2020 (8) TMI 296 - HC - Service Tax

Recovery of service tax - initiation of recovery proceedings without adjudication of SCN - HELD THAT - According to the respondents, the dues from the respondents were due to the failure of the petitioner in carrying forward opening balance of CENVAT credit and filing proper returns. The petitioner cannot therefore raise any grievance - Be that as it may, the petitioner has been issued with Ext.P8 show-cause notice invoking Section 73(1) of the Finance Act, 1994 read with Section 174(2) of CGST Act, 2017. The petitioner has the opportunity to explain its stand and position before the 4th respondent. Before adjudicating the issues raised in Ext.P8 show-cause notice, if the respondents proceed under Section 87(b) of the Finance Act and Section 79(1)(c)(i) of the Act read with Section 142(8)(a) of the CGST Act, 2017, the petitioner will indeed be put to hardship. Such proceedings are ordinarily to be initiated only after adjudication process is over. The writ petition is disposed of directing the 4th respondent to give opportunity to the petitioner to adduce such evidence before the 4th respondent in order to explain the deficiencies pointed out in Ext.P8.

Summary

Issues:
1. Validity of notices issued under the Finance Act, 1994.
2. Legality of recovery proceedings without adjudication.
3. Compliance with CENVAT credit rules and filing of proper returns.

Issue 1: Validity of notices issued under the Finance Act, 1994
The petitioner, a Private Limited Company registered under the category 'Construction of Residential Complex Service', sought to set aside notices (Exts.P11, P12, and P13) issued by the 3rd respondent. The petitioner had been discharging its service tax liability regularly but was served with a show-cause notice (Ext.P8) invoking Section 73(1) of the Finance Act, 1994. The petitioner challenged the validity of these notices and sought a direction to prevent the initiation of proceedings until the adjudication of Ext.P8.

Issue 2: Legality of recovery proceedings without adjudication
The petitioner, preparing to respond to Ext.P8 show-cause notice, received another notice (Ext.P9) directing payment along with interest. Despite filing a reply (Ext.P10) stating that recovery proceedings cannot be initiated without adjudication, the respondents served notices on the petitioner's Bankers to freeze accounts under Section 87(b) of the Finance Act, 1994. The Court, in an interim order, stayed the operation of these notices addressed to the Banks.

Issue 3: Compliance with CENVAT credit rules and filing of proper returns
The respondents contended that the petitioner had short-paid service tax, leading to the issuance of recovery notices (Exts.P11 to P13). They argued that the petitioner's failure to carry forward CENVAT credit and file proper returns resulted in the short payment. The Standing Counsel highlighted the petitioner's omissions regarding CENVAT credit utilization and return revisions, placing the blame on the petitioner for the situation.

The Court, after hearing both parties, noted the detection of non-payment of service tax by the internal audit team. While acknowledging the petitioner's omissions, the Court emphasized the importance of allowing the petitioner to explain its position before adjudication. The judgment directed the 4th respondent to provide the petitioner with an opportunity to present evidence and ordered the 4th respondent to pass appropriate orders on Ext.P8 within one month. The interim order staying the notices to the Bankers was to remain in effect during this period.