000 to March 2005. The petitioner filed a reply to this show cause notice reiterating that they did not act as consulting engineer etc. Until three years there was complete silence at the end of which another show cause notice was issued in September 2009 involving period of September 2004 to June 15, 2005. The said second show cause notice culminated in an order confirming demand of service tax with interest and imposing equal amount of penalty. Subsequent to this, the petitioner received intimation for hearing for the earlier show cause notice issued in 2006. The petitioner replied to this stating that no hearing could take place 7 years after issuing show cause notice as they did not have record of the same and that under the law, the assessee is required to maintain records for five years only. Further already adjudicated subsequent show cause notice included part of the period covered in the earlier show cause notice. Hence there could not be dual assessment for the same period under the law. Petitioner’s grievance among others was that though there may be no time limit for adjudication of show cause notices by the department, it should be done in a reasonable time frame. For this reliance was placed on Supreme Court’s decisions in State of Punjab vs. Bhatinda District Co-op. Milk P Union Ltd. (2007) 11 SC 363 and in Government of India vs. Citetdal Fine Pharmaceuticals 1989 (42) ELT 515. In both the cases, it was observed by the Apex Court that in absence of any period of limitation, the statutory authority must exercise its power within a reasonable period. Similarly, Bombay High Court in Hindustan Lever Ltd. vs. Union of India (2012) 22 taxman.com 367(Bom), observed that it is well settled that adjudication proceedings have to be concluded in reasonable time and if not done, they stand vitiated on the said ground. Also in Bhagwandas S. Tolani vs. B C Aggarwal 1983 (12) ELT 44 (Bom), Universal Generics (P) Ltd. vs. Union of India 1993 taxmann.com 30 (Bom) and in Biswanath & Co. V. Union of India 2010 (257) ELT 30 (Cal), the Courts have set aside either the show cause notice or the order, as the case may be. Sum and substance of the petitioner’s pleadings was to hold the hearing notice and the show cause notice as non-est and invalid. Reliance was placed by the petitioner also on the decisions in CCE vs. Mohan Bakers (P) Ltd. 2009 (241) ELT A23 and Giriraj Industries vs. CCE 2009 (242) ELT A84 wherein the Courts held/affirmed respectively that show cause notice issued after two years/15 months from the date of inspection/cause of action, the proceedings initiated were without following the due process of law.
Revenue’s contentions in brief:
On behalf of revenue, relying on the decision in Surya Alloy Industries Ltd. vs. Union of India 2014 (305) ELT 340 (Cal) it was contended that High Court’s interference on classification issues challenged through writs was not maintainable and the petitioners should be directed to agitate their grievance before the revenue authorities. The revenue further pointed out that in Indian Cardboard Industries vs. Collector of Central Excise 1991 taxmann.com 847 (Cal) it was observed that ordinarily, High Court should not embark to decide the factual disputes but relegate the party to submit the reply before authority concerned who is obliged to decide the same. The said rule however is not free from exceptions which are quoted below:
1 When the show cause notice is ex facie or on the basis of admitted facts does not disclose the offence alleged to be committed;
2 When the show cause notice is otherwise without jurisdiction;
3 When the show cause notice suffers from an incurable infirmity;
4 When the show cause notice is contrary to judicial decisions or decisions of the Tribunal;
5 When there is no material justifying the issuance of the show cause notice.
According to revenue, none of the above applied to the petitioner’s case. Reliance by revenue was also placed on the decision of ACST vs. P. Kesavan & Co. 1996 taxmann. com 1512 and it was contended that the rule must apply even to cases where sufficient evidence is placed before the writ Court for an unambiguous conclusion upon technical matters and made reference to Apcotex Industries vs. Union of India 2011 (271) ELT 46. The revenue among others also contended that issuing notice for personal hearing after a delay of seven years did not vitiate the case of the department against the petitioner as the Finance Act, 1994 contains no bar to continue adjudication proceedings and relied on the decision of Hon. Supreme Court in the case of CCE vs. Bhagsons Paints Industries (India) 2003 taxmann. com 315 (SC) wherein the Supreme Court overruled the decision of the Tribunal and allowed adjudication proceedings to be completed nine years after issuance of show cause notice as the statute did not prescribe any time limit. The revenue contended further that show cause notice of 2006 was issued within seven months of the summons dated September 2005 whereas inspection made in 1998 was for the period not covered by the 2006 show cause notice. Only after subsequent inquiries in 2004 and 2005, the impugned show cause notice was issued within seven months.
Court’s view:
The Court’s observations based on rival submissions are summarized as follows:
On the maintainability of the writ petition, it was held that extended period of limitation was wrongly invoked and the logical conclusion would be that the show cause notice was issued without jurisdiction. In such event, the Court is justified in interfering with the show cause notice in exercise of its Writ Jurisdiction. The court observed,
“It is trite law that an authority cannot confer on itself to do a particular thing by wrongly assuming the existence of 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.”
“There cannot be dispute that the question of limitation is a question of jurisdiction and the Commissioner has no authority and/or jurisdiction to issue notice after the period of limitation prescribed in the Finance Act, 1994.”
The Court in this frame of reference relied on Raza Textiles Ltd vs,. ITO AIR 1973 SC 1362 and Shrisht Dhawan vs. Shaw Brother (1992) 1 SCC 534 wherein the proposition of Raza Textriles (supra) was reiterated that a Court or a Tribunal cannot confer jurisdiction on itself by deciding a jurisdictional fact wrongly. Also citing Calcutta Discount Co. Ltd. vs. ITO AIR 1961 SC 372, the Court held that preliminary issue of maintainability of the writ petition is decided in favour of the petitioner and the writ cannot be dismissed in limine as unmaintainable.
On merits, after examining provisions of section 73 of the Finance Act 1994 under which the show cause notice was issued vis-à-vis the facts of the case, it was observed that the show cause notice was issued much beyond 18 months from the date when according to the department service tax was found payable. The Court expressed a clear view that a mere mechanical reproduction of the language of the proviso to section 73(1) of the Act 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 and that the department should be able to substantiate its allegation of suppression even if it is not included in the notice. The Court categorically found that to its mind, the instant case was not of suppression by the petitioner as they had provided copies of balance sheets and specimen contracts in 1996 & were found diligent in their response to all the notices. The impugned show cause notice merely contained a sweeping statement that had investigation not been conducted, material facts would not have been unearthed. There is no whisper as to the fact that was alleged as suppressed. The Court found that once the information called for was supplied and was not questioned, a belated demand has to be held to be barred by limitation.
For this, Punjab Laminates P. Ltd. 2006 (202) ELT 578 and CCE vs. Chennai Petroleum Corpn. Ltd. (2007) 8 STT 168 were relied upon among various other such as CCE vs. Bajaj Auto Ltd. (2010) 29 STT 39 and Anand Nishikawa Co. Ltd. vs. CCE (2005) 2 STT 226 (SC).
The Court found the show cause notice to be hopelessly barred by limitation and noted that even if the Court was to decide the issue of limitation in favour of the department, there were other grounds on which would be compelled to quash the impugned show cause notice. The Bench in this reference indicated the ‘overlapped’ period and consequent double assessment and observed that such dual assessment is impermissible in law. Reliance was placed in case of Dankan Industries Ltd. vs. CCE 2006 (201) ELT 517 (SC) and found that the demand was rather predetermined. Further citing the case of Siemens Ltd. vs. State of Maharashtra 2007 (207) ELT 168 (SC), it was observed that ordinarily a writ Court may not exercise its discretionary jurisdiction in entertaining a writ petition questioning a Noticee to show cause unless the same inter alia appears to have been issued without jurisdiction, the question has to be considered from a different angle when a notice is issued with pre-meditation.
The Court finally also observed that as pleaded by revenue, the case in no way involved justifiability of classification but of sustainability of a show cause notice and allowed the assessee’s writ quashing the show cause notice of 2006 and dismissed all appeals filed by revenue in this regard.
Conclusion:
When alternate remedy is available and as categorically provided by Hon. High Court in the case of Indian Cardboard Industries (supra), the High Court interferes with the adjudication process in exceptional cases and in particular when there is a clear questionability of jurisdiction involved is proven to the Court. Service tax department in a number of cases may have exceeded its jurisdictional authority. However, considering cost and / or time factor or for want of adequate evidence, not many approach Courts to interfere in the matter. The analysis in the case above serves a good guidance to determine viability depending on facts of each case.
