2018 (5) TMI 223 - HC - Service Tax

Non-issuance of SCN - Oral intimation of tax liability during audit - payment of tax under protest - It is the grievance of the petitioner that no SCN was issued to the petitioner despite petitioner requesting the respondents to issue the same - Banking and other Financial Services - Held that - Much emphasis is placed on Section 73 3 of the Act and clause 3.2 of the Circular dated 18.08.2015 by the Revenue, to contend that no show cause notice is necessary when the petitioner has paid the tax and penalty on the basis of tax ascertained by the Audit Enquiry Officer before service of notice under sub- section 1 of Section 73 of the Act. As narrated above in the preceding paragraphs, the petitioner has made clear that the amount paid was provisional and under protest. No waiver of show cause notice has been accepted. As such limitation for the extended period is not invokable unless show cause notice puts the Assessee to notice specifically as to various commissions/omissions stated in the proviso to Section 73 1 of the Act had been committed. Extended period of limitation of five years is available only in cases where the omissions or commissions enumerated in proviso to Section 73 1 are alleged. Section 73 4 further makes it clear that clauses enumerated in the proviso to Section 73 1 would not fall within the ambit of section 73 3 . Thus, tax, interest and penalty cannot be collected for five years period without alleging omission/commission of the clauses enumerated under the proviso to Section 73 1 . Explanation 2 to Section 73 3 provides that no penalty under any of the provisions of the Act or the rules made thereunder shall be imposed in respect of payment of service tax under section 73 3 and interest thereon. Even assuming Section 73 3 is invoked by the revenue, no penalty can be leviable. Otherwise also, if Section 78 1 is invoked, show cause notice is mandatory. It is well settled legal principle that penalty is not automatic. If the Assessee is making payment within 30 days after issuance of show cause notice, the penalty prescribed is 15% of such service tax, opportunity to show cause cannot be denied to the petitioner who is disputing the liability to tax extending the period of limitation. SCN is necessary for determining the disputed tax, interest and penalty - matter is remitted to the Respondent No.2 to issue show cause notice to the petitioner to determine the disputed tax, interest and penalty in accordance with the provisions of the Act - petition allowed.

Issues Involved:

1. Legality of the communication dated 3.5.2016 and 28.7.2016.
2. Requirement of show cause notice under Section 73(1) of the Finance Act, 1994.
3. Applicability of extended period of limitation under Section 73(1) proviso.
4. Legality of tax, interest, and penalty collection without show cause notice.
5. Applicability of Section 78(1) of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Legality of the communication dated 3.5.2016 and 28.7.2016:
The petitioner, a Co-operative Bank, challenged the communications dated 3.5.2016 and 28.7.2016 issued by the respondents. The petitioner contended that these communications demanded tax, interest, and penalty without issuing a show cause notice, thus depriving the petitioner of its legal and statutory rights. The Court found that the communications were not justifiable as they failed to adhere to the mandatory requirement of issuing a show cause notice.

2. Requirement of show cause notice under Section 73(1) of the Finance Act, 1994:
Section 73(1) mandates that any recovery of service tax must be preceded by a show cause notice. The Court emphasized that a show cause notice is essential to inform the assessee of the grounds of tax demand and to provide an opportunity to contest the demand. The Court held that the omission to issue a show cause notice was a violation of the petitioner’s rights.

3. Applicability of extended period of limitation under Section 73(1) proviso:
The extended period of limitation under the proviso to Section 73(1) is applicable only in cases involving fraud, collusion, willful misstatement, suppression of facts, or contravention of provisions with intent to evade tax. The Court referred to the judgments in LARSEN AND TOUBRO LTD. and RAJ BAHADUR NARAIN SINGH SUGAR MILLS LTD., which clarified that specific allegations must be made to invoke the extended period. The Court concluded that in the absence of such specific allegations, the extended period of limitation could not be applied.

4. Legality of tax, interest, and penalty collection without show cause notice:
The petitioner argued that the tax, interest, and penalty were paid under protest and without a proper assessment through a show cause notice. The Court observed that Section 73(3) allows for voluntary payment of tax before the issuance of a show cause notice, but this does not negate the requirement of issuing a show cause notice in cases involving extended periods of limitation. The Court held that the collection of tax, interest, and penalty without a show cause notice was not in accordance with the law.

5. Applicability of Section 78(1) of the Finance Act, 1994:
Section 78(1) deals with penalties for non-payment of service tax due to fraud, collusion, etc., and mandates the issuance of a show cause notice. The Court found that even if the revenue invoked Section 73(3), no penalty could be levied without a show cause notice. The Court reiterated that penalty is not automatic and the assessee must be given an opportunity to contest the liability.

Conclusion:
The Court allowed the writ petitions, quashed the communications dated 3.5.2016 and 28.7.2016, and remitted the matter to the respondent to issue a show cause notice to the petitioner. The respondent was directed to determine the disputed tax, interest, and penalty after considering the petitioner’s objections and providing an opportunity for a hearing. No costs were awarded.

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