2025 (2) TMI 521 - HC - Service Tax

Service tax show cause notice quashed after two decades delay with refund ordered

The HC quashed a show cause notice (SCN) due to excessive delay in adjudication spanning over two decades. The department had internal conflicting views ... Seeking quashing of SCN - Delay in adjudication of SCN - Adoption of different method of valuation of service provided by the petitioner for payment of service tax - HELD THAT:- It is not to be resorted by the department where particular there is a conflicting view of the Central Excise Officer. In event, the Audit objection and decision to raise objection by the department is an internal arrangements between the department. The fact remains that the department itself had concluded in Reply to Statement of Facts. In fact, the respondent had also recommended for closure and dropping of the proposal in the show cause notice. However, the issue is kept alive for over two decades and for the first time the department woke up only on 19.01.2021, pursuant to which the Principal Commissioner has accorded permission for adjudication. The adjudication of the show cause at this distant point of time is unnecessary and unwarranted, particularly in the light of the SoF of the department having difference of opinion with the CERA audit objection. Therefore, the impugned show cause notice ought not to have been issued and not proceeded and in any event ought to have been dropped. The fact remains that the petitioner has discharged service tax liability as a service provided in works contract service as defined in Section 65 (95) (ZZZA) of the Finance Act, 1994. This Court is of the view that the writ petition has to be allowed. The excess amount deposited by the petitioner during the course of investigation by CERA has to be refunded by the respondent within a period of two months together with interest @ 6% from the date of payment till the date of payment. Conclusion - i) The delay in adjudication of the show cause notice warranted quashing of the notice. ii) The petitioner was entitled to alter the basis of valuation for service tax payment as per the Finance Act, 1994. Petition allowed. The issues presented and considered in the judgment are as follows:1. Whether the delay in adjudication of Show Cause Notice No.300/2009, issued on 31.07.2009, warrants quashing of the notice.2. Whether the petitioner was entitled to alter the basis of valuation for the purpose of payment of service tax under the provisions of the Finance Act, 1994.3. Whether the department's decision to issue the show cause notice was justified in light of internal conflicting views and audit objections.Detailed Analysis:Issue 1: Delay in AdjudicationThe petitioner argued that there was a significant delay in adjudicating the show cause notice issued in 2009. The petitioner had replied to the notice multiple times, and the dispute centered around the valuation method for service tax payment. The petitioner claimed to have paid service tax based on a specific interpretation of the Finance Act, 1994. The department transferred the case to the call book due to internal disagreements and awaited further clarification.Issue 2: Basis of Valuation for Service TaxThe department contended that the petitioner was not entitled to change the basis of valuation for service tax payment as per Circular No.98/1/2008-ST. The petitioner argued that they had the right to opt for a different method of payment under the Finance Act, 1994. The department's objection was overruled by senior audit officers, and the case was eventually taken up for adjudication after a long delay.Issue 3: Justification for Issuing the Show Cause NoticeDespite internal recommendations for closure of the case, the department proceeded with the show cause notice after a prolonged period. The court noted that the department's decision to issue the notice and delay in adjudication were unwarranted, especially given the conflicting views within the department. The court found that the petitioner had correctly paid the service tax under the works contract service category.Significant Holdings:The court held that the delay in adjudication of the show cause notice warranted quashing of the notice. The court also determined that the petitioner was entitled to alter the basis of valuation for service tax payment as per the Finance Act, 1994. Additionally, the court found that the department's decision to issue the notice and proceed with adjudication after a long delay was unjustified.In conclusion, the court allowed the writ petition, directing the respondent to refund the excess amount deposited by the petitioner during the investigation by CERA, along with interest. The court emphasized the unnecessary and unwarranted nature of the adjudication at such a late stage, given the internal disagreements and the petitioner's compliance with the relevant tax provisions.