Calcutta High Court
Naresh Kumar & Co. Pvt Ltd vs Union Of India & Ors on 18 April, 2011
Author: Indira Banerjee
Bench: Indira Banerjee, Anupa Banerjee
WP No.1028 of 2010
IN THE HIGH COURT AT CALCUTTA
CONSTITUTIONAL WRIT JURISDICTION
ORIGINAL SIDE
NARESH KUMAR & CO. PVT LTD
Versus
UNION OF INDIA & ORS
BEFORE:
THE HON'BLE JUSTICE
INDIRA BANERJEE
April 18, 2011 Appearance:
Mr. J. K. Mittal, Adv.
Mr. Paritosh Sinha, Adv.
Mr. A. Majumder, Adv.
Ms. Anupa Banerjee, Adv.
Ms. Dolon Das Gupta, Adv. ..
for the petitioner
Mr. R. Bhardawaj, Adv.
Mr. Subir Kr. Saha, Adv.
The Court : In this writ petition the petitioner has challenged a show-cause
notice dated April 23, 2010 demanding service tax of Rs.1,59,99,554/- for the
period from April 1, 2004 to February 28, 2005. The break-up of the claim for
service tax, as given in the impugned show cause notice, is as follows:
"(a) The amount of Rs.7,39,812/- (Rupees Seven Lakh Thirtynine
Thousand Eight Hundred Twelve only) (detailed calculation sheet is
marked and enclosed as Annexure - C - 1) being the service tax dues for
the taxable service rendered by them to their principals i.e. M/s The
Associated Cement Companies Limited and others for which bills under
the Companies Limited and others for which bills under the Ledger
description "Commission Bill" and "Commission on Coal (Bonus)" for
the period 01.04.2004 to 09.09.2004 should not be demanded and
recovered from them by invoking extended period under subsection 1 of
2
Section 73 of Chapter V of the Finance Act' 1994 read with Rules 6 of
Service Tax Rules, 1994;
(b) The amount of Rs.68,37,119/- (Rupees Sixty-eight Lakh
Thirty-seven Thousand One Hundred Nineteen only) (detailed calculation
sheet is marked and enclosed as Annexure-C-2) being the service tax dues
for the taxable service rendered by them to their principals for which bills
under the Ledger description "Handling Bill, Commissioner Bill Charge,
Co-ordination Bill Charge, Service Bill Charge, Commission on Coal
Transport, Commission on Gypsum Transport, Commission on Cement
Transport" were raised during the period from 01.04.2004 to 09.09.2004
should not be demanded and recovered from them by invoking extended
period under subsection 1 of Section 73 of Chapter V of the Finance Act,
1994 read with Rules 6 of Service Tax Rules, 1994;
(c) The amount of Rs.9,68,823/- (Rupees Nine Lakh Sixty-eight
Thousand Eight Hundred Twenty-three only) (detailed calculation sheet is
marked and enclosed as Annexure - C-3) being the service tax dues for
the taxable service rendered by them to their principals for which bills
under the Ledger description "Loading Unloading Bill Charges" were
raised during the period from 01.04.2004 to 09.09.2004 should not be
demanded and recovered from them by invoking extended period under
subsection 1 of Section 73 of Chapter V of the Finance Act, 1994 read
with Rules 6 of Service Tax rules, 1994;
(d) The amount of Rs.74,53,800/- (Rupees Seventy-four Lakh
Fifty-three Thousand Eight Hundred only) (detailed calculation sheet is
marked and enclosed as Annexure -4) including the amount of Education
Cess, being the service tax dues for the taxable service rendered by them
to their principals for which bills under the Ledger description
"Conversion Bill Charge" & "Processing of Pyroxenite Bill Charge" were
raised during the period from 10.09.2004 to 28.02.2005 should not be
demanded and recovered from them by invoking extended period under
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subsection 1 of Section 73 of Chapter V of the Finance Act, 1994 read
with Rules 6 of Service Tax Rules, 1994;"
The show-cause notice has been challenged on the ground that the entire
demand is beyond the period of limitation of 5 years prescribed for recovery of tax
under Section 73 of the Finance Act, 1994.
Section 73(1) of the Finance Act, 1993 is set out hereinbelow :
1) "Where any service tax has not been levied or paid or has been
short-levied or short-paid or erroneously refunded, the (Central Excise
Officer) may, within one year from the relevant date, serve notice on the
person chargeable with the service tax which has not been levied or paid
or which has been short-levied or short -paid or the person to whom such
tax refund has erroneously been made, requiring him to show cause why
he should not pay the amount specified in the notice:
Provided that where any service tax has not been levied or paid or
has been short-levied or short-paid or erroneously refunded by reason of-
a) fraud; or
b) collusion; or
c) wilful mis-statement; or
d) suppression of facts; or
e) contravention of any of the provisions of this Chapter or of the
rules made thereunder with intent to evade payment of service
tax, by the person chargeable with the service tax or his agent,
the provisions of his sub-section shall have effect, as if, for the
words "one year", the words "five years" had been substituted.
Explanation.- Where the service of the notice is stayed by
an order of a court, the period of such stay shall be excluded in
computing the aforesaid period of one year or five years, as the
case may be."
4
Section 73(1) of the Finance Act 1993 is in pari materia with Section 11A
of the Central Excise Act, 1944 set out hereinbelow:
"Section 11A. Recovery of duties not levied or not paid or short-
levied or short-paid or erroneously refunded.-(1) When any duty of excise
has not been levied or paid or has been short-levied or short-paid or
[erroneously refunded, whether or not such non-levy or non-payment,
short-levy or short payment or erroneous refund, as the case may be, was
on the basis of any approval, acceptance or assessment relating to the rate
of duty on or valuation of excisable goods under any other provisions of
this Act or the rules made thereunder] , a Central Excise Officer may,
within [one year] from the relevant date, serve notice on the person
chargeable with the duty which has not been levied or paid or which has
been short-levied or short-paid or to whom the refund has erroneously
been made, requiring him to show cause why he should not pay the
amount specified in the notice.
Provided that where any duty of excise has not been levied or paid
or has been short-levied or short-paid or erroneously refunded by reason
of fraud, collusion or any wilful mis-statement or suppression of facts, or
contravention of any of the provisions of this Act or of the rules made
thereunder with intent to evade payment of duty, by such person or his
agent, the provisions of this sub-section shall have effect [as if] for the
words [one year], the words 'five years' were substituted."
Mr. Mittal, appearing on behalf of the petitioner submitted and rightly,
that under Section 73(1) of the Finance Act, 1994, a show cause notice has to be
served within one year from the relevant date. Where, however, any service tax has
not been levied or paid or has been short levied or short paid, or erroneously
refunded by reason of fraud, or collusion, or wilful misstatement or suppression of
material facts, or contravention of any provisions of the Finance Act 1994 or any
5
rules framed thereunder, with intent to evade tax, notice to show cause why the
person chargeable with service tax should not pay the amount of service tax payable,
might be served within five years from the relevant date.
Mr. Mittal submitted that the entire demand was raised beyond the
maximum period of five years from the relevant date and was ex facie barred by
limitation. The maximum period of five years for invocation of the extended period
of limitation had expired. Mr. Mittal further argued that even if any part of the
demand was held to be within the maximum period of five years, the respondent
authorities were not entitled to invoke the extended period of limitation, as the facts
were within the knowledge of the respondents since, 19th April, 2002.
As argued by Mr. Mittal, the extended period of limitation is not invocable
where facts were within the knowledge of the Department. In no case can a show-
cause notice be served beyond five years from the relevant date unless service was
stayed by an order of Court, in which case the period of stay is to be excluded in
computing the limitation of one year or five years, as the case may be.
As pointed out by Mr. Mittal, in the show-cause notice, which is dated 23rd
April, 2010, there is a demand of Rs.7,39,812/- for the period from 1st April, 2004 to
9th September, 2004, a demand of Rs.68,37,119/- for the period from 1st April, 2004
to 9th September, 2004, a demand of Rs.9,68,823/- for the period from 1st April, 2004
to 9th September, 2004 and a demand of Rs.74,53,800/- for the period from 10th
September, 2004 to 28th February, 2005. It is thus apparent that the entire claim in
the impugned show-cause notice is barred by limitation.
6
Any show-cause notice that is issued after expiry of five years would be
barred by limitation as held in the orders of the Hon'ble Supreme Court in CCE,
Ahmedabad-I V. M. Square Chemical reported in 2008 (231) ELT 194(SC) and
Ilavia Enterprises V. CCE, Jaipur 1997(91) ELT 26 (SC).
As held by the Supreme Court by its orders in M. Square Chemical
(Supra) and in Ilavia Enterprises (Supra), for the purpose of computation of
limitation, the period of five years has to be reckoned from the date of the show-
cause notice.
Mr. Bharadwaj, appearing on behalf of the Department has taken a
preliminary objection to the writ petition, inter alia contending that the
petitioner had an equally efficacious alternative remedy of adjudication before
the Adjudicating Authority. Mr. Bharadwaj argued that since the issues raised
in the writ petition, that is, whether the demands were barred by limitation, or
whether the proviso to Section 73(1) had wrongly been invoked, involve
factual determination, the writ petition should not be entertained.
The constitution of India does not limit the power of the High Court
under Article 226 of the Constitution. The power of the High Court is wide.
The High Court, having regard to the facts of the case, has the discretion to
entertain or not to entertain a writ petition.
Alternative remedy does not operate as an absolute bar to
entertaining a writ petition. The Supreme Court and the High Courts have
consistently held that notwithstanding the existence of an alternative remedy,
a writ petition may be entertained in at least three contingencies, that is,
7
where the writ petition has been filed for the enforcement of a fundamental
right, where the actions and/or the proceedings impugned are in violation of
the principles of natural justice, or where the order or proceedings impugned
are without jurisdiction.
The High Court may entertain a writ petition under Article 226 of
the Constitution, in spite of existence of an alternative statutory remedy in a
case where the authority against whom the writ petition is filed is shown to
have had no jurisdiction to initiate the action impugned or is shown to have
purported to usurp jurisdiction without legal foundation.
In Whirlpool Corporation vs. Registrar of Trade Marks reported
in (1998) 8 SCC 1, the Supreme Court discussed its earlier judgments on the
question of maintainability of a writ petition when there was an alternative
remedy, and held that the High Court was not justified in dismissing the writ
petition at the initial stage without examining the contention of the writ
petitioner that the show cause notice was without jurisdiction.
In this case too, a challenge has been thrown to the jurisdiction of
the concerned respondent to issue a show cause notice, after expiry of the
period of limitation stipulated in the proviso to Section 73 of the Finance Act,
1994. It is well established that the question of limitation is a question of
jurisdiction in the sense that an authority has no jurisdiction to issue a show-
cause notice which is barred by limitation. In the State of Punjab vs.
Bhatinda District Cooperative Milk P Union Ltd. reported in 2007 (217)
ELT 325 (SC) = (2007) 11 SCC 363, the Supreme Court held that the question
8
of limitation being a jurisdictional question, a writ petition challenging the
validity of a notice of revision of an order of assessment of sales tax, on the
ground of the same being barred by limitation, would be maintainable,
notwithstanding an alternative statutory remedy.
Where the jurisdiction of an authority depends upon a preliminary
finding of fact, this Court in exercise of its writ jurisdiction is entitled to
examine whether the findings on jurisdictional facts are correct or not. This
proposition finds support from the judgment of the Supreme Court in the State
of Madhya Pradesh & Ors. vs. D.K. Yadav reported in AIR 1968 SC 1186.
In M/s. Raza Textiles Ltd., Rampur vs. The Income Tax Officer,
Rampur reported in AIR 1973 SC 1362, the Supreme Court held that no
authority, much less a quasi-judicial authority, could confer jurisdiction on
itself by deciding a jurisdictional fact wrongly. The question of whether the
jurisdictional fact had rightly been decided or not was a question open to
examination by the High Court in an application under Article 226 of the
Constitution of India.
In M/s. Raza Textiles Ltd. (supra), the Supreme Court held that, if,
in an application under Article 226 of the Constitution of India, the Income
Tax Officer had assumed jurisdiction by deciding a jurisdictional fact
erroneously, the assessee would be entitled to a writ of certiorari as prayed
for, since it was incomprehensible to think that a quasi-judicial authority
could erroneously decide a jurisdictional fact and impose a levy.
9
In Shrisht Dhawan vs. Shaw Brother reported in (1992) 1 SCC
534, the Supreme Court followed its earlier judgment in M/s. Raza Textiles
Ltd. and reiterated the proposition that a Court or Tribunal cannot confer
jurisdiction to itself by deciding a jurisdictional fact wrongly. A statutory
authority also cannot assume jurisdiction by wrongly deciding a jurisdictional
fact.
In Calcutta Discount Company Ltd. vs. Income Tax Officer,
Companies District I, Calcutta & Anr. reported in AIR 1961 SC 372, a
Constitution Bench of the Supreme Court held:
"The scheme of the law clearly is that where the
Income Tax Officer has reason to believe that an
underassessment has resulted from non-disclosure he
shall have jurisdiction to start proceedings for re
assessment within a period of 8 years;........ The
argument that the Court ought not to investigate the
existence of one of these conditions viz. that the Income
Tax Officer has reason to believe that underassessment
has resulted from non-disclosure of material facts,
cannot therefore be accepted.
It is well settled however that though the writ of
prohibition or certiorari will not issue against an
executive authority, the High Courts have power to
issue in a fit case an order prohibiting an executive
authority from acting without jurisdiction. Where such
action of an executive authority acting without
jurisdiction subjects or is likely to subject a person to
10
lengthy proceedings and unnecessary harassment, the
High Courts, it is well settled, will issue appropriate
orders or directions to prevent such consequences.
...............
..............
The expression "reason to believe" postulates belief and the existence of reasons for that belief. The belief must be held in good faith: it cannot be merely a pretence. If it be asserted that the Income Tax Officer had reason to believe that income had been under-
assessed by reason of failure to disclose fully and truly the facts material for assessment, the existence of the belief and the reasons for the belief, but not the sufficiency of the reasons, will be justiciable. The expression therefore predicates that the Income Tax Officer holds the belief induced by the existence of reasons for holding such belief. It contemplates existence of reasons on which the belief is founded, and not merely a belief in the existence of reasons inducing the belief; in other words, the Income Tax Officer must on information at his disposal believe that income has been under-assessed by reason of failure fully and truly to disclose all material facts necessary for assessment. Such a belief, be it said, may not be based on mere suspicion: it must be founded upon information."
This Court exercising jurisdiction under Article 226 of the Constitution of India may be required to examine jurisdictional facts to ascertain whether jurisdiction to issue a show-cause notice has properly been 11 exercised, or such jurisdiction has been usurped by a pretended invocation of a provision of Statute.
This Court is thus entitled to examine whether the impugned show- cause notice discloses any cogent grounds for invocation of the extended period of limitation. This Court also has the power to ascertain whether the show-cause notice is barred by limitation, even if the same involves determination of facts.
This Court exercising jurisdiction under Article 226 of the Constitution of India does not, ordinarily interfere with a show-cause notice. However, where a show-cause notice is without jurisdiction, or barred by law, this Court is under a duty to interfere. To ascertain whether the impugned show-cause notice was within jurisdiction and/or within the parameters of law, this Court may examine jurisdictional facts.
Furthermore, this Court, in exercise of jurisdiction under Article 226, can also interfere with a show cause notice that is vague, devoid of particulars and incapable of effective reply, for such a show cause is in flagrant violation of principles of natural justice. This Court might also interfere with a show-cause notice which does not fulfil the statutory conditions for issuance thereof and/or ex facie discloses no offence, misconduct or other cause of action, for which action as contemplated in the show cause notice can be initiated.
At the time of issuance of the impugned show-cause notice, the expression 'relevant date' was not defined or explained in Chapter V of the Finance Act, 1994. 12 Nor was there any explanation of the expression 'relevant date' in the Service Tax Rules, 1994, framed under Chapter V of the Finance Act, 1994. The demands, in this case, as stated hereinabove, relate to the period till 28th February, 2005. The expression relevant date would thus have to be construed as the date on which the liability to pay Service Tax accrued, which was on or before 28th February, 2005 or perhaps the date within which Service Tax had to be deposited. Rule 6 of the Service Tax Rules, 1994, provided that Service Tax would be payable within the 5th / 6th day of the month following the calendar month in which the liability for payment of Service Tax accrued. In no circumstances could any show-cause notice in respect of any of the claims specified in the impugned notice, been issued after 6th / 7th March, 2010. The Impugned show-cause notice is, therefore, barred by limitation, the same having been issued on 23rd April, 2010.
As a matter of fact all the demands, save and except for the demand on account of conversion bill charge and processing of piroxinite bill charge were for the period up to 9th September, 2004 for which no show-cause notice could have been issued after October, 2009, even if there were any fraud or collusion or wilful mis-statement or suppression of facts or contravention of any provisions of Chapter 5 of the Finance Act, 1994 or of the Rules made thereunder, with intent to evade the payment of Service Tax.
As observed above, the period of limitation of five years has to be reckoned from the date of the show-cause notice. This proposition has been laid down by the Hon'ble Supreme Court I its order referred to above. It is true as argued by Mr. Bharadwaj that the orders were rendered in the context of proceedings 13 under Section 11A of the Central Excise Act, 1944. However, the provisions of Section 11A of the Central Excise Act being almost identical to Section 73 of the Finance Act, 1994, there is no reason why the same principles should not apply to a show-cause notice under Section 73 of the Finance Act, 1994, in relation to a demand for service tax.
When, as in this case, a show-cause notice under Section 73 of the Finance Act, 1994 relates to a period beyond 5 years from the date of the show-cause notice, the show-cause notice would have to disclose the circumstances for invocation of the extended period of limitation as also the circumstances that brings the demand within limitation in sufficient details, as otherwise the show-cause notice would be vitiated by vagueness for it would be impossible for the assessee to give an effective reply to the show-cause notice contesting the demand.
It is well-settled that a demand which is barred by limitation cannot be enforced as against an assessee. An assessee is entitled to contest a claim on the ground that such claim is barred by limitation and hence not enforceable. Thus, the circumstances that bring a claim within limitation are essential ingredients of a show-cause notice, the absence of which vitiates the show-cause notice, since there can be no effective reply thereto.
In the instant case, there is only a vague assertion in the impugned show- cause notice in two to three lines that most of the payments were received during the six months up to 31st March, 2005 and as such the last date for filing the return was 25th April, 2005, which would be the relevant date. It has been claimed that the show-cause notice issued on 23rd April, 2010, was within the extended period of five 14 years. No particulars have, however, been given of the dates on which payments were received. The impugned show-cause notice is thus vitiated by vagueness.
In the absence of any provision in the Finance Act, 1994 or the Rules framed thereunder which provided that the relevant date would be the last date for filing a return, the period of limitation cannot arbitrarily be computed from the last date on which the return was to be filed. Any recent amendment in the law, made after issuance of the impugned show-cause notice can have no application. The provisions of Section 73 of the Finance Act, 1994 being identical to the provisions of Section 11A of the Central Excise Act 1994, the judicial verdicts with regard to the computation of the period of limitation in the context of Section 11A of the Central Excise Act, 1944 would also apply to computation of the period of limitation under Section 73 of the Finance Act, 1994, at least in respect of show-cause notices issued prior to amendment of the law.
Citing the judgements in ECE Industries Ltd. V. CCE, New Delhi 2004(164) ELT 236(SC) and Hyderabad Polymers (P) Ltd. V. Commissioner of Central Excise, Hyderabad 2004 (166) ELT 151(SC), Mr. Mittal argued that since facts were known to the respondent authorities, the allegations of suppression were not tenable and the extended period of limitation not invokeable. It was also argued that the Department had from time to time conducted audit of the records of the petitioner. No dispute was, however, raised by departmental officers at any point of time. The respondents have not controverted the facts pleaded by the petitioner in paragraph 9 of the writ petition with regard to the audit. 15
Mr. Mittal argued that an earlier show-cause notice dated October 18, 2004 had been issued for the period up to March 31, 2004. The demand for the period from April 1, 2004 to February 28, 2005 after almost 6 years of issuance of the earlier show-cause notice, could not be maintained on the ground of alleged suppression, the facts being known to the department. Mr. Mittal referred to the judgements of the Hon'ble Supreme Court in Nizam Sugar Factory V. Collector of Central Excise, A.P 2006(197) E.L.T. 465(SC) , Commissioner of Central Excise, Vadodara-II V. Sotex reported in 2007 (209) ELT 9(SC) and Anand Nishikawa Co. Ltd. V. Commissioner of Central Excise, Meerut 2005 (188) ELT 149 (SC). Mr. Mital also argued that conversion of coal into coke could not be subject to tax as the same constituted manufacture and attracted excise duty under the Central Excise Act.
The proposition of law laid down by the Supreme Court in the judgments and orders cited by Mr. Mittal are unexceptionable. There could be no doubt that extended period of limitation cannot be invoked on the ground of suppression when facts were known to the department. A demand for which a second show-cause notice is issued cannot be maintained by invocation of extended period of limitation, on the ground of suppression, if there was an earlier show-cause notice in relation to the same demand. This Court, however, does not deem it necessary to embark upon adjudication of the issue of whether facts were known to the respondent authorities or whether the impugned show-cause notice was in relation to the same demands for which any earlier show-cause notices had been issued or embark upon adjudication of the issue of whether the activities for which service tax has been demanded at all 16 attracted service tax at the material time, since this Court finds that the impugned show-cause notice is patently barred by limitation, the same having been issued after expiry of five years from the period to which the demands pertain. The impugned show-cause notice does not disclose any circumstances that bring the claim within limitation. The vague allegation of payments having been received in the six months ending 31st March, 2005, devoid of any particulars, cannot save limitation.
This Court is unable to accept Mr. Bharadwaj's argument that the show- cause notice dated April 23, 2010 issued by the Directorate General of Central Excise (Intelligence) was in accordance with law and within the extended time frame as prescribed under Section 73 of the Finance Act, 1994.
As observed above Section 73(1) of the Finance Act 1994 is in pare materia with Section 11A of the Central Excise Act 1944. There is no material difference between the two provisions. In both cases notice has to be issued within a year. The extended period of invocation might be invoked on the same grounds. The period of limitation of five years would have to be computed backwards from the date of notice.
May be, as argued by Mr. Bharadwaj the noticee company defaulted in disclosure of value and nature of services to the jurisdictional central excise/service tax authorities. However, it is doubtful whether the aforesaid omission would be a justification for invocation of the extended period of limitation, if facts were otherwise known or may be deemed to have been known. Be that as it may, in no circumstances could the impugned show-cause notice have been issued beyond five 17 years from the relevant date, there being no order of stay of service of notice passed by any Court.
Mr. Bharadwaj referred to CST -vs- Shri Krishna Engg. Co. reported in (2005) 2 SCC 692 where the Hon'ble Supreme Court held :
" In construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. If the revenue satisfied the Court that the case falls strictly within the provisions of the law, the subject can be taxed."
Mr. Bharadwaj also referred to the constitution bench judgement in CST Vs. Modi Sugar Mills Ltd. where the Hon'ble Supreme Court observed:
"In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The Court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions of the statutes so as to supply any assumed deficiency".
The proposition of law laid down in the aforesaid judgements is unexceptionable. The judgments are, however, of no assistance to the Department in the facts and circumstances of this case.
For the reasons discussed above, the impugned show-cause notice cannot be sustained and the same is set aside and quashed.
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Urgent certified copy of this order be supplied to the parties, if applied for, upon compliance of all requisite formalities.
( INDIRA BANERJEE, J ) cs/