2020 (11) TMI 84 - HC - Service Tax

Court quashes tax order for lack of clarity, emphasizes need for detailed show cause notices

R. Ramadas Versus The Joint Commissioner of Central Excise, The General Manager (Finance/Tax)

The court found that the demand for service tax in the impugned order did not align with the proposals in the show cause notice, lacking specificity and ... Validity of SCN - Demand of Service Tax - Site formation and clearance, excavation, earth moving and demolition services - Works contract service - Maintenance and Repair service - main grounds raised by the petitioner is that the demand of service tax on the grounds relied upon in the impugned order is not in conformity with the proposals made in the show cause notice and that the notice is vague and without any details - HELD THAT:- It is a settled proposition of law that a show cause notice, is the foundation on which the demand is passed and therefore, it should not only be specific and must give full details regarding the proposal to demand, but the demand itself must be in conformity with the proposals made in the show cause notice and should not traverse beyond such proposals. The show cause notice issued to the petitioner, is a proposal to demand service tax on manpower recruitment or supply agency; management, maintenance or repair services; works contract; and commercial or industrial construction - Apparently, the demand of service under the aforesaid heads were not specifically proposed in the show cause notice dated 13.10.2014. Furthermore, the petitioner had expressed his inability to raise his objections to the show cause notice since the notice did not indicate the respective services under which the proposal for demand of service tax was made. However, without adhering to his objections, the impugned adjudication order has been passed. The very purpose of the show cause notice issued is to enable the recipient to raise objections, if any, to the proposals made and the concerned Authority are required to address such objections raised. This is the basis of the fundamental Principles of Natural Justice. In cases where the consequential demand traverses beyond the scope of the show cause notice, it would be deemed that no show cause notice has been given, for that particular demand for which a proposal has not been made - the impugned adjudication order cannot be sustained, since it traverses beyond the scope of the show cause notice and is also vague and without any details. Petition allowed. Issues:Demand of service tax not in conformity with show cause notice, Vagueness and lack of details in the notice, Scope of show cause notice, Fundamental Principles of Natural Justice.Analysis:The petitioner, a contractor for Nevyeli Lignite Corporation Ltd., filed returns under Service Tax Law for 2009-2010 to 2012-2013. The Department issued a show cause notice proposing service tax on various services. The impugned order demanded service tax for specific services not mentioned in the notice, leading to a challenge in the present Writ Petition.The petitioner contended that the demand was not in line with the proposals in the show cause notice and lacked details. The first respondent argued that the order confirmed service tax after considering all submissions. The court noted the importance of a specific show cause notice as the foundation for any demand, emphasizing that the demand should align with the proposals in the notice.Referring to a previous case, the court highlighted the need for show cause notices to provide clear details to enable recipients to raise objections. The court found that the demand in the impugned order exceeded the scope of the show cause notice and lacked specificity. Therefore, the adjudication order was deemed unsustainable due to its vagueness and deviation from the notice's proposals.Consequently, the court quashed the Order-in-Original and granted the first respondent the opportunity to issue a fresh show cause notice with detailed proposed demands within 30 days. The Writ Petition was allowed, and connected Miscellaneous Petitions were closed without costs. This judgment underscores the significance of adherence to procedural fairness and the requirement for show cause notices to be specific and detailed to ensure fairness and compliance with natural justice principles.