2016 (4) TMI 548 - HC - Service Tax

Court Invalidates Notices Due to Limitation and External Influence

Simplex Infrastructures Ltd. Versus Commissioner of Service Tax, Kolkata

The court quashed the show cause notice dated 21st April 2006 and the hearing notice dated 13th August 2013, deeming them invalid due to being barred by ... Maintainability of Writ petition - Show cause notice issued without jurisdiction - Held that:- 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. Here, since the petitioner has challenged the jurisdiction of the authority to issue the impugned show cause notice, 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. Period of limitation - Suppression of facts - Whether Department was justified in invoking extended period of limitation for the purpose of issuing impugned show cause notice - Held that:- 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 wilfully 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. Any suppression on the part of the Petitioner as would entitle the Department to invoke the extended period of limitation was not found. 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. So, there was full and sufficient disclosure of the nature of 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. Also it is stated in the impugned show cause notice itself that the same has been issued on the basis of the records submitted by the Petitioner. Hence, there appears to be no basis in the Department’s contention that the Petitioner suppressed material facts with an intent to evade payment of service tax. 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. The Petitioner furnished all information that was called for by the Department from time to time. 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. Therefore, the impugned show cause notice is hopelessly barred by limitation. There was absolutely no ground or justification for issuing such notice by invoking the extended period of limitation. None of the preconditions necessary for taking recourse to the extended period of limitation exists in the facts of this case and by wrongfully invoking the extended period of limitation the Commissioner conferred on himself a jurisdiction which he otherwise did not have. Hence, the impugned show cause notice and consequently, the impugned notice of hearing are unsustainable. Sustainability of two show cause notice for same period - Show cause notice dated 21st April, 2006 pertains to the period 1st October, 2000 to 31st September, 2009. Subsequently, the department issued another show cause notice dated 7th September, 2009 covering the period 10th September, 2004 to 15th June, 2005 - Held that:- there cannot be double assessment for the period, overlapped to an appreciable extent. This is not permissible in law as held by this court in the case of Avery India Ltd. vs. Union of India [2010 (3) TMI 778 - CALCUTTA HIGH COURT] following the decision of the Hon’ble Supreme Court in the case of Dankan Industries Ltd. vs. Commissioner of Central Excise, New Delhi [2006 (8) TMI 185 - SUPREME COURT OF INDIA]. Therefore, two show cause notices could not have been issued in relation to the same period and the impugned show cause notice cannot be sustained. Demand of Service tax - Consulting engineering service and architect service - Held that:- the language of the notice suggests that the demand raised therein is per-determined. 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. 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. - Decided in favour of petitioner Issues Involved:1. Legality and validity of the Show Cause-cum-Demand Notice dated 21st April 2006.2. Justification for invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994.3. Whether double assessment for the same period is permissible.4. Whether the issuance of the show cause notice was influenced by external authorities (CERA).5. Whether the delay in adjudication vitiates the proceedings.6. Whether the petitioner suppressed material facts with an intent to evade payment of service tax.7. Whether the impugned show cause notice was pre-determined.8. Whether the petitioner’s services fell under the category of consulting engineering services.Detailed Analysis:1. Legality and Validity of the Show Cause-cum-Demand Notice:The petitioner challenged the show cause-cum-demand notice dated 21st April 2006, claiming it was issued beyond the stipulated period of 18 months and thus without jurisdiction. The court held that if the extended period of limitation was wrongly invoked, the notice would be without jurisdiction, justifying interference by the Writ Court. The court found that the notice was issued beyond the permissible period and thus barred by limitation.2. Justification for Invoking the Extended Period of Limitation:The Department invoked the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994, alleging suppression of facts by the petitioner. The court held that a mere mechanical reproduction of the statutory language does not justify the invocation of the extended period. There must be specific particulars of facts and circumstances supporting the allegation of suppression. The court found no such particulars in the notice and concluded that the petitioner had not suppressed material facts.3. Double Assessment for the Same Period:The court noted that the impugned show cause notice dated 21st April 2006 overlapped with another notice dated 7th September 2009, covering the period 10th September 2004 to 15th June 2005. The court held that double assessment for the same period is not permissible under the law, citing the decision in Avery India Ltd.-vs.-Union of India.4. Influence by External Authorities (CERA):The court found that the show cause notice was issued at the instance of the audit team of CERA without independent application of mind by the Commissioner. This abdication of duty by the Commissioner was deemed impermissible in law, referencing the Supreme Court decision in Orient Paper Mills Ltd.-vs.-Union of India.5. Delay in Adjudication:The court acknowledged that although there may be no statutory time limit for adjudication, it should be completed within a reasonable period. The court referenced several judgments emphasizing that undue delay vitiates the proceedings. The court found the delay in this case unjustifiable.6. Suppression of Material Facts:The court concluded that the petitioner had not suppressed material facts, as it had consistently responded to the Department's inquiries and provided necessary documents. The court held that suppression requires a deliberate act with intent to evade tax, which was not evident in this case.7. Pre-determined Nature of the Notice:The court found that the language of the impugned notice suggested a pre-determined conclusion regarding the petitioner’s liability, rendering the notice invalid. The court referenced the Supreme Court decision in Siemens Ltd.-vs.-State of Maharashtra, which held that a pre-determined notice ceases to be a show cause notice.8. Classification of Services:The court did not delve deeply into the classification issue but referenced the Supreme Court decision in Commissioner, Central Excise and Customs, Kerala-vs.-M/s. Larsen & Toubro Ltd., which held that only service contracts simpliciter, not composite works contracts, fall within the service tax net. The court noted that the petitioner was involved in composite works contracts, which are not taxable under the Finance Act.Conclusion:The court quashed the impugned show cause notice dated 21st April 2006 and the hearing notice dated 13th August 2013, holding them invalid on multiple grounds, including being barred by limitation, influenced by external authorities, and pre-determined in nature. The court emphasized the need for specific allegations of suppression and the impermissibility of double assessment for the same period.