Delhi High Court: In a case wherein a show cause notice and a letter for recommencing the proceedings, issued by Commissioner of CGST & Central Excise, Goods and Service Tax Commissionerate, Delhi was challenged stating that such proceedings were barred by limitation as the proceedings failed to be concluded within a reasonable period from the date of issuance of the impugned show cause notice, the Division Bench of Vibhu Bakhru* and Amit Mahajan, JJ. held that the proceedings pursuant to the adjudication impugned show cause notice were inordinately delayed and it was now impermissible to continue the said proceedings.
Background
The petitioner, a partnership firm, was engaged in executing contracts for civil works awarded by authorities, institutions and other entities including Central Government and State Governments. The petitioner was awarded the contract for construction of residential flats by the Housing Board Haryana (“HBH”) and in 2005, the petitioner commenced work for construction of residential flats and the project stands completed. In 2008, an investigation was initiated against the petitioner by Anti-Evasion Branch of Respondent 1 regarding non-registration of the petitioner with Service Tax Department and non-payment of service tax. Respondent 1 submitted that the petitioner was liable to pay service tax for rendering taxable services pertaining to ‘Construction of Complex Service’ under Section 65(105)(zzzh) of the Finance Act, 1994.
Respondent 1 issued the impugned show cause notice calling upon the petitioner to show cause as to why service tax; education cess; secondary and higher education cess; and interest and penalties under Sections 76, 77 and 78 of the Finance Act, 1994, should not be recovered from the petitioner. The petitioner submitted that it was not providing taxable service as the contracts with HBH were composite contracts in the nature of ‘works contract’ and since HBH was constituted for addressing the housing needs of the public, therefore, it was performing a statutory function and was not liable to pay service tax. Further, the petitioner submitted that the impugned show cause notice was beyond the period of limitation as prescribed under Section 73 of the Finance Act, 1994.
In 2010, Respondent 1 issued a notice scheduling a hearing, but the petitioner could not appear on that date, so the hearing was rescheduled. The petitioner presented its submissions and thereafter, the petitioner did not hear from the respondents till it received a notice in 2022. Respondent 1 claimed that as per Central Board of Excise & Customs (“CBEC”) Circular, it had immediately after the hearing, placed the matter in the ‘Call Book’ with the approval of the Commissioner. Respondent 1 resurrected the proceedings by issuing a letter informing the petitioner that a personal hearing was scheduled and calling upon him to appear to represent the case. Thereafter, the petitioner filed the present petition, challenging the impugned letter and recommencement of the proceedings in respect of the impugned show cause notice.
Analysis, Law, and Decision
The issue for consideration before this Court was “whether the respondents could continue the proceedings for adjudication of the impugned show cause notice, after the lapse of almost thirteen years?”.
The Court noted that CBEC had issued a Circular stating that “if a current case had reached a stage where no action could or need be taken to expedite its disposal for at least 6 months (e.g., cases held up in law courts), it may be transferred to ‘Call Book’ with the approval of the competent authority”. The Court further noted that Respondent 1 had placed the present matter in the ‘Call Book’ as the issue involved in the impugned show cause notice was pending consideration before the Supreme Court in Commissioner of Central Excise & Service Tax, Karnataka v. Sobha Developers Ltd., Civil Appeal Nos. 9819-9820 of 2010 (“Sobha Developers Ltd.”), and the same was decided in 2017. It was informed to the Court that the question as to the validity of the ‘Call Book’ procedure was pending consideration before the Supreme Court in a batch of matters.
The Court opined that it was not necessary for this Court to examine the validity of the procedure of placing the matter in the ‘Call Book’ as it was apparent that there was gross delay on the part of Respondent 1 and there were no justified reasons for the same. The Court further noted that the petitioner’s case was placed in the ‘Call Book’ as the Department of Revenue had preferred an appeal in Sobha Developers Ltd., which was already disposed of in 2017 and even after that the respondents had not taken any steps for conducting the proceedings for more than four and a half years. The Court also noted that the impugned letter seeking to recommence the proceedings was issued in 2022 and thus the Court opined that there were no justifiable reasons to condone the said delay after the reason for placing the matter in abeyance, that is, pendency of the appeal in the case of Sobha Developers Ltd. had ceased to exist.
The Court further observed that the issue raised by the Department of Revenue in Sobha Developers Ltd. were already covered by the Supreme Court in Commissioner of Central Excise & Customs, Kerala v. Larsen and Toubro Ltd., (2016) 1 SCC 170, wherein it was held that “prior to the enactment of the Finance Act, 2007, by virtue of which Section 65(105)(zzzza) of the Act was introduced and Section 67 of the Act was amended, a composite contract was not taxable”. Thus, the Court noted that the issue regarding levy of service tax on composite contracts had already been decided, therefore, it was difficult to accept that it was not possible to adjudicate the impugned show cause notice as the controversy involved in the impugned show cause notice was pending consideration before the Supreme Court in Sobha Developers Ltd.
The Court further noted that the petitioner was provided no information that the impugned show cause notice had been placed in the ‘Call Book’ and even if it was accepted that it was permissible for the respondents to place the matter in the ‘Call Book’, it was necessary for the respondents to have communicated the said fact to the petitioner. The Court relied on Sanghvi Reconditioners (P). Ltd. v. Union of India through the Secretary, Department of Revenue, 2017 SCC OnLine Bom 9781, wherein it was observed that there was no justification for not adjudicating the notice for more than fifteen years after its issuance and it was necessary for Department of Revenue to inform the assessee that the show cause notice had been kept in abeyance, otherwise there would be no necessity for the assessee to preserve the record for the inordinately long period”. The Court further relied on Parle International Limited v. Union of India, 2020 SCC OnLine Bom 8678, wherein it was observed that “a taxable person must know where it stands after issuance of show-cause notice and submission of reply. If for more than 10 years thereafter there was no response from the departmental authorities, it could not be faulted for taking the view that its reply had been accepted and the authorities had given a quietus to the matter”.
Thus, the Court allowed the petition and held that the proceedings pursuant to the impugned show cause notice were inordinately delayed and it was now impermissible for the respondents to continue the same.
[Nanu Ram Goyal v. Commissioner of CGST and Central Excise, Delhi, 2023 SCC OnLine Del 2188, decided on 18-4-2023]
Advocates who appeared in this case:
For the Petitioner: Kavita Jha, Shammi Kapoor, Sandeep Gupta, Prachi Jain and Vishal Kumar, Advocates
For the Respondents: R. Ramachandran, Senior Standing Counsel; Archana Sharma, Senior Advocate and Poonam, GP
*Judgment authored by: Justice Vibhu Bakhru