2025 (2) TMI 301 - HC - GST

HC dismisses writ petition challenging service tax evasion show cause notice under Section 73(1)

Ramnath Prasad Versus Principal Commissioner of CGST and Central Excise Patna, Additional Commissioner, CGST and CX, Patna-II.

The HC dismissed the writ petition challenging a show cause notice issued for service tax evasion. The court held that pre-consultation before issuing ... Time limitation - Issuance of the show cause notice without pre-consultation - exemption from service tax, for service provided by the petitioner under N/N. 25/2012 - proceedings were barred by limitation under Section 73 of the Finance Act, 1994 - HELD THAT:- What is the requirement to prove ‘fraud’ and ‘collusion’ is the intent to evade duty. How to gather this intention or judge it would remain a question of fact and this issue as to whether it is a case of fraud, or wilful mis-statement, collusion or is falling under any of the clauses (a) to (b) of the proviso to sub-Section (1) of Section 73 may be properly adjudicated by either the Adjudicating authority or the Appellate Authority with reference to the materials on the record. This Court would not usurp the powers of the Appellate Authority. This Court sitting under Article 226 of the Constitution of India would refrain itself as a matter of self-restraint in conducting an enquiry as to whether it is a case of fraud or not. It is left open to be considered by Appellate Authority. On a bare reading of sub-Section (1) of Section 73 that the period of limitation for serving a notice under this provision was 18 months at the relevant time but the proviso to sub-Section (1) carves out an exception and it clearly provides that in the cases falling under any one of the reasons stated under clauses (a) to (e) of the proviso, the provisions of the sub-Section shall have effect, as if for the words “18 months”, the words “five years” have been substituted. Since the initiation of proceeding itself has been done taking this case as one of evasion of tax, the respondents have rightly argued that the period of limitation in this case would be five years - No doubt the legislative intent is that the Central Excise Commissioner shall determine the amount of service tax due under sub-Section (2) – (a) within six months from the date of issue of notice where it is possible to do so, in respect of cases falling under Sub-Section (1); (b) within one year from the date of notice where it is possible to do so in respect of cases falling under the proviso to sub-Section (1), the cluster of words “where it is possible to do so” clearly indicates that the legislatures were never of the view that a proceeding which would not be concluded within the period of limitation for whatever reasons would be closed by virtue of the expiry of the period of limitation alone. Section 74 (1) of CGST Act cannot be invoked merely on account of non-payment of GST, without specific element of fraud or wilful mis-statement or suppression of facts to evade tax. It further provides that only in the cases where the investigation indicates that there is material evidence of fraud or wilful mis-statement or suppression of fact to evade tax on the part of the taxpayer, provisions of Section 74 (1) of the CGST Act may be invoked for issuance of show cause notice and such evidence should also be made a part of the show cause notice. No fault may be found on the part of the competent authority in forming of a reasonable belief in absence of a response by the petitioner - it is not a fit case to interfere with the impugned order in original (Annexure ‘P2’) in exercise of the writ jurisdiction of this Court. Conclusion - i) The pre-show cause consultation requirement is not mandatory in cases involving allegations of tax evasion. ii) The extended limitation period under Section 73(1) applies when proceedings are initiated on grounds of evasion, fraud, or suppression of facts. The writ application was not maintainable due to the availability of an appellate remedy. The judgment from the Patna High Court addresses a writ application challenging an order imposing service tax, interest, and penalties on the petitioner for the financial years 2015-16 and 2016-17. The petitioner sought to quash the order on several grounds, including the lack of a pre-show cause consultation, the applicability of an exemption notification, and the issue of limitation.Issues Presented and Considered:The core legal questions considered were:Whether the issuance of the show cause notice without pre-consultation was valid.Whether the service provided by the petitioner was exempt under Notification No. 25/2012.Whether the proceedings were barred by limitation under Section 73 of the Finance Act, 1994.Whether the writ application was maintainable given the availability of an alternative appellate remedy.Issue-wise Detailed Analysis:1. Pre-show Cause Consultation:The petitioner argued that the lack of pre-show cause consultation violated the mandatory requirements under Circular No. 1053/02/2017-CX. The Court noted that pre-consultation is not mandatory in cases involving fraud, collusion, suppression of facts, or evasion of tax.The Court referred to the Circular and concluded that the pre-consultation requirement was not applicable in this case, as the proceedings were initiated on grounds of evasion of tax.2. Applicability of Exemption Notification:The petitioner contended that the services provided were exempt under the Mega Exemption Notification No. 25/2012. The Court observed that determining the applicability of the exemption involves factual assessments best suited for the Appellate Authority.The Court refrained from making a determination on this issue, leaving it open for the Appellate Authority to decide based on the evidence presented.3. Limitation under Section 73:The petitioner argued that the show cause notice was barred by the 18-month limitation period under Section 73(1) of the Finance Act, 1994. The respondents contended that the extended five-year period applied due to alleged evasion of tax.The Court highlighted that the extended limitation period under the proviso to Section 73(1) applies in cases involving fraud, collusion, or suppression of facts. The Court found that the proceedings were initiated under the premise of evasion, thereby justifying the extended period.The Court emphasized that the determination of whether the case involved evasion of tax is a factual question for the Appellate Authority.4. Availability of Alternative Remedy:The respondents argued that the petitioner should have pursued an appeal rather than filing a writ application. The Court acknowledged the availability of an appellate remedy and noted the principle of self-restraint in exercising writ jurisdiction when alternative remedies exist.The Court encouraged the petitioner to file an appeal, emphasizing that the Appellate Authority is better positioned to assess the factual intricacies of the case.Significant Holdings:The Court's significant holdings included:The pre-show cause consultation requirement is not mandatory in cases involving allegations of tax evasion.The applicability of the exemption notification involves factual determinations that should be addressed by the Appellate Authority.The extended limitation period under Section 73(1) applies when proceedings are initiated on grounds of evasion, fraud, or suppression of facts.The Court exercised judicial restraint and directed the petitioner to pursue the statutory appellate remedy.The Court concluded that the writ application was not maintainable due to the availability of an appellate remedy. The petitioner was advised to file an appeal with the Commissioner (Appeal), CGST and CX, within a specified period. The Court also directed the Appellate Authority to consider the issue of limitation in light of the pendency of the writ application and the interim stay order.