2021 (7) TMI 309 - HC - Service Tax

Failure to remit the service tax - issuance of a pre-show cause notice - violation of the Master Circular dated 10.03.2017 and the Circular dated 19.11.2020 - HELD THAT - In the present case, it is seen that every attempt made by the respondent to secure information/document from the appeal were stonewalled by the appellant. Though the show cause notice issued by the respondent which was impugned before the learned Single Judge was not preventive in nature but yet an offence report was registered against the appellant - If the appellant desired to seek the benefit of the Master Circular dated 10.03.2017, he is expected to comply with the summons issued by the respondent seeking explanation/documents that were summoned by the respondent. The benefit of the Master Circular cannot be a one-way traffic and the appellant cannot milch the Master Circular to his advantage. The appellant was not entitled to pre-show cause notice as contemplated under Master Circular dated 10.03.2017 - Appeal dismissed.

Summary

Issues:
Challenge to show cause notice under Section 73 of the Finance Act, 1994 read with Section 174 of the CGST Act 2017 based on violation of Circulars dated 10.03.2017 and 19.11.2020, mandatory pre-show cause notice consultation, non-cooperation of appellant in providing documents, benefit of pre-show cause notice in case of an offence, and compliance with the Master Circular dated 10.03.2017.

Analysis:

1. Challenge to Show Cause Notice: The appellant challenged the show cause notice issued under Section 73 of the Finance Act, 1994, contending that it violated Circulars dated 10.03.2017 and 19.11.2020, which mandated pre-show cause notice consultation for demands of duty above a certain threshold. The appellant relied on legal precedents to support the argument that the Circulars were binding and had to be followed strictly.

2. Response to Challenge: The respondent argued that the appellant was not entitled to the benefit of the Circular dated 10.03.2017 as it was subject to exceptions for preventive/offence-related show cause notices. The respondent highlighted the appellant's non-cooperation in providing necessary documents during the investigation, leading to the registration of an offence case. The respondent emphasized the need to safeguard revenue due to the Government, citing the issuance of the show cause notice with a significant service tax liability.

3. Judicial Decision: The learned Single Judge acknowledged the preliminary stage of the proceedings and balanced the interests of both parties. While directing the appellant to appear for a personal hearing in line with the Circular dated 10.03.2017, the Judge kept the show cause notice in abeyance. The Judge reserved the right for the respondent to revive the notice if the appellant failed to demonstrate compliance with tax obligations. The Judge's decision was deemed fair and balanced, leading to the dismissal of the appeal.

4. Compliance with Circulars: The judgment highlighted the importance of compliance with Circulars and the need for mutual cooperation in tax investigations. It emphasized that the benefit of pre-show cause notice should not be one-sided and required the appellant to fulfill obligations under the Master Circular dated 10.03.2017 to avail such benefits. The judgment underscored the significance of maintaining a collaborative approach in resolving tax disputes to facilitate voluntary compliance and reduce the necessity of formal notices.

5. Legal Precedents: The judgment referenced legal precedents, including judgments from the Delhi High Court and the Supreme Court of India, to support the decision regarding the appellant's entitlement to pre-show cause notice in the context of an offence case. The reliance on established legal principles and precedents reinforced the rationale behind the Judge's decision to balance procedural requirements with the need to safeguard revenue and ensure compliance with tax laws.

6. Conclusion: The judgment concluded that the appellant was not entitled to pre-show cause notice as per the Master Circular dated 10.03.2017 due to non-compliance with investigative requests and the registration of an offence case. The decision to keep the show cause notice in abeyance while granting the appellant an opportunity to be heard was deemed appropriate and balanced. The dismissal of the appeal affirmed the validity of the Judge's decision in maintaining procedural fairness and upholding the principles of tax compliance and revenue protection.