HC sets aside ex parte assessment order under Section 73(2) Finance Act 1994 due to inordinate five-year delay
The HC set aside an ex parte assessment order passed under Section 73(2) of the Finance Act, 1994, along with penalties and interest. The order was passed five years after issuance of the show cause notice, constituting an inordinate delay. Following its precedent in M/s Power Spectrum case, the HC held that while Section 73(4B) doesn't mandate a specific timeframe, the prescribed six months/one year period cannot be extended indefinitely without justification. The revenue authorities failed to provide any reason for the delay, making the assessment void. Petition allowed.
The core legal questions considered by the Court in this matter include:
(i) Whether the ex parte assessment order dated 14.06.2024, passed under Section 73(2) of the Finance Act, 1994, along with penalties and interest, is valid and sustainable.
(ii) Whether the Demand-Cum Show Cause Notice (SCN) dated 10.05.2019 initiating the assessment proceedings under Section 73(1) of the Finance Act, 1994, is legally valid.
(iii) Whether the assessment proceedings and order violate the time limits prescribed under Section 73(4B) of the Finance Act, 1994.
(iv) Whether the petitioner's case is covered by the precedent set in the judgment dated 04.04.2024 in CWJC No.18398/2023 (Kanak Automobiles Pvt. Ltd. case).
(v) Whether the delay and inaction by the authorities from 2019 to 2024 violates Section 74 of the Finance Act, 1994.
(vi) Whether the transfer of the case from the jurisdiction of the authority issuing the SCN to another authority for passing the order is legally permissible.
(vii) Whether the demand and penalties imposed violate principles of natural justice, particularly concerning contradictory treatment of the petitioner's service tax returns.
(viii) Whether issuing the order-in-original after almost five years of the petitioner's reply to the SCN is sustainable in law.
(ix) Whether the imposition of tax, interest, and penalties on the petitioner is illegal and void.
(x) Whether coercive steps against the petitioner should be restrained pending final adjudication of the writ petition.
Regarding the validity of the ex parte assessment order and the SCN, the Court examined the relevant provisions of the Finance Act, 1994, specifically Sections 70, 73, 74, 75, 77, 78, and 174 of the CGST Act, 2017. The petitioner was served with a SCN on 10.05.2019 alleging suppression of facts relating to event management services liable to service tax for FY 2013-14 and 2014-15. The petitioner responded promptly on 30.05.2019. However, the authorities remained inactive for approximately five years before issuing notices for personal hearings in 2024 and passing an ex parte order on 14.06.2024 imposing tax liability, interest, and penalties.
The Court noted that the order-in-original was passed by an authority other than the one which issued the SCN, with the respondent asserting that the Assistant Commissioner, Central Tax (Audit), Bhagalpur, was empowered to adjudicate the matter by a letter dated 09.10.2023. The petitioner challenged this transfer of jurisdiction as lacking justifiable reasons and contended that the authority issuing the SCN should have passed the order.
On the issue of delay, the Court extensively analyzed Section 73(4B) of the Finance Act, which prescribes time limits for adjudication of show cause notices-six months or one year depending on circumstances. The Court relied on recent authoritative precedents, including judgments by the Hon'ble Delhi High Court and the Hon'ble Gujarat High Court, as well as its own prior ruling in M/s Power Spectrum Sarbidipur. These precedents emphasize that while the statute does not mandate an absolute time limit, the adjudicating authority must endeavor to complete proceedings within the prescribed period unless genuinely prevented by exceptional circumstances such as voluminous evidence or unavailability of officers.
Importantly, the Court highlighted that in this case, the authorities failed to provide any explanation or justification for the inordinate delay of nearly five years between issuance of the SCN and passing of the order-in-original. The Court cited the principle that "when a matter is consigned to the call book and kept in cold storage for years together, it is not on account of it not being possible for the authority to decide the case, but on grounds which are extraneous to the proceedings." Thus, the delay was held to be unjustified and violative of the statutory mandate.
On the natural justice aspect, the Court observed that the demand-cum-show cause notice alleged non-filing of service tax returns, while simultaneously imposing late fees acknowledging that returns were filed, thereby inflating the petitioner's turnover on a contradictory basis. This inconsistency was found to violate principles of natural justice.
Regarding the transfer of jurisdiction, the Court found that the order-in-original was passed by a different authority than the one which issued the SCN, without adequate justification for such transfer. This was held to be an inherent jurisdictional error.
The Court also examined the petitioner's reliance on the judgment in the Kanak Automobiles Pvt. Ltd. case, where a similar delay in adjudication led to interference with the order. The Court found the present case squarely covered by that precedent and reinforced by the Power Spectrum Sarbidipur judgment.
The respondents' counter affidavits did not provide any explanation for the delay or justify the transfer of jurisdiction. The Court noted the absence of any valid reasons for the prolonged inaction and the failure to adhere to the prescribed statutory timeline.
Applying the law to the facts, the Court concluded that the impugned order-in-original and the demand notice are liable to be quashed and set aside. The delay in adjudication violates the statutory time limits and principles of natural justice. The transfer of jurisdiction without justification is invalid. The imposition of tax, interest, and penalties without proper adjudication and in violation of procedural safeguards is illegal and void.
The Court rejected the respondents' arguments and upheld the petitioner's contentions regarding procedural irregularities and violation of statutory provisions.
Significant holdings include the following verbatim excerpts from the Court's reasoning:
"When the legislature in its wisdom has prescribed a particular time limit, the CBEC has no power or authority to extend such time limit for years on end merely to await a decision in another case. The adjudicatory authority is required to decide each case as it comes, unless restrained by an order of a higher forum."
"When a matter is consigned to the call book and kept in cold storage for years together, it is not on account of it not being possible for the authority to decide the case, but on grounds which are extraneous to the proceedings."
The Court established the core principle that statutory time limits for adjudication under Section 73(4B) of the Finance Act must be respected, and inordinate delays without justification render the assessment and penalties void.
The Court also held that transfer of jurisdiction for adjudication must be justified and cannot be arbitrary or without authority.
Finally, the Court quashed the impugned order-in-original dated 14.06.2024, set aside the demand for service tax, interest, and penalties, and restrained the respondents from taking coercive action against the petitioner pending final adjudication.
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AI Drafter ✕
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