2025 (4) TMI 1468 - HC - Service Tax

Time limitation for issuance of SCN - impugned order issued after a substantive delay of approximately five years and ten months which is hit by Section 73 (4B) of the Finance Act 1994 - HELD THAT - In Kanak Automobiles Private Limited case 2024 (4) TMI 1223 - PATNA HIGH COURT the learned co-ordinate Bench has agreed to the said submission to the extent that the period of limitation is not absolute period stated in clause (b) of sub-section (4B) of Section 73 of the Act of 1994 but then a question arises as to whether a duty has been cast upon the Department to show that it was not possible to pass an order determining the amount within one year from the date of notice in respect of cases falling under the proviso to sub-section (1) or the proviso to sub-section (4A) of the Act of 1994. This Court has taken a view that in an appropriate case this would be a matter of fact which would be required to be looked into in the context of a particular case. There is a consistent view on this point that the time frame of six months/one year as mentioned in Section 73 (4B) cannot be extended for an inordinate period. In this case it is over five years and the Revenue has failed to explain as to how such a delay has taken place. Conclusion - i) The impugned order-in-original imposing service tax liability interest and penalty was passed beyond the prescribed limitation period and is therefore liable to be quashed. ii) The Revenue failed to demonstrate that it was not possible to pass the order within the one-year period prescribed by Section 73(4B). Application allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this judgment are:

(a) Whether the impugned order-in-original imposing service tax liabilities, interest, and penalties for financial years 2012-13 and 2013-14 was passed beyond the period of limitation prescribed under the Finance Act, 1994, specifically under Section 73 and its sub-section (4B).

(b) Whether the delay of over five years in passing the adjudication order, without any explanation from the Revenue, violates statutory provisions and principles of natural justice.

(c) Whether the Revenue has discharged its burden to demonstrate that it was not possible to pass the order within the prescribed limitation period.

(d) The applicability and interpretation of Section 73(4B) of the Finance Act, 1994, including the proviso to Section 73(1), and relevant precedents concerning limitation periods in service tax adjudications.

(e) Whether the petitioner was afforded adequate opportunity of hearing and whether failure to respond to the show cause notice (SCN) affects the limitation issue.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Limitation period under Section 73 of the Finance Act, 1994 and delay in passing order

Relevant legal framework and precedents: The Court examined Section 73 of the Finance Act, 1994, which governs recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded. Section 73(1) prescribes a limitation period of thirty months from the relevant date for issuance of notice; however, the proviso extends this period to five years if the default is due to fraud, collusion, wilful mis-statement, suppression of facts, or contravention with intent to evade tax.

Section 73(4B) further mandates that the adjudicating officer must determine the amount of service tax due within six months from the date of notice in normal cases, or within one year in cases covered by the proviso to sub-section (1), "where it is possible to do so".

The Court relied on precedents including a co-ordinate Bench decision in the petitioner's own case (CWJC No. 17171 of 2024), the Delhi High Court's decision in L.R. Sharma & Co. v. Union of India, and the judgment in Sunder System Pvt. Ltd. v. Union of India, which emphasize strict adherence to limitation periods and that delay without explanation cannot be condoned.

Court's interpretation and reasoning: The Court noted that the SCN was issued on 05.09.2018, and the adjudication order was passed on 09.07.2024, resulting in a delay of nearly six years. Despite the extended limitation period of five years under the proviso to Section 73(1), the adjudication order was passed well beyond this period.

The Court emphasized that Section 73(4B) requires the adjudicating authority to complete determination within one year from the date of notice in cases covered by the proviso, "where it is possible to do so". The Court interpreted this to mean that while the limitation is not absolute, the Revenue must demonstrate why it was not possible to comply with the prescribed time frame.

Key evidence and findings: The Revenue failed to provide any explanation or justification in the counter affidavit for the delay in passing the order. The Court specifically noted the absence of any attempt by the Department to show that it was not possible to pass the order within the one-year period.

Application of law to facts: Given the absence of explanation and the substantial delay, the Court found that the limitation period was clearly violated. The Court held that the delay was inordinate and unjustified, rendering the impugned order liable to be quashed.

Treatment of competing arguments: The Revenue argued that delay during the COVID-19 pandemic period might justify the late order. However, the Court rejected this on the ground that the limitation period expired well before the pandemic began (by 05.09.2019). The petitioner's failure to respond to the SCN or appear for hearings was noted but held not to justify the delay in adjudication beyond the statutory period.

Conclusions: The Court concluded that the adjudicating authority failed to comply with the statutory time frame mandated by Section 73(4B), and the delay was neither excusable nor explained. The impugned order was therefore quashed on the ground of limitation.

Issue (c): Burden on Revenue to demonstrate impossibility of passing order within limitation

Relevant legal framework and precedents: The Court referred to the Gujarat High Court's judgment in Siddhi Vinayak Syntex Pvt. Ltd. v. Union of India, which clarified that the phrase "where it is possible to do so" in Section 73(4B) implies that if ordinarily it is possible to adjudicate within the prescribed time, the authority must do so. Exceptional circumstances such as large workload or need to examine many witnesses may justify delay, but mere awaiting of decisions in other cases or administrative delay does not.

Court's interpretation and reasoning: The Court held that the Revenue has a duty to demonstrate the impossibility of passing the order within the prescribed period. In the absence of such demonstration, the delay cannot be condoned.

Key evidence and findings: No evidence or explanation was provided by the Revenue to show impossibility or exceptional circumstances justifying delay.

Application of law to facts: The Court applied this principle strictly, finding that the Revenue's failure to explain the delay amounted to non-compliance with the statutory mandate.

Treatment of competing arguments: The Revenue's generalized claim of delay was insufficient to meet the burden.

Conclusions: The Court reiterated that the absence of any explanation for delay necessitated quashing of the order.

Issue (d): Applicability of proviso to Section 73(1) and saving provision under CGST Act, 2017

Relevant legal framework: The SCN and order were issued under the proviso to Section 73(1) of the Finance Act, 1994, read with Section 174 of the CGST Act, 2017, which preserves the power of authorities to recover service tax liabilities under the earlier law.

Court's interpretation and reasoning: The Court acknowledged the applicability of the proviso extending limitation to five years but emphasized that the further limitation period for adjudication under Section 73(4B) applies strictly.

Application of law to facts: The petitioner's case fell squarely within the extended limitation period but the adjudication order was still passed beyond the one-year period prescribed for determination after issuance of notice.

Conclusions: The Court held that the extended limitation period is subject to the requirement of timely adjudication within one year of notice, failing which the order is liable to be quashed.

Issue (e): Opportunity of hearing and petitioner's non-participation

Relevant facts: The petitioner did not file any reply to the SCN and did not participate in the personal hearings fixed on three occasions.

Court's reasoning: The Court noted this fact but held that the petitioner's non-participation does not validate or justify the Revenue's delay in adjudication beyond the statutory limitation period.

Conclusions: The petitioner's failure to respond or appear does not affect the limitation issue or the statutory duty of the Revenue to adjudicate within the prescribed time.

3. SIGNIFICANT HOLDINGS

The Court's crucial legal reasoning includes the following verbatim excerpt from the judgment:

"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. The legislature has wisely not prescribed a time limit and has specified such time limit where it is possible to do so, for the reason that the adjudicating authority for several reasons may not be in a position to decide the matter within the specified time frame, namely, a large number of witnesses may have to be examined, the record of the case may be very bulky, huge workload, nonavailability of an officer, etc. which are genuine reasons for not being able to determine the amount of duty within the stipulated time frame. However, when a matter is consigned to the call book and kept in cold storage for years together, it is not on account of it not being possible for the authority to decide the case, but on grounds which are extraneous to the proceedings. In the opinion of this court, 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. The adjudicatory authority is required to decide each case as it comes, unless restrained by an order of a higher forum."

Core principles established include:

- The limitation period for adjudication under Section 73(4B) of the Finance Act, 1994 is mandatory and must be adhered to unless the Revenue can demonstrate impossibility of compliance.

- Delay in adjudication beyond the prescribed period without explanation is arbitrary and violative of principles of natural justice.

- Petitioner's non-participation in proceedings does not justify the Revenue's failure to adjudicate within the statutory time frame.

- The proviso to Section 73(1) extends the period for issuance of notice but does not absolve the Revenue from the duty to adjudicate within one year of such notice.

Final determinations on each issue:

(a) The impugned order-in-original imposing service tax liability, interest, and penalty was passed beyond the prescribed limitation period and is therefore liable to be quashed.

(b) The Revenue failed to demonstrate that it was not possible to pass the order within the one-year period prescribed by Section 73(4B).

(d) The writ application is allowed and the impugned order is quashed.

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