CHALLENGING THE ISSUE OF SHOW CAUSE NOTICE

[Mr. M. GOVINDARAJAN]

Once the show cause notice is received by the assessee he is supposed to respond to the show cause notice by filing reply to the show cause notice with the authority concerned within the time stipulated in the show cause notice.   If reply could not be given within the due date the Authority may be requested to give further time for giving reply.

The issue to be discussed in this article whether the issue of show cause notice can be challenged without filing reply to the show cause notice with reference to decided case laws.

The provisions of the Act provides that the Authority, on receipt of reply for the show cause notice, is to decide the case after giving a reasonable opportunity to the assessee of being heard.  The show cause notice issued could not be challenged before the first appellate authority since the show cause notice is the primary stage of adjudication and it is not an order of the authority.  Stay could not be obtained in civil courts against the issue of show cause notice since civil courts have no jurisdiction on the taxation matters.  Thus the only way to challenge the issue of show cause notice is by way of filing a writ petition before the High Court.

The scope of the show cause notice is well explained in  ‘TRF Limited V. Commissioner of Central Excise & Service Tax, Jamshedpur’ – 2013 (4) TMI 21 - JHARKHAND HIGH COURT in which  it was held that neither the issuing authority nor assessee should make a prestige issue.   It is especially so as quasi judicial proceedings are initiated by officers exercising vast statutory power and jurisdiction, which should not be misunderstood to have been exercised to humiliate person holding position in assessee company.  The reasons for forming opinion against assessee are required to be reflected in the notice itself.   It cannot render notice illegal as being issued with pre determined mind.   However, notice reflecting in unequivocal terms decision on contentious issues rather than pulling question to assessee, may something reflect pre-determined mind of issuing authority.

The show cause notice should not show pre-determined mind of department.  Such notice cannot be treated to be a notice to show cause in any manner.

The High Court will not entertain writ petition against the issue of show cause notice in all cases.  In ‘Kirloskar Computer Services Limited V. Union of India’ – 1997 (6) TMI 35 - KARNATAKA HIGH COURT the interference with the proceedings initiated by the statutory authority in exercise of the extraordinary writ jurisdiction would be justified only in exceptional circumstances and these situations in which courts have interfered even when the statutes under which the proceedings are initiated provide for a complete machinery to challenge the orders passed are the cases where the constitutional vires of the very enactment under which the proceedings are initiated  or concludes under challenge-

• violation of principle of natural justice;
• orders impugned are without jurisdiction;
• private and public wrongs are inextricably mixed up;
• prevention of public injury and vindication of public justice demands it that recourse to Article 226 of the Constitution of India.

In ‘Creative Travel Private Limited V. Commissioner of Central Excise & Service Tax, New Delhi’- 2015 (10) TMI 1305 - CESTAT NEW DELHI before the issuance of show cause notice the assessee was asked to provide details/document/information for the period from April 2009 to November 2010 through various letters.  But the assessee did not provide any details to the department.  Therefore it was alleged in the show cause notice that the appellant has failed to furnish the requisite information and also not furnished the returns under Section 70 of the Act.  Therefore the provisions of Section 72 of the Act were attracted on the basis of ‘best judgment assessment’ and show cause notice was issued accordingly.   The appellant challenged the issuance of show cause notice before the High Court, Delhi.  The High Court, Delhi directed the Adjudicating Authority to decide the matter with regard to jurisdiction tacit basis taken into consideration the stand and stances put forth by the assessee, whether the show cause notice was issued correctly or not. 

In ‘Bhubaneswar Development Authority V. Commissioner of Central Excise & Service Tax’ – 2015 (4) TMI 464 - ORISSA HIGH COURT  the challenge has been made to the demand-cum-show cause notice calling upon to submit the reply to the show cause notice calling upon to submit the reply to the show cause notice within 30 days of the receipt of the notice as to why service tax interest/penalty shall not be levied.  The challenge is on the ground that the conditions precedent for exercise of jurisdiction to invoke the extended period of limitation are wholly absent and the Commissioner has not properly applied his mind to the questions as to the condition for invoking the extended period of limitation existed and/or acted mechanically and consequently, he submits that the impugned show cause notice amounts to wrongfully invocation of jurisdiction and hence ought to be quashed.  The High Court held that the issue whether the extended period of limitation was applicable, was yet to be determined by the Adjudicating Authority at first instance itself.  Hence writ petition was not maintainable.   The High Court directed the petitioner to file reply to show cause notice within 30 days of the order and to participate in proceedings.

In ‘Tanushree Logistics Private Limited V. Union of India’ – 2015 (9) TMI 420 - RAJASTHAN HIGH COURT, the High Court perused the show cause notice and found that it is only a prima facie view which the Commissioner, as a quasi judicial authority, has expressed at this state, placing reliance on the material collected, at the time of search and it cannot be said that the Commissioner has prejudged the matter of imposition of service tax and that may be considered after reply to show cause notice is submitted by the petitioner.  Admittedly the petitioner has not filed any explanation and even did not care to appear on several opportunities to explain before the Revenue authorities and without even filing of reply to the show cause notice, approaching the High Court is premature.  The High Court further held that if reply to show cause notice is furnished, it is always open to the authority to consider and decide in accordance with the law.

In ‘Infinity Infotech Parks Limited V. Union of India’- 2014 (12) TMI 36 - CALCUTTA HIGH COURT the High Court is of the view that the conditions precedent for exercising of jurisdiction to invoke extended period of limitation were wholly absent.  The Commissioner has not properly and independently applied his mind to the question of whether the conditions for invoking the extended period of limitation existed, but has acted mechanically, swayed by the report of the CERA team, which is itself appears to be illegal and unsustainable.  The Commissioner of Service Tax has not properly applied his mind to the issued required to be addressed for invoking the extended period of limitation.  The impugned show cause notice has been issued by wrongful invocation of jurisdiction.  The writ petition is allowed for the reasons discussed above.  The High Court set aside the impugned show cause notice.

In ‘Mega Corporation V. Commissioner of Service Tax’ – 2015 (1) TMI 1095 - DELHI HIGH COURT the petitioner challenged the show cause notice issued to him as to why the period effective from 2008, it should not be assessed to service tax as a service provider covered by Section 65 (105) (zzzj) of Finance Act, 1994, i.e., services provided in relation to supply of tangible goods for use.  The High Court held that the petitioner should first respond to show cause notice and take recourse to such remedies as are available in law in the circumstances of the case.  The petitioner is directed to file a reply or appropriately respond to the show cause notice.

In ‘Naresh Kumar & Co, Private Limited V. Union of India’ – 2013 (2) TMI 676 - CALCUTTA HIGH COURT the High Court held that the invocation of writ jurisdiction is permissible as question of limitation is question of jurisdiction in the sense that the authority has no jurisdiction to issue a show cause notice which is barred by limited.   Though the High Court, while exercising jurisdiction under Article 226, when such show cause notice is without jurisdiction and/or within the parameters of the law.  Further the High Court can interfere with a show cause notice would be in flagrant violation of principles of Natural Justice.  Furthermore the High Court might also interfere with a show cause notice which does not fulfill the statutory conditions for issuance thereof or ex-facie does not disclose any offence, misconduct or other cause of action for which action is contemplated in the show cause notice can be initiated.  For this purpose the court may examine whether jurisdiction to issue show cause notice has been properly exercised or such jurisdiction is usurped by pretended invocation of a provision of a statute.  Thus the High Court is entitled to examine whether the extended period of limitation could have been invoked and if so, whether any cogent grounds have been made out in the impugned show cause notice for invocation of the extended period of limitation and if the same is supported by materials on record.