2024 (9) TMI 405 - HC - Central Excise

Challenge to SCN - recovery of differential Central Excise Duty by enhancing assessable value on account of supply of bought out items which were directly supplied by the suppliers of Petitioner to the site of Petitioner s customers - HELD THAT - Admittedly, there is no dispute that the show cause notice dated 5th May 2017 was not adjudicated for a period of almost 6 years and it is only in September 2023 to revive the said show cause notice that a personal hearing came to be fixed on 26th September 2023. The only explanation given by Respondents for delay in adjudication is the change in the functioning of the jurisdiction on account of implementation of GST. This justification cannot be accepted for more than one reason; firstly, after the show cause notice was issued on 5th May 2017, Petitioner filed a detailed reply of more than 400 pages on 1st July 2017. A personal hearing also took place on 18th September 2017 before Respondent No. 2 and pursuant to the personal hearing, Petitioner filed further additional submissions running into 500 pages on 10th October 2017. This shows that the office of Respondents was functioning post introduction of GST, i.e., post 1st July 2017. Therefore, the justification given in the reply of Respondent No. 2 for not adjudicating the show cause notice on account of revamping of jurisdiction cannot be accepted. The reason given is general in nature and in any case, if the reason was true then the functioning of the department during the period of implementation of GST ought to have come a stand still which is not the case because the department was functioning as evident by the fact of the proceedings which Petitioner attended in September and October 2017. Thus, relegating Petitioner to attend the show cause notice would be unfair, unreasonable and gross abuse of the power. Respondents have not filed any evidence in support of paragraph 6 of their affidavit to show even prima-facie that the show cause notice could not be adjudicated because of overall in functioning of department on account of implementation of GST. There are no hesitation in exercising jurisdiction under Article 226 of the Constitution of India - petition disposed off.

Issues Involved:
1. Validity of the show cause notice issued on 5th May 2017.
2. Delay in adjudication of the show cause notice.
3. Coverage of the issue by the Supreme Court's decision dated 7th July 2023.
4. Justification provided by the Respondents for the delay.
5. Precedents on delay in adjudication of show cause notices.

Detailed Analysis:

1. Validity of the show cause notice issued on 5th May 2017:
The Petitioner challenged the show cause notice dated 5th May 2017 under Article 226 of the Constitution of India. The notice aimed to add the value of bought-out goods, which were directly supplied to customers, to the assessable value of goods manufactured in the Petitioner's factory. The Petitioner argued that these goods did not enter their factory, suppliers had paid excise duty, and no duty credit was claimed on these goods.

2. Delay in adjudication of the show cause notice:
The show cause notice remained unadjudicated for almost six years, from 10th October 2017 to 4th September 2023. The Petitioner argued that this delay was unjustifiable and prejudicial. The Respondents attributed the delay to the implementation of GST, which involved a significant overhaul of the department's functioning, including redrawing jurisdictions and control by state and central authorities. This justification was deemed insufficient by the Court, as the department was still functioning post-GST implementation, evidenced by the Petitioner's participation in proceedings in September and October 2017.

3. Coverage of the issue by the Supreme Court's decision dated 7th July 2023:
The Petitioner contended that the issue on merits was no longer res integra due to the Supreme Court's decision in Civil Appeal No. 5700 of 2019, which involved the Petitioner itself. The Supreme Court had ruled that the bought-out items, not entering the factory and on which no credit was claimed, should not be added to the assessable value. The Respondents did not rebut this contention in their affidavit.

4. Justification provided by the Respondents for the delay:
The Respondents claimed that the delay was due to the department's overhaul during GST implementation. However, the Court found this explanation unacceptable. The Court noted that the department was operational post-GST, as evidenced by the Petitioner's participation in proceedings. The justification was considered general and unsupported by evidence, and the delay was attributed to oversight. The Court emphasized that such negligence could not condone the delay in adjudication.

5. Precedents on delay in adjudication of show cause notices:
The Court referred to several precedents where delays in adjudicating show cause notices were deemed prejudicial to the assessee. Key judgments included:
- Coventry Estate Pvt. Ltd. vs. The Joint Commissioner CGST and Central Excise & Anr.: The Court quashed the show cause notice due to inordinate delay, emphasizing the need for timely adjudication to avoid uncertainty and prejudice to the assessee.
- Sushitex Exports (India) Ltd.: The Court ruled that long delays in adjudication amounted to arbitrary exercise of power and violated fundamental rights.
- Bombay Dyeing and Manufacturing Company Limited vs. Deputy Commissioner of CGST and CX: The Court held that belated hearings violated principles of natural justice.
- ATA Freight Line (I) Pvt. Ltd.: The Court quashed show cause notices pending for a decade, asserting that such delays were unjustifiable even without a statutory limitation period.

The Court concluded that the Respondents failed to distinguish these decisions and found no merit in the delay justification. Consequently, the Court exercised its jurisdiction under Article 226 to quash the impugned show cause notice.

Conclusion:
The Court allowed the petition, quashing the show cause notice dated 5th May 2017, and ruled that the delay in adjudication was unjustifiable and prejudicial to the Petitioner. The issue was also covered by the Supreme Court's decision, further supporting the Petitioner's case.

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