QUANTIFICATION OF THE TAX IN THE SHOW CAUSE NOTICE IS A STATUTORY REQUIREMENT

[Mr. M. GOVINDARAJAN]

The provisions of Finance Act, 1994 makes the service provider liable to pay the service tax levied and collected by him to the credit of the Central Government before the stipulated period and in the prescribed manner. Failure to pay service tax or partly paid will attract penalties under the provisions of service tax. The Central Excise Officers are empowered to issue show cause notice to the assessee in case of failure to pay service tax or partly pay the service tax or non levy of service tax within the time limit as prescribed. The show cause notice will be issued to the assessee giving opportunity to represent his side to the Central Excise Officers. The show cause notice should indicate the quantum of service tax demanded from the assessee for which the assessee is to give reply. On consideration of the reply received from the assessee the Adjudicating Authority may withdraw the show cause notice or confirm the demand of service tax along with interest and impose penalty.

The assessee cannot file appeal to the Commissioner (Appeals) or to the Appellate Tribunal, as the case may be, on the issue of show cause notice. Or he may not able to approach High Court to file writ petition against the show cause notice.

But in 'Siemens Limited V. State of Maharashtra and others' - [2010 -TMI - 76481 - SUPREME COURT OF INDIA]  the Supreme Court held that the writ petition is maintainable against the show cause notice if the department has already determined the liability of the appellant.

In 'Creative Info space Private Limited V. Additional Commissioner, Chennai' - [2010 -TMI - 76482 - MADRAS HIGH COURT]  during the course of the audit of the accounts of the assessee by the officers of the Internal Audit Group of the respondent department, noticed that the assessee has not paid service tax for a stated period. Thereafter, the office had directed the assessee to pay the service tax, for the said period for which the assessee denied his liability. The Assessing Officer has not satisfied with the reply given by the assessee for the show cause notice issued to him for certain reasons.

The petitioner filed this writ petition to quash a show cause notice issued by the Department calling upon the petitioner show cause within a period of thirty days as to why service tax should not be demanded for the period from July 04 to February 05 under provisions of Sec. 73(1) of the Finance Act, 1994 and as to why interest at applicable rate should not be demanded under Sec. 75 of the Act and penalty under Sec. 76 and 78 of the Act, should not be imposed. The petitioner challenged the show cause notice on the following grounds:

* The show cause notice is in violation of principles of Natural Justice;

* When the Department has sent a communication directing the petitioner to submit his reply to audit report, the petitioner promptly responded to the same and without conducting any further enquiry the Department has issued show cause notice;

* The authority has already pre decided the issue;

* The tax has already been quantified in the show cause notice which shows that the show cause notice is an empty formality;

* The extended period cannot be invoked.

The Department contended that the prima facie the contention of the petitioner is not tenable.

The High Court found that there was no pre determination of the issue or any foregone conclusion arrived at by the Department. In the show cause notice the petitioner has been given opportunity to submit his explanation to the allegations contained in the show cause notice as well as to the quantum and to have been computed. Further under Section 73 of the Finance Act as is stood prior of its amendment by Finance (No.2) Act, 2004 with effect from 10.9.204 and subsequently, the officer demanding service tax is required to issue a show cause notice on the person calling upon him to show cause why he should not pay the amount specified in the notice. Therefore the High Court held that the quantification of the tax in the show cause notice is a statutory requirement and cannot be stated that the authority has pre decided the issue. Further the question whether the extended period could be invoked or not is also a factual question which should be best left to the adjudicating authority to decide based on the reply to be submitted by the petitioner and the documents, if any, to be produced. This issue, therefore cannot be gone into a proceeding under Article 226 of the Constitution. The High Court, therefore dismissed the writ petition. The petitioner was granted further 30 days time from the date of receipt of copy of the order to submit his explanation to the show cause notice and on receipt of the same the Department shall adjudicate the case on merits and in accordance with the law, after affording opportunity to the petitioner as contemplated under the provisions of Finance Act, 1994.