2023 (4) TMI 873 - HC - Service Tax

Court quashes untimely order, rules in favor of petitioner on service tax liability exemptions.

M/s. Bhupinder Singh and Associates Versus Commissioner Central GST and another

M/s. Bhupinder Singh and Associates Versus Commissioner Central GST and another - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether an adjudicating authority must decide a show-cause notice under the Finance Act within the time prescribed by Section 73(4B), and whether failure to do so renders the notice/order liable to be quashed on limitation grounds. 2. Whether, in the absence of a statutory limitation period for adjudication under the relevant provisions, a period of five years constitutes a 'reasonable period' after which assessment/adjudication is time-barred. 3. Whether decisions of High Courts applying a five-year reasonable period and decisions holding that unexplained delay in concluding show-cause proceedings is arbitrary are binding and applicable where no interim stay in higher-court appeals exists. ISSUE-WISE DETAILED ANALYSIS Issue 1: Obligation to decide show-cause notices within the time prescribed by Section 73(4B) and consequences of non-compliance Legal framework: Section 73(4B) of the Finance Act prescribes time limits within which the designated Central Excise/Revenue officer must determine the amount of service tax due in relation to a show-cause notice. Administrative instructions issued by the Board (e.g., directives to streamline adjudication and ensure timely orders) reinforce the expectation of prompt adjudication. Precedent treatment: High Court decisions have held that statutory time limits under Section 73(4B) must be respected and that failure to decide within those time limits can attract quashing of proceedings on limitation grounds. Delhi High Court authority has held that non-compliance with the prescribed time is a ground to set aside the show-cause notice. Other High Court decisions have similarly invalidated belated adjudications absent a valid explanation. Interpretation and reasoning: The Court treats the statutory prescription of time as mandatory in purpose if not always in form; where the statutory timeframe is not adhered to and no plausible, documented justification for delay is offered, the fairness and legality of the adjudicatory process are undermined. Administrative circulars that require adherence to time limits buttress the statutory expectation. Unexplained or prolonged delay in adjudication is characterized as arbitrary and contrary to principles of natural justice and administrative efficiency. Ratio vs. Obiter: Ratio - Where an adjudicatory authority fails to conclude proceedings within the time envisaged under Section 73(4B) and cannot justify the delay, the resulting order may be quashed on limitation/legality grounds. Obiter - Administrative instructions highlighting the need for timely adjudication serve as persuasive policy guidance but are not the sole legal basis for quashing absent statutory non-compliance or unreasonable delay. Conclusions: The Court accepts that the statutory time prescription under Section 73(4B), together with the Board's instructions, establishes an enforceable expectation of adjudication within the prescribed period; failure to meet that expectation without explanation renders the adjudication vulnerable to being set aside. Issue 2: Five years as a 'reasonable period' for revising/confirming assessments or concluding adjudication in absence of expressly prescribed period Legal framework: Where a taxing statute does not prescribe a specific outer limit for initiating or concluding adjudicatory proceedings, principles of reasonableness and limitation jurisprudence guide courts in fixing a fair time period. Prior jurisprudence recognized a five-year period as a benchmark for 'reasonable period' in tax/assessment contexts. Precedent treatment: The Court follows earlier decisions of this High Court and Supreme Court authority which have articulated that, absent a prescribed period, five years from the relevant date constitutes a reasonable period for conclusion or revision of assessment. Other High Courts have employed the same five-year benchmark in the context of service tax show-cause proceedings. Interpretation and reasoning: The five-year rule is applied as a rule of convenience and fairness where statutory silence exists, balancing revenue interest and taxpayer certainty. The Court reasons that excessive delay beyond five years in issuing final adjudication, particularly where show-cause notices were issued years earlier and the taxpayer had engaged with the process, is unreasonable unless the revenue offers cogent explanation for delay. Ratio vs. Obiter: Ratio - In the absence of specific statutory limitation, a five-year period is a reasonable outer limit for concluding adjudication/assessment and can be applied to invalidate orders made after such period without justification. Obiter - The precise application of the five-year benchmark may be affected by case-specific factors (e.g., complex investigations) but such factors must be shown and cannot be assumed. Conclusions: The Court adopts the five-year reasonable-period principle as applicable to the present adjudication and finds that where the final order issued well beyond five years from the show-cause notice(s) lacks adequate explanation, the order is liable to be set aside. Issue 3: Application of precedents and effect of pending higher-court challenges without interim stay Legal framework: Binding or persuasive precedents from co-ordinate and higher courts guide adjudication of limitation and delay issues; where appeals against such precedents are pending before the apex court, their continued application depends on whether an interim stay has been granted in those appeals. Precedent treatment: The Court relies on earlier High Court decisions that followed the five-year rule and on decisions holding that unexplained delay in concluding show-cause proceedings is arbitrary. It notes that some decisions accepting the same view are subject to special leave petitions before the Supreme Court, but in the absence of any interim stay of those decisions, they remain applicable in proceedings before this Court. Interpretation and reasoning: The Court reasons that when a High Court's reasoning aligns with established precedent and no stay has been placed on such precedent by the Supreme Court, the lower court may apply those authorities. The pendency of SLPs per se does not nullify the precedential value of the High Court decisions relied upon unless the Supreme Court issues a stay. Ratio vs. Obiter: Ratio - Where co-ordinate or higher-court rulings support quashing orders for adjudicatory delay and there is no interim stay of those rulings by the Supreme Court, such rulings can be applied to quash belated orders. Obiter - Mention of pending SLPs is explanatory; their pendency without stay does not alter the present Court's authority to follow applicable precedent. Conclusions: The Court follows the line of authorities supporting quashing of belated adjudication after a reasonable period (five years) and applies those precedents since no interim stay has been granted on the higher-court challenges to them. Application to facts and final conclusion Interpretation and reasoning: The Court examined the chronology: multiple show-cause notices issued in 2013-2015, prolonged adjudicatory delay exceeding five years, belated personal hearing notice in 2020, and final adjudication in December 2020. No satisfactory explanation for the delay was placed on record. Given the statutory framework, administrative instructions, and the line of precedent treating five years as a reasonable outer limit, the Court concluded that the impugned adjudication was concluded after an unreasonable delay. Ratio vs. Obiter: Ratio - The impugned order passed after more than five years from the show-cause notices, without adequate explanation, is unlawful on limitation grounds and is to be set aside. Obiter - Observations concerning specific entries of tax, interest and penalty in the impugned order are not necessary to the limitation-based conclusion and are therefore incidental. Conclusions: The Court set aside the impugned adjudication/order as being barred by unreasonable delay beyond the accepted five-year reasonable period and in view of binding/co-ordinate precedents; the petition was allowed accordingly.