Tax Authorities Duty Bound To Take Show- Cause Notice To Logical End Within Reasonable Time : Bombay HC Sets Aside 15 Year Old Notice

A division bench of Justice RD Dhanuka and SM Modak, in an order passed earlier this week, observed, "It is not expected from the assessee to preserve the evidence/record intact for such a long period to be produced at the time of hearing of the Show-Cause Notice. The Respondent having issued the Show-Cause notice, it is their duty to take the said Show-Cause notice to its logical conclusion by adjudicating upon the said Show-Cause Notice within a reasonable period of time. In view of the gross delay on the part of the Respondent, the Petitioner cannot be made to suffer."

The authorities had issued a show cause notice against Bombay Dyeing on January 5, 2007, but a notice for hearing on the show-cause notice was issued only last year – after over 14 years. Bombay Dyeing sent its response to the authorities within four weeks and upon receiving no communication from the authorities, filed a petition in HC in March last year against the Deputy Commissioner of CGST & CX, Div-IX, Mumbai Central GST Commissioner.

Before the court, Bombay Dyeing's counsel pleaded that the Petitioner was never informed at any point of time that the said show cause notice was kept in the call book and therefore, the Respondent cannot be allowed to proceed with the show cause notice after more than 14 years. However, the counsel for the authorities justified the action.

The court, relying on judgments in cases of Parle International Ltd. vs. Union of India, Sanghavi Reconditioners Private Limited Vs. Union of India and Raymond Limited Vs. Union of India, quashed the show cause notice.

The bench observed that previous benches had observed that when a show-cause notice is issued to a party, it was expected that the same would be taken to its logical consequences within a reasonable period so that finality is reached.

On the stand taken by the authorities, the bench observed, "We have perused the affidavit-in-reply filed by the Respondent. In the affidavit-in-reply, the Respondent does not allege that the Petitioner was informed about the show-cause notice having been kept in call book as sought to be alleged in the affidavit-in-reply filed by the Respondent. If the Respondent would have informed the Petitioner about the said Show-Cause Notice in the year 2007 itself, having been kept in call book, the Petitioner would have immediately applied for appropriate reliefs by filing the appropriate proceedings."

The court also reproduced certain suggestions made in the order in Parle International Ltd. vs. Union of India case. The bench had, in that order, observed that when the show-cause notice is kept pending in the call book then the authorities should inform the parties about the same. "It serves two purposes – (1) it puts the party to notice that the show-cause notice is still alive and is only kept in abeyance.

This would enable the party concerned to safeguard the evidence till the show-cause notice is taken up for adjudication; and (2) if the notices are kept in call book, the parties gets an opportunity to point out to the revenue that the reasons for keeping it in call book are not correct and that the notices should be adjudicated promptly. Thus, informing the parties about keeping the show-cause notice in the call book would advance the cause of transparency in revenue administration," the previous bench had noted.

Case Title: The Bombay Dyeing and Manufacturing Company Limited vs Deputy Commissioner of CGST & CX, Div-IX, Mumbai Central GST Commissioner

Citation: LiveLaw (Bom) 43