Court Can Quash SCNs And Proceedings Under GST Act, Customs Act Or Finance Act On Ground Of Inordinate Delay In Adjudication: Delhi HC

In its 177-page judgment, a division bench of Justices Yashwant Varma and Ravinder Dudeja observed,

“Matters which have the potential of casting financial liabilities or penal consequences cannot be kept pending for years and decades together. A statute enabling an authority to conclude proceedings within a stipulated period of time “where it is possible to do so” cannot be countenanced as a license to keep matters unresolved for years. The flexibility which the statute confers is not liable to be construed as sanctioning lethargy or indolence.”

The bench was referring to provision under Section 73 of the Finance Act 1994 which deals with recovery of service tax not paid or short paid or erroneously refunded. Sub-section (4-B) thereof provides that the Central Excise Officer shall determine the amount due within 6 months from the date of notice “where it is possible to do so”.

Court said the phrase cannot be construed as a free-pass and “Ultimately it is incumbent upon the authority to establish that it was genuinely hindered and impeded in resolving the dispute with reasonable speed and dispatch…the leeway provided by the statute when it employed the phrase “where it is possible to do so”, could not be equated with lethargy or an abject failure to act despite there being no insurmountable factor operating as a fetter upon the power of the proper officer to proceed further with adjudication.”

It added that if a statutory authority's inaction is put to challenge, it would be obligated to prove that it was either impracticable to proceed or it was constricted by factors beyond its control which prevented it from moving with reasonable expedition.

This principle would apply equally to cases falling under the Customs Act or the CGST Act, the Court clarified.

The relevant provision for this purpose under Customs Act is Section 28, which deals with the recovery of duties that are not levied, paid, or refunded correctly. It sets out timeframes within which the adjudicatory proceedings are liable to be concluded.

Section 28(9) postulates that the amount of duty or interest which is alleged to have escaped assessment would have to be determined within a period of six months from the date of notice. In the case of an import or an export which is sought to be reopened, the proceedings would have to be completed within one year from the date of notice.

The CGST Act also adopts similar provisions for purposes of determination of tax not paid, short-paid or erroneously refunded in the shape of Sections 73 and 74.

As per Section 73(10), a final order on the culmination of adjudication is liable to be framed by the proper officer within three years from the due date for furnishing an annual return. A notice commencing proceedings referable to Section 73 must be issued at least three months prior to the time limit as specified in sub-section (10) coming to an end.

In the case at hand, the Court was dealing with a batch of writ petitions seeking to quash the SCNs and pending adjudication proceedings arising out of the above three Acts.

The principal ground of attack was the “inordinate delay” in finalisation of adjudication proceedings within a reasonable period of time. Some cases were initiated by the authorities as far back as 2006.

The Respondent-authorities however asserted that the delay cannot by itself constitute a sufficient ground to interdict a pending adjudication. It was also alleged that in most cases, the petitioners had failed to render cooperation in adjudication proceedings and consequently, the delay cannot be attributed to the respondents.

Adverting to the timeline of one case, the Court observed, “as is manifest from the record, although the SCN was originally issued on 22 December 2006 it came to be transferred to the call book for the first time only on 29 June 2016, the respondents have failed to proffer any explanation for this delay of almost 10 years even though no restraint operated upon the right of the authorities to finalize the adjudication during this period.”

Similar was the factual matrix of other cases. Thus, the Court was compelled to observe that respondents, in each case, adopted a “repetitive exercise” of placing matters in the call book “mechanically”, without any application of mind or even undertaking a periodic review.

“The respondents have, in this regard, failed to abide by the directives of the Board itself which had contemplated affected parties being placed on notice, a periodic review being undertaken and the proceedings having been lingered unnecessarily with no plausible explanation,” Court said.

It cited Nanu Ram Goyal vs. CCE (GST) (2023) where the High Court had held that even where the statute fails to provide or stipulate a particular period, it would be the principles of reasonable time which would apply.

Similarly, in Tata Steel Limited vs. Union of India & Ors. (2023), the Jharkhand High Court dealt with a batch of writ petitions which had questioned the continuance of adjudication proceedings decades after the original SCNs' had been issued and had ruled in Assessees' favour.

Accordingly, the High Court allowed the writ petitions and quashed the SCNs and pending proceedings on ground of inordinate delay in adjudication.

Also Read: Adjudicating Authority's Inaction To Dispose Of Proceedings Can't Be Attributed To Taxpayer In Absence Of Any Malice On His Part: Bombay HC

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