Phrase "Where It Is Possible To Do" U/S 73(4B) Of Finance Act Doesn't Make Timeline To Determine Service Tax Dues 'Suggestive': Delhi HC

A division bench of Acting Chief Justice Vibhu Bakhru and Justice Swarana Kanta Sharma observed,

“...Section 73(4B) was framed and introduced in the Finance Act to ensure effective administration of taxation. While there cannot be denying that the taxation forms the backbone of a nation's economy, any inordinate delay by the Revenue itself in prosecuting its own cases cannot be construed in their favour by stretching the period of limitation to nine years especially when the provision requires the proceedings to be concluded within six months / one year.”

Section 73(4B) stipulates that the officer has to determine the amount of service tax due within six months or one year from the date of notice (as the case may be), where it is “possible to do so”.

In the case at hand Petitioner, engaged in activities such as providing/ laying/ replacing water pipelines for entities like Delhi Metro Rail Corporation and Delhi Jal Board was aggrieved by re-initiation of adjudicating proceedings after a gap of about nine years.

As per factual matrix of the case, impugned hearing notice dated 18.09.2024 was issued in pursuance of the impugned show cause notice dated 21.04.2015.

Petitioner contended that hearing with respect to the SCN was concluded way back on 19.10.2015 but, order qua the same was not communicated to it. However, after almost nine years, a fresh notice of hearing dated 18.09.2024 was issued by the Department.

Petitioner also apprised the Court that it was issued SCNs in 2010 and the same were dropped by the then Commissioner of Service Tax. Revenue's appeal against this decision was dismissed by the CESTAT, which was not challenged by the Revenue.

It was contended that since CST had already dropped the proceedings, there was no justification in law to re-initiate the adjudicating proceedings after nine years. It was also contended that the adjudicating proceedings have become time-barred in terms of Section 73(4B)(a) & (b) of the Finance Act.

Revenue on the other hand argued that the Petitioner was not paying taxes on activities classifiable under 'Erection, Commissioning, or Installation' services, as defined in Section 65(39a) of the Finance Act.

It submitted that proceedings with respect to the SCN issued in 2015 was deferred since a similar matter was under consideration before the CESTAT and the deferment was communicated to the petitioner.

It was further contended on behalf of the Revenue that the language used under Section 73(4B)(a) & (b) of the Finance Act itself makes it clear that it is only suggestive rather than being mandatory.

Findings

At the outset, the High Court noted that even though Revenue conteded that the matter was deferred, the case was not transferred to the call book.

It remarked,

“The Revenue‟s contention that it was justified in keeping the proceedings in this case, in abeyance because an appeal pertaining to similar issue was pending before the learned CESTAT, is unmerited. The filing of an appeal in another case qua the petitioner, though on identical issue, and its pendency before the learned CESTAT cannot be held as a valid reason for not conducting the proceedings in the present case, after a show cause notice has already been issued, within the time frame as laid down in Section 73(4B) of the Finance Act.”

Court said even if Revenue's appeal before the CESTAT was pending, the proceedings in this case could have continued. However, Revenue chose to await the outcome in the appeal while the Petitioner was left under the impression that since he had not received any adverse communication/order from the Revenue, the proceedings and show cause notice had been closed.

“Even if one accepts that the time period of six months/one year as mentioned in Section 73(4B) of the Finance Act is only suggestive, it would be unreasonable to hold that the same can be extended till a period of nine years in the given facts and circumstances of the case,” Court said.

It cited Sunder System Pvt. Ltd. v. Union of India & Ors (2020) where the High Court had held that even if no time period for limitation is prescribed, the statutory authority must exercise its jurisdiction within a reasonable period and if it is not so done, it will vitiate the proceedings.

It also relied on Siddhi Vinayak Syntex Pvt. Ltd. v. Union of India (2017) where the Gujarat, in respect of Section 11A of Central Excise Act, 1944, had observed that when the legislature has used the expression "where it is possible to do so", it means that if in the ordinary course it is possible to determine the amount of duty within the specified time frame, it should be so done…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.

In view of the above, the Court quash and set aside the impugned hearing notice dated 18.09.2024 on the grounds of it being time-barred.

Appearance: Mr Akshay Amritanshu, Senior Standing Counsel with Mr Samyak Jain, Ms Drishti Safar and Ms Pragya Upadhyay, Advocates for Petitioner; Mr. Shekhar Kumar, SPC for R-1. Mr. Atul Tripathi, SSC CBIC with Mr. VK Attri, Advocate for Respondents

Case title: MS L. R. Sharma And Co v. Union Of India & Ors.

Case no.: W.P.(C) 13689/2024

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