Revenue cannot revive 6-year-old unadjudicated show cause notice despite GST implementation delays

The Bombay HC quashed a show cause notice (SCN) dated 5th May 2017 concerning recovery of differential Central Excise Duty. The SCN remained unadjudicated for approximately 6 years until September 2023. The revenue's justification that delay was due to GST implementation and jurisdictional changes was rejected, as the petitioner had filed detailed replies and attended hearings in September-October 2017, proving the department was functional post-GST introduction. The court found relegating the petitioner to attend the SCN after such delay would be unfair and constitute gross abuse of power, disposing of the petition under Article 226.

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Issues Involved:
1. Validity of the show cause notice issued on 5th May 2017.
2. Delay in adjudication of the show cause notice.
3. Coverage of the issue by the Supreme Court's decision dated 7th July 2023.
4. Justification provided by the Respondents for the delay.
5. Precedents on delay in adjudication of show cause notices.

Detailed Analysis:

1. Validity of the show cause notice issued on 5th May 2017:
The Petitioner challenged the show cause notice dated 5th May 2017 under Article 226 of the Constitution of India. The notice aimed to add the value of bought-out goods, which were directly supplied to customers, to the assessable value of goods manufactured in the Petitioner's factory. The Petitioner argued that these goods did not enter their factory, suppliers had paid excise duty, and no duty credit was claimed on these goods.

2. Delay in adjudication of the show cause notice:
The show cause notice remained unadjudicated for almost six years, from 10th October 2017 to 4th September 2023. The Petitioner argued that this delay was unjustifiable and prejudicial. The Respondents attributed the delay to the implementation of GST, which involved a significant overhaul of the department's functioning, including redrawing jurisdictions and control by state and central authorities. This justification was deemed insufficient by the Court, as the department was still functioning post-GST implementation, evidenced by the Petitioner's participation in proceedings in September and October 2017.

3. Coverage of the issue by the Supreme Court's decision dated 7th July 2023:
The Petitioner contended that the issue on merits was no longer res integra due to the Supreme Court's decision in Civil Appeal No. 5700 of 2019, which involved the Petitioner itself. The Supreme Court had ruled that the bought-out items, not entering the factory and on which no credit was claimed, should not be added to the assessable value. The Respondents did not rebut this contention in their affidavit.

4. Justification provided by the Respondents for the delay:
The Respondents claimed that the delay was due to the department's overhaul during GST implementation. However, the Court found this explanation unacceptable. The Court noted that the department was operational post-GST, as evidenced by the Petitioner's participation in proceedings. The justification was considered general and unsupported by evidence, and the delay was attributed to oversight. The Court emphasized that such negligence could not condone the delay in adjudication.

5. Precedents on delay in adjudication of show cause notices:
The Court referred to several precedents where delays in adjudicating show cause notices were deemed prejudicial to the assessee. Key judgments included:
- Coventry Estate Pvt. Ltd. vs. The Joint Commissioner CGST and Central Excise & Anr.: The Court quashed the show cause notice due to inordinate delay, emphasizing the need for timely adjudication to avoid uncertainty and prejudice to the assessee.
- Sushitex Exports (India) Ltd.: The Court ruled that long delays in adjudication amounted to arbitrary exercise of power and violated fundamental rights.
- Bombay Dyeing and Manufacturing Company Limited vs. Deputy Commissioner of CGST and CX: The Court held that belated hearings violated principles of natural justice.
- ATA Freight Line (I) Pvt. Ltd.: The Court quashed show cause notices pending for a decade, asserting that such delays were unjustifiable even without a statutory limitation period.

The Court concluded that the Respondents failed to distinguish these decisions and found no merit in the delay justification. Consequently, the Court exercised its jurisdiction under Article 226 to quash the impugned show cause notice.

Conclusion:
The Court allowed the petition, quashing the show cause notice dated 5th May 2017, and ruled that the delay in adjudication was unjustifiable and prejudicial to the Petitioner. The issue was also covered by the Supreme Court's decision, further supporting the Petitioner's case.

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