EXCISE DEPARTMENT CANNOT ISSUE A SHOW CAUSE NOTICE AND SIT FOR SIXTEEN YEARS

[Mr. M. GOVINDARAJAN]

Show cause notice

In indirect taxes it is used by the Revenue to issue show cause notice once it finds that there is any contravention of the provisions of Act and Rules. The limitation is applicable in issue of show cause notice. The extended period of limitation can be invoked by the Revenue if there is a willful default and there is an intention to evade payment. The show cause notice will direct the recipient to give reply within the time stipulated in the show cause notice. The assessee is to give reply within the time given in the show cause notice.

On receipt of the show cause notice the Authority will consider the submissions made by the assessee and also documentary evidence put forth by him in his defense and pass orders.

The show cause notice will be put in call book where the demand could not be realized due to reasons such as the department having gone in appeal and injunction from courts, etc. There are four types of cases that are pending adjudication are to be transferred to the Call Book-

• Cases in which the Department has gone in appeal in a quasi judicial or a judicial authority
• Cases where injunction has been issued by Supreme Court/High Courts;
• Cases where audit objections were contested;
• Cases where the Board has specifically ordered the same to be kept pending and to be entered in the call book.

Once transferred to the Call Book, the cases are not to be included in the list of cases pending adjudication. The cases in the call book are to be reviewed every month to identify any cases that are to be taken out of the call book and adjudicated. It has been reiterated the need for monthly review and stated that the review of call book cases may result in substantial reduction in the number of unconfirmed demands in call book. The Revenue cannot keep the show cause notice pending for long years. If so the Court may quash the said show cause notice.

In ‘The Bombay Dyeing and Manufacturing Company Limited v. Deputy Commissioner of GST& Central Excise, Div-IX, Mumbai’ – 2022 (2) TMI 783 - BOMBAY HIGH COURT, the petitioner was issued a show cause notice dated 16.09.2005. The show cause notice directed the petitioner to give reply within four weeks of receipt of the notice. The petitioner has filed the reply to the show cause notice. No communication has been received from the Department on the disposal of the show cause notice. No notice of hearing of the show cause notice was issued to the petitioner at any point of time. There is no adjudication upon the show cause notice from the Department till date of filing the writ petition.

16 years lapsed after issuance of the show cause notice and the petitioner has no records for the same to defend the case. The petitioner filed the present writ petition challenging the show cause notice dated 16.09.2005. The petitioner submitted the following before the High Court-

• The petitioner was never informed that the show cause notice was kept in call book at any point of time.
• The Department cannot proceed on the show cause notice issued 16 years before.

The Revenue contended that the stand taken by the Department has already been set out in the affidavit-in-reply filed by the Revenue. On the grounds set out in the reply the petitioner is not at all entitled to any relief.

The High Court observed that the show cause notice was issued on 16.09.2005 for which reply was filed by the petitioner in time. It is not in dispute that no notice of hearing on the said show cause notice was issued to the petitioner at any point of time. Further the petitioner was not informed that the impugned show cause notice was kept in call book as alleged in the reply by the Revenue. There is no delay attributable on the petitioner.

The petitioner relied on the judgment in ‘Parle International Limited v. Union of India’ – 2020 (11) TMI 842 - BOMBAY HIGH COURT. In this case the show cause notice was adjudicated after 13 years after the date of issue of show cause notice. In this case the High Court relied on the following judgments-

• ‘Saghavi Reconditions Private Limited v. Union of India’ – 2017 (12) TMI 906 - BOMBAY HIGH COURT; and
• ‘Raymond Limited v. Union of India’ – 2019 (8) TMI 962 - BOMBAY HIGH COURT

In the above cases there was a delay of 14 to 17 years in adjudicating the show cause notices. The High Court held that when the revenue keeps the show cause notice in call book then it should inform the parties about the same. This will serve the following purposes-

• It puts the party to notice that the show cause notice is still alive and is only kept in abeyance. Because of this the assessee can keep all the records and evidences that are required to defend his case before the Adjudicating Authority.
• If the notices are kept in call book the assessees may get a chance of to point out to the revenue that the reasons for keeping the notices in call book are not correct and the notices should be adjudicated promptly and at the earliest.

The High Court held that when a show cause notice is issued to a party, it is expected that the same would be taken to its logical consequences within a reasonable period of time so that finality is reached. In the reply given by the Revenue to the writ petition the Revenue did not allege that the petitioner was informed about the show cause notice having been kept in call book. If the information about putting the show cause notice was put in call book to the petitioner, he would have applied for appropriate reliefs by filing the appropriate proceedings.

The High Court observed that it is not expected from the assessee to preserve the evidence/record intact for such a long period to be produced at the time of hearing the show cause notice. Because of the gross delay on the part of the Revenue the assessee cannot be made to suffer.

The High Court set aside the show cause notice issued by the Revenue to the petitioner on 16.09.2005.