High Court · 2012

The facts of the case may be briefly noted. The respondents herein were the writ petitioners. Petitioner No. 3. 1 is a partnership firm comprising of petitioner No.2 and one Smti.Saroj Devi Kh andelia as partners. Amongst others, it carries on the business of providing ser vice to M/S Hindustan Paper Corporation Limited (Corporation) in terms of ag reement dated 25-02-2004 entered into between them pursuant to the work order da ted 11-02-2004 issued by the Corporation in favour of petitioner No.1. Petitione r No.1 (firm) is basically engaged in the activity of supervising and coordinati ng transportation and shifting of finished reels and reams of paper for the Corp oration.

4. On 12-05-2006, a summon was issued to the firm by the Senior Int elligence Officer, Directorate General of Central Excise Intelligence, Shillong informing the firm about enquiry being conducted against it regarding evasion of service tax / contravention of chapter-V of the Finance Act, 1994. Petitioners were summoned to appear before the said authority together with the documents me ntioned in the schedule appended thereto.

5. The authorized representative of the firm appeared before the au thority as directed alongwith the relevant documents. Thereafter, the firm recei ved letter dated 19-07-2006 from the Superintendent of Central Excise, Jagiroad informing that on scrutiny it transpired that the firm had been rendering taxabl e service to the Corporation without obtaining service tax registration or payin g service tax. The firm was asked to produce all relevant records for the last 5 years. The firm responded to the above by letter dated 27-07-2006 stating that all the relevant documents sought for were submitted before the Senior Intellige nce Officer, Shillong.

6. Thereafter, the firm received show-cause notice dated 04-09-2006 issued by the Additional Director, Central Excise Intelligence, Kolkata. The s how-cause notice says that the service rendered by the firm to the Corporation b y way of transportation and shifting of finished reels and reams of paper falls under the category of (cid:28)cargo handling service (cid:29) u/s 65(23) of the Finance Act, 19 94 and is a taxable service under clause (zr) of Sub-Section (105) of Section 65 of the Finance Act, 1994. It was alleged that the noticee had not applied for r egistration under section 69 of the Finance Act, 1994 and had evaded service tax amounting to Rs.20,19,083/- and education cess of Rs.30,647/- on taxable servic e of Rs.2,14,07,639/- rendered by the firm to the Corporation during the period from January, 2004 to April, 2006.

7. Petitioners filed the related writ petition challenging the lega lity and validity of the summon dated 12-05-2006 and the show-cause notice dated 04-09-2006. The challenge was made on the ground that the Additional Director, Directorate General of Central Excise Intelligence, Kolkata had no jurisdiction to issue such notice as under Sections 73 and 83A of the Finance Act, 1994, such a notice can be issued only by a Central Excise Officer. The second ground of c hallenge was that the activities undertaken by the firm with the Corporation und er the agreement was not a taxable service under the category (cid:28)cargo handling se rvice (cid:29). The notice was challenged also on the ground that it lacked bonafide as a parallel enquiry was being conducted by the Superintendent at Jagiroad. There was no cogent material to generate any reason to belief that the firm had evaded service tax or had contravened chapter-V of the Finance Act, 1994. The appellants, who were arrayed as respondents in the writ peti 8. tion, resisted the writ petition by filing counter affidavit. Maintainability of the writ petition was questioned on the ground that against show-cause notice, petitioners had statutory alternative remedy. Challenge to the show-cause notice was premature. It was also contended that following notification dated 11-03-20 04 as well as corrigendum dated 29-03-2004, Central Excise Intelligence Officers , including Additional Director of Directorates General of Central Excise Intell igence have been appointed as Central Excise Officers vested with all their powe rs to be exercised through out the territory of India. They justified issuance o f the show-cause notice by contending that the activities undertaken by the firm prima-facie comes within the definition of (cid:28)cargo handling service (cid:29), which is a service of taxable nature. Petitioners in their rejoinder affidavit while reiterating the a 9. verments made in the writ petition, additionally contended that the show-cause n otice dated 04-09-2006 was time barred and, therefore, without any legal validit y.

10. Learned Single Judge did not accept the contention of the appell ants against the maintainability of the writ petition on the ground of availabil ity of alternative remedy. Learned Single Judge was of the view that challenge t o the show-cause notice founded on the bar of limitation and other pleas require d scrutiny on merit. In the course of hearing, confronted by the counter of the appellants, learned Counsel for the petitioners admitted that the Additional Dir ector, who had issued the impugned notice, was possessed of the necessary author ity. Therefore, that ground was not pressed. On the question of the impugned not ice being barred by limitation, learned Single Judge accepted the plea of the pe titioners and came to the conclusion that the impugned notice was unsustainable in law, being in contravention of the prescription of section 73 (1) of the Fina nce Act, 1994 and accordingly quashed the same. Learned Single Judge, however, d eclined to record any conclusive finding on the plea of the petitioners that the activities undertaken by them for the Corporation was outside the ambit of (cid:28)car go handling service (cid:29). Thus, the writ petition was allowed and the impugned notic e quashed on the finding on the bar of limitation.

11. Heard Mr. K.Paul, learned Central Government Counsel for the app ellants / respondents and Mr. S.K. Kejriwal, learned Counsel for the respondents / writ petitioners.

12. Learned Single Judge quashed the impugned show-cause notice date d 04-09-2006 on the sole ground that it was barred by limitation, having been is sued beyond the period prescribed under section 73(1) of the Finance Act, 1994. Since the issue centers around section 73 (1) of the Finance Act, 1994, the same may require a closer scrutiny. Section 73(1) of the Finance Act, 1994, as amend ed, is as under :- (cid:28) 73. Recovery of service tax not levied or paid or short-levied or short paid o r erroneously refunded - (1) Where any service tax has not been levied or paid o r has been short-levied or short-paid or erroneously refunded, the Central Excis e Officer may, within one year from the relevant date, service notice on the per son chargeable with the service tax which has not been levied or paid or which h as been short-levied or short-paid or the person to whom such tax refund has err oneously been made, requiring him to show cause why he should not pay the amount specified in the notice: Provided that where any service tax has not been levied or paid or has been shor t-levied or short-paid or erroneously refunded by reason of - fraud; or (a) collusion; or (b) willful mis-statement; or (c) suppression of facts; or (d) (e) contravention of any of the provisions of this Chapter or of the rules m ade thereunder with intent to evade payment of service tax, by the person charge able with the service tax or his agent, the provisions of this sub-section shall have effect as if, for the words (cid:28)one year (cid:29), the words (cid:28)five years (cid:29) had been su bstituted (cid:29). Thus, the aforesaid Section provides that in a case where servic 13. e tax has not been levied or has not been paid or has been short levied or short paid or erroneously refunded, the Central Excise Officer may serve notice on th e person so chargeable, to show-cause why he should not pay the amount specified in the notice. The time limit for issuance of such notice is one year from the relevant date. However, where service tax has not been levied or has not been pa id or has been short levied or short paid or erroneously refunded by reason of f raud or collusion or willful mis-statement or suppression of facts or contravent ion of any on the provisions of chapter-V of the Finance Act, 1994 or the Rules made thereunder, with intent to evade payment of service tax, the period of limi tation of one year would stand extended to five years. Relevant date has been defined in Section 73(6) of the Finance A 14. ct, 1994 to mean, in a case where no periodical return has been filed, the last date on which the same ought to have been filed under the Service Tax Rules or, in any other case, the date on which such tax ought to have been paid. Under the Service Tax Rules, an assessee is required to submit half yearly return for the months covered by the half yearly return, to be filed by the 25th day of the mo nth following the particular half year.

15. In the present case, the petitioners had neither submitted their return nor had paid service tax. In such case, the notice under section 73(1) w ould have to be issued within one year from the last date on which the periodica l return ought to have been filed or the tax paid by them. Admittedly, the show- cause notice was not issued within a period of one year from the relevant date. Therefore, it would be a case covered by the extended period of limitation of fi ve years.

16. That being the position, let us examine as to whether the condit ions precedent for invoking the extended period of limitation exist in the prese nt case.

17. The impugned show-cause notice says that the noticee had not app lied for registration under section 69 of the Finance Act, 1994; noticee never d isclosed to the jurisdictional Service Tax authorities about rendering of taxabl e service to the Corporation and neither filed any return nor paid any service t ax. Noticee also did not pay education cess on the value of the taxable service. Noticee was, therefore, charged with suppression of facts and contravention of provisions of the Finance Act, 1994 with the intention of evading payment of ser vice tax. Learned Single Judge on due consideration of the materials of re 18. cord, including the letter of the Corporation to the appellants dated 14-07-2004 , came to the conclusion that there was no suppression of fact. The Superintende nt of Central Excise (Service Tax), Jagiroad by his letter dated 06-08-2003 had sought for relevant information from the Corporation regarding realization of se rvice tax from the concerned persons, pursuant to which the Corporation by its l etter dated 14-07-2004 had provided to the appellants the names and complete par ticulars of its contractors, amounts paid to them per month etc., which included the firm. Learned Single Judge held as under:- (cid:28)14 & & & & & &The plea of time bar thrust against the impugned notice dated 04-09-200 6, needs to be attended next. A reading thereof, evinces that the same is the cu lmination of the process initiated by the summons dated 12-05-2006. Though, the respondents have been vociferous in their counter that the notice dated 04-09-20 06, was preceded by an inquiry and that the evidence culled therein, reveal taxa ble nature of the services rendered by the petitioner to HPCL and that they had been evading the payment of service tax, no disclosure had been made as to the d ate of the commencement of such probe. This assumes significance, as the impugne d summons dated 12-05-2006 reveals the respondents awareness to the evasion of s ervice tax/contravention of Chapter V of Act, 1994 and Rules thereunder by the p etitioners. Noticeably, the sworn statements made by the petitioners in their af fidavit-in-reply that the HPCL by its letter dated 14-07-2004, had provided to t hem (respondents) the names and complete particulars of its contractors, amounts paid to them per month etc. which included the petitioner firm, have remained u nrebutted. The documents placed before this Court for its perusal, the authentic ity whereof, has not been questioned by the respondents included the letter date d 06-08-2003, by the Superintendent, Central Excise (Service Tax), Jagiroad, Ran ge enquiring of the HPCL amongst others about the complete address of the Contra ctors under it providing manpower in or in relation to its manufacturing activit ies and the reply of HPCL dated 14-07-2004. The letter dated 06-08-2003, disclos ed that the informations sought for were required for realization of service tax from the concerned persons. Neither the impugned notice dated 04-09-2006, nor the counter refer to the said exchanges. The respondents have not disclosed either as to the steps taken on th e basis thereof. That on receipt of the letter dated 14-07-2004, the respondents were aware of the petitioners’ firm’s engagement with the HPCL and the services rendered by it, can be readily inferred. The revelations made in the letter dat ed 14-07-2004, cannot be disassociated from the nature and purpose of the querie s responded thereby. The letter dated 06-08-2003, demonstrates that it was to as certain the service tax liability of the Contractors engaged. The petitioner fir m as the annexure to the letter dated 16-07-2004, proclaims was one of the Contr actors under the HPCL at the relevant time. Section 73 of the 1994 Act, formulates the process for recovery of service tax n ot levied or paid or short levied or short paid or erroneously, refunded. Subsec tion (1) thereof, authorizes a Central Excise Officer, within one year from the relevant date, in the above eventualities to serve notice on the person chargea ble with the service tax requiring him to show cause, as to why he should not pa y the amount specified therein. The period of one year in terms of the proviso t hereunder, is extendable to five years, in case the service tax had not been lev ied or paid or had been short levied or short paid or erroneously refunded by re ason of fraud, collusion, willful misstatement, suppression of facts and contrav ention of any provision of the said Chapter or of the rules made thereunder with the intent to evade payment of service tax. & & & & & & & & & & & & & & & & & & & &....................... It is thus apparent from hereinabove that the relevant date, where no pe 16. riodical return is filed, would be the last date on which the same ought to have been filed under the Service Tax Rules (hereafter for short referred to as the ’Rules’), or in any other case, the date on which such tax is to be paid under t hat Chapter or the Rules made thereunder. As admittedly, the petitioners herein, have neither submitted their returns nor had paid the service tax, the notice u nder section 73(1), in absence of any one or any more of the eventualities permi tting the extension thereof, would have to be issued within one year from the la st date on which the return ought to have been filed or the tax paid by them.

17. Rule 7 requires every assessee to submit a half early return in form ST- 3 or ST-3A, alongwith a copy of form TR-6 triplicate for the months covered in t he half yearly return. Sub Rule 2 thereof, mandates the half early return to be filed by the 25th of the month following the particular half year.

18. Allegation of suppression, though , gatherable from the impugned notices , in absence of any confutation of the pleaded statements bearing on the letter dated 16-07-2004 of the HPCL, I do not feel persuaded to sustain the said imputa tion. Mere non-registration of the petitioner firm and non-payment of service ta x, would not be of definitive significance to presuppose the contemplated suppre ssion under the proviso to section 73 of the Act, 1994, with the intent to evad e payment of service tax (emphasis ours). In my considered view in the face of t he categorical pleadings, vis-à-vis, the letter dated 14-07-2004, the respondent s in absence of any reference thereof, in the impugned notice dated 04-09-2006, ought to have offered some explanation in that regard and/or produce the relevan t records to demonstrate the steps taken by them on the basis thereof. This is c onsidered essential in view of the statutorily fixed time frame for issuance of notice under section 73 of the Act, 1994. & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & & A cumulative reading of the legal provisions noticed hereinabove, postul 23. ates that the same do not sanction computation of the period of the notice from the satisfaction of the concerned authorities or the detection of the evasion of tax or contravention of Chapter V of the Act, 1994, or the Rules framed thereun der. Unambiguously, the same is reckonable from the relevant date, which in the present fact situation would be either the last date on which the return ought t o have been filed or tax paid. Section 73 (1) of the Act, 1994 casts an obligation on the concerned Central Exc ise Officer to issue the notice within the time frame specified by it. It is thu s axiomatic that adherence to the period prescribed, is inalienably essential fo r the validity thereof. The time at the disposal of the investigating agency in this regard is finite and conditioned by the said statutory enjoinment. In view of the determination that none of the eventualities contemplated under t he proviso to section 73(1), exists in the case in hand, the notice to the petit ioners under the above legal provision, had to be issued within a period of one year from the relevant date. In view of the disclosures in the letter dated 16-0 7-2004, the petitioners cannot be charged with suppression of facts with the int ent to evade payment of service tax. The impugned notice demanding service tax, education cess, penalty and interest for the period January, 2004 to June, 2006 in the touchstone of the above determination, therefore, is obviously beyond th e prescribed period of one year. The respondents having failed or omitted to exp lain before this Court, the steps taken on the informations conveyed by the lett er dated 14-07-2004 and the date of commencement of the investigation vis-à-vis, the petitioner as well as the basis thereof, they, in my view, cannot be accord ed the benefit of the extended period of notice envisaged under the proviso. The period mentioned in the impugned notice in the form issued being in severable t he demand, thus has to be held as time barred qua section 73(1) of Act, 1994. & & & &.. & & & & & & & & & & & & & & &...

26. In view of the above resounding judicial pronouncements and the deductions a s based on contemporaneous records and facts, the irresistible conclusion is tha t the impugned notice dated 04-09-2006, is unsustainable in law, being in contra vention of the prescription of section 73 (1) of the Act, 1994 and is thereof, q uashed (cid:29).

19. The reasonings given and the conclusion arrived at by learned Si ngle Judge is in tune with the line of reasoning of the Hon’ble Supreme Court in the case of Commissioner of Central Excise, Aurangabad -Vs- Bajaj Auto Limited reported in 2010(260) ELT 17 where also the issue was bar of limitation in issui ng notice under section 11A of Central Excise Act, 1944 seeking recovery of duti es not levied or not paid or short levied or short paid or erroneously refunded in case of fraud or collusion or willful mis-statement or suppression of facts o r contravention of any of the provisions of the Act or the Rules framed thereund er with intent to evade payment of duty, in which case, the limitation period of one year would stand extended by five years. Examining the aforesaid provision, the Apex Court held that since the proviso extends the period of limitation, it needs to be construed strictly. The initial burden is on the department to prov e that the situation visualized by the proviso existed. But the burden shifts on the assessee once the department is able to produce material to show that the a ppellant is guilty of any of those situations visualized in the section. In the present case, learned Single Judge has come to the definite finding that the dep artment failed to discharge the initial burden to prove that the situation visua lized by the proviso to section 73(1) of the Finance Act, 1994 existed. We, ther efore, find no good ground to interfere with the judgment of the learned Single Judge.

20. Ordinarily, in a writ petition against show-cause notice, the pe titioner should be relegated to the statutory remedy of replying to the show-cau se notice to enable the concerned authority to take a decision in accordance wit h law. However, in the present case, learned Single Judge having examined the ch allenge to the impugned show-cause notice on the ground of bar of limitation and on due consideration, having come to the conclusion that the impugned show-caus e notice was barred by limitation, a conclusion with which we are in agreement w ith, we see no good ground to take a different view in the matter.

21. Accordingly, we decline to interfere with the judgment of the le arned Single Judge. Consequently, writ appeal is dismissed but without any order as to cost.