2021 (7) TMI 1064 - HC - Service Tax

Legality and validity of the show-cause notice - pre-show-cause notice consultation - procedural infraction of impugned SCN - the pre-show-cause notice consultation dated 12.4.2019 calling upon the petitioners at 13.55 hours to remain present before the respondent No.2 at 16.00 hours on the same day - compliance of the Circular dated 10.3.2017 issued by the Board - HELD THAT - In view of the Circular, it is clear that the Board had made issuance of preshow- cause notice consultation mandatory for the Principal Commissioner/Commissioner prior to the issuance of show-cause notice in cases involving the demands of duty above ₹ 50 lac and that such consultation was to be done by the adjudicating authority with the assessee as an important step towards the trade facilitation and for promoting necessary compliance, as also to reduce the necessity of issuing show-cause notice. Despite such mandatory requirement of the pre-show-cause notice consultation at the instance of the respondent authority, in utter disregard of the said mandate, and without considering the laudable object behind issuing such circular, the respondents issued the impugned pre-show-cause notice consultation dated 12.4.2019 delivering the same to the petitioner assessee at 13.55 hours and calling upon them to remain present before the respondent No.2 at 16.00 hours. The petitioners having requested for reasonable time for the effective consultation, without considering the said request, the respondent No.2 issued the show-cause notice on the same day i.e. on 12.4.2019. Such a high-handed action on the part of the respondent No.2, not only deserves to be deprecated but to be seriously viewed. It is required to be noted that as such the demand made in the impugned show-cause notice was within the prescribed time limit. Now, since the said notice is sought to be set aside on the ground that adequate opportunity of hearing was not given to the petitioners for consultation prior to the issuance of the said notice, the petitioners cannot be permitted to take unfair advantage on the ground that the demand made in the notice had now become time-barred in view of the statutory provisions. The Court hereby sets aside the impugned notice dated 12.4.2019 (Annexure-D) on the ground that the petitioners were not granted an adequate opportunity for the consultation prior to the issuance of the said notice - Petition allowed.

Issues Involved:
1. Legality and validity of the show-cause notice dated 12.4.2019.
2. Procedural infraction and manner of issuance of the show-cause notice.
3. Compliance with the mandatory pre-show-cause notice consultation as per the Circular dated 10.3.2017.
4. Adequacy of the opportunity provided for pre-show-cause notice consultation.
5. Timeliness of the issuance of the show-cause notice in relation to the statutory period.

Detailed Analysis:

1. Legality and Validity of the Show-Cause Notice:
The petitioners challenged the legality and validity of the show-cause notice dated 12.4.2019 issued by the Additional Commissioner of Central Goods and Service Tax, Ahmedabad. The notice demanded service tax of ?1,13,47,313/- along with interest and penalty, based on the premise that the transaction between the petitioners and M/s. Arvind Limited was for services rendered and thus amenable to service tax.

2. Procedural Infraction and Manner of Issuance:
The petitioners contended that the notice was issued in violation of procedural norms, particularly the mandatory pre-show-cause notice consultation. The petitioners received the pre-show-cause notice consultation letter at 13.55 hours, calling them to appear before the respondent at 16.00 hours on the same day, which they argued was impractical and did not allow for effective representation.

3. Compliance with Circular Dated 10.3.2017:
The petitioners argued that the Circular dated 10.3.2017 mandates a pre-show-cause notice consultation to promote voluntary compliance and reduce the necessity of issuing show-cause notices. The petitioners cited Supreme Court decisions emphasizing that such circulars are binding on the authorities and must be adhered to.

4. Adequacy of Opportunity for Pre-Show-Cause Notice Consultation:
The court noted that the pre-show-cause notice consultation provided to the petitioners was illusory and an eye-wash, given the extremely short notice period. The court emphasized that the Circular required meaningful consultation, which was not provided in this case. The respondent's action was deemed arbitrary, high-handed, and in blatant violation of the mandatory procedure.

5. Timeliness of Issuance of Show-Cause Notice:
The respondents argued that the petitioners sought additional time to delay the process and let the demand period expire. However, the court found this argument unconvincing, noting that the respondents themselves delayed issuing the pre-show-cause notice consultation until the last moment. The court held that the pre-consultation notice and the show-cause notice issued on 12.4.2019 were in contravention of the Circular and could not be sustained.

Conclusion:
The court set aside the impugned show-cause notice dated 12.4.2019 on the grounds of inadequate opportunity for consultation. The parties were relegated to the stage prior to the issuance of the impugned notice, and the respondent was directed to issue a fresh pre-show-cause notice for consultation in accordance with the Circular dated 10.3.2017, providing the petitioners a reasonable opportunity for effective consultation. The petitioners were instructed to cooperate fully and not to raise the issue of limitation regarding the demand. The court also imposed a cost of ?20,000 on the respondent for their arbitrary action, to be deposited within eight weeks, with half the amount payable to the petitioners and the other half to the Gujarat State Legal Services Authority. The petition was allowed accordingly.

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