2021 (3) TMI 85 - HC - Service Tax

Principles of natural justice - allegation is that SCN issued with a pre- determined and closed mind without appreciating the statutory provisions - time limitation - primary thrust of the challenge is on non-compliance of the consultative exercise prior to the issuance of show-cause notice as per para-5.0 of the master circular dated 10th March 2017 - HELD THAT - Para 5.0 of the master circular dated 10th March 2017 appears to have been incorporated to facilitate trade and promote voluntary compliance and to reduce the necessity of issuing show-cause notice in such cases where the demand of duty is above ₹ 50 lakhs. In a way the rigors of adjudication proceedings was intended to be avoided if the case of the assessee does not fall within the exceptions i.e. preventive / offence related SCNs which has a more serious import. The SCN also indicates that had the third party information not been received by the department and investigation initiated, the case could not have come to light. As such, it appeared that it is a case of wilful suppression of material facts from the department. Para-21 of the SCN indicates that the Managing Director of the assessee and noticee no.2 was also asked to explain as to why he be not held liable for penalty under Section 78A of the Finance Act, 1994 for his complicity in the aforesaid evasion of service tax since he had not given satisfactory answers to the queries made - Proceedings for adjudication in such matters are initiated by the office of the Commissioner of GST and Central Service tax as has been informed by the learned counsel for the respondents, though notices are issued to the assessees by the preventive branch upon third party information and investigation asking them to explain the discrepancy in the taxable value received by them for the relevant period upon comparison of other materials available with the department. In this case, the investigation was initiated upon inputs received from the Income Tax Department regarding discrepancy in the taxable value received by the petitioner as per TDS and income Tax Return and that shown in ST-3 Return filed by them for the period 2012-13. Upon consideration of the facts and circumstances discussed, it prima-facie appears that the SCN fell into the category of preventive show-cause notice falling under the exception under para-5.0 of the master circular dated 10th March 2017. Had the proceedings not been initiated, the liability of paying service tax might have been evaded - thus, the case of the petitioner comes within the exception to para-5.0 of the master circular dated 10th March 2017. The adjudication order has already been passed on 16th February 2021. Petition dismissed.

Summary

Issues:
Challenge to show-cause notice based on grounds of pre-determined issuance, limitation bar, and non-compliance with consultative exercise. Petitioner's argument against falling under exceptions of preventive or offence-related show-cause notices. Allegations of haste in adjudication proceedings and lack of material showing compliance with pre-consultative exercise. Respondent's defense based on third-party information, opportunity given to clarify discrepancies, and necessity of show-cause notice due to wilful suppression of facts.

Analysis:
The writ petition challenged a show-cause notice dated 21.11.2017, alleging pre-determined issuance, limitation bar, and failure to comply with pre-consultative exercise as per the master circular of 10th March 2017. Petitioner argued against falling under exceptions for preventive or offence-related show-cause notices, citing the Delhi High Court's decision in a similar case. The petitioner contended that the show-cause notice was not based on preventive grounds and highlighted the importance of pre-consultative exercises for voluntary compliance. The respondent defended the notice, stating it was issued based on third-party information and after providing ample opportunity for clarification. The respondent emphasized the necessity of the notice due to wilful suppression of material facts.

The petitioner raised concerns about the hurried conclusion of adjudication proceedings during the pendency of the writ petition. Allegations were made regarding the lack of evidence showing proper application of mind before dispensing with the pre-consultative exercise requirement. The respondent countered by presenting the adjudication order and justifying the issuance of the show-cause notice based on third-party sources and the need to address discrepancies in tax filings. The respondent argued that the petitioner had opportunities to clarify but failed to do so, leading to the necessity of the notice.

The judges analyzed the relevant provisions, including para 5.0 of the master circular dated 10th March 2017, which mandated pre-show-cause notice consultation in cases with duty demands exceeding ?50 lakhs, except for preventive or offence-related notices. The court observed the repeated requests for clarification made to the petitioner by the Preventive Branch and the subsequent summons issued due to poor responses. The court noted that the case involved wilful suppression of material facts and the initiation of proceedings based on third-party information to prevent tax evasion.

In conclusion, the court found that the show-cause notice fell within the exception under para 5.0 of the master circular, justifying its issuance without pre-consultative exercise. The adjudication order had already been passed, and the petitioner was granted the liberty to challenge it through the appellate forum. The court dismissed the writ petition, stating no grounds for interference were found. Pending interlocutory applications were closed as a result of the judgment.