Case Law Details

Case Name : Commissioner of Central Tax Vs Scorpion Security Limited (Karnataka High Court)
Appeal Number : C.E.A.No.46/2019
Date of Judgement/Order : 09/12/2021
Related Assessment Year :

Commissioner of Central Tax Vs Scorpion Security Limited (Karnataka High Court)

Indisputedly, the second show cause notice issued on 19.10.2006 relating to the periods, April 2001 – March 2006, covered the period April 2001 – March 2004 in the first show cause notice dated 09.08.2004, which relates to the period April 1998 – March 2004. The first notice in fact did not contain the proposal to demand service tax on the respondent in respect of the activities other than security agent services. In order to justify the demands of extended period of limitation under Section 73 of the Act, the Adjudicating Authority has arrived at a finding that the respondents have not kept a copy of such bills pertaining to security services but had given only the break-up of services of other services on which service tax has not been paid. Much emphasis is placed on this point by the learned counsel for the Revenue.

It is beyond comprehension as to what prevented the department to investigate in the year 2004 itself in contacting the end users on the service base so as to verify the authenticity of these invoice copies. It is trite that the deficiencies in the investigation or incorrect demand in the first show cause notice cannot be made good in the second show cause notice and subsequent show cause notice alleging suppression of facts again is not reasonable since repeated issuance of notices would result in revisiting the concluded proceedings and reopening of the proceedings at any point of time. In the case of Commissioner of C. EX., S. T & Cus., Bangalore-II V/s. Nitesh Estates Ltd., [2018 (17) G.S.T.L. 414 (Kar.)], the Co-ordinate bench of this Court where one of us, (Hon’ble SSJ was a member) as held that Central Board of Excise and Customs being the highest administrative body of department, departmental clarification issued by such body is binding on the Revenue, on the contrary Revenue cannot be allowed to argue against legal position rightly explained by C.B.E. & C itself. Reference placed by the learned counsel for the assessee on the Circular No.1063/2/20 18-CX dated 16.02.2018 issued by Government of India, Ministry of Finance C.B.E. & C containing compilation of the orders of the Hon’ble Apex Court and High Courts accepted by the Department where no review petitions/appeals respectively have been filed indicates that the decision in Nizam Sugar Factory supra is binding on the Department not merely for the reason that no review petition has been filed but the binding nature of the law declared by the Hon’ble Apex Court.

The fact finding authority having taken cognizance of the facts has reached at a conclusion that there was no suppression by the respondents to invoke the extended period of limitation which being purely based on the factual aspects of the matter, we find no reasons in interfere with the same.

The finding of the Tribunal based on Nizam Sugar Factory supra cannot be held to be perverse or arbitrary.

FULL TEXT OF THE JUDGMENT/ORDER of KARNATAKA HIGH COURT

This appeal is filed by the Revenue under Section 35G of the Central Excise Act, 1944 [‘Act’ for short] challenging the order passed by the Customs, Excise & Service Tax Appellate Tribunal, South Zonal Bench, Bengaluru [CESTAT for short] in final order Nos.2 1801- 21804/2018 relating to the Appeal Nos.ST/369/2008, 370/2008, 371/20089, 701/2008-DB whereby the appeal filed by the respondent herein has been partly allowed.

2. The appeal has been admitted by this Court to consider the following substantial questions of law.

“1. Whether the CESTAT was right in not taking into cognizance the facts brought out in the Order-in-Original that the respondent had collected Service Tax from its clients, but not paid tax on the services rendered by them under the category of Security services?

2. Whether the CESTAT has erred in not taking into cognizance the fact that the earlier notice dated 09.08.2004 and adjudication order dated 18.08.2004 were issued on different set of facts and that the CESTAT’s order dated 14.02.2007 holding that there was no suppression by the respondent has no application to the facts and circumstances of the instant case, which clearly evidences suppression by the respondent?

3. Whether the CESTAT has erred in holding that the Revenue cannot invoke the extended period of limitation in the facts and circumstances of the instant case?”

3. The respondent is a holder of service tax registration for providing taxable services under the category of security agency services. Show cause notice dated 19.10.2006 was issued by the Additional Director General, Directorate of Central Excise Intellignece [DGCEI], Bengaluru calling upon the respondent to show cause as to why demand made therein cannot be confirmed. The respondent filed reply dated 18.12.2007 denying the allegations made in the show cause notice, raising the other grounds inasmuch as invoking extended period of limitation covering the same period which was the subject matter of the earlier show cause notice dated 09.08.2004. After considering the reply, the Commissioner of Central Excise, Bengaluru [Adjudicating Authority] confirmed the Order-in-Original dated 19.02.2008. Subsequently, another order dated 06.10.2008 was passed imposing penalties under Sections 76, 77 and 78 which was challenged by the respondent in Appeal No.ST/St/194/06, ST/319/06 before the CESTAT whereby the levy of penalty has been set aside. The CESTAT setting aside the penalties imposed on the Managing Director, Joint Director as well as on the company, remanded the case back to the original authority to quantify the demand for the normal period holding that the respondent could also be liable to pay interest as per law, if there is delay in the payment of tax found by the adjudicating authority. Thus, the remand on the extended period of limitation has been set aside placing reliance on the decision of the Hon’ble Apex Court in the case of Nizam Sugar Factory V/s. Collector of Central Excise, A.P. [2006 (197) E.L.T. 465 (S.C.)]. Hence, this appeal by the Revenue.

4. Learned counsel for the Revenue argued that the CESTAT grossly erred in blindly applying the decision of the Hon’ble Apex Court in the case of Nizam Sugar Factory supra, sans deciding whether the earlier notice dated 09.08.2004 and adjudication order dated 18.08.2004 were issued on different set of facts or law. The respondent had collected service tax from its clients but not paid the same to the authority. These facts were unearthed after inspection conducted by the DGCEI on 01.09.2006. As such, the incriminating material found during the inspection cannot be construed as the same set of facts to apply the law enunciated by the Hon’ble Apex Court in Nizam Sugar Factory supra. This basic element has not been properly appreciated by the CESTAT in setting aside the order passed in original. Thus, he seeks to answer the substantial questions of law allowing the appeal.

5. Learned counsel for the respondent justifying the order impugned, submitted that the entire material was made available before the adjudicating authority as per the letter dated 17.12.2003. There is no dispute about the fact that the appellants had proceeded against the respondent in 2004 by issuing show cause notice dated 09.08.2004 alleging suppression of facts and demanding service tax of Rs.40,90,81 1/- for the period from 1998-99 to 2003-04. Indeed, the said show cause notice was issued after extensive investigation and after adjudication, thereafter the order in original dated 18.08.2004 was passed. Though the demand of service tax was accepted by the respondent, the subsequent demand of penalty made by an order dated 11.08.2006 having been challenged before the Tribunal, the same was set aside. Placing reliance on Nizam Sugar Factory supra, submitted that when the first show cause was issued and all the relevant facts were within the knowledge of the authorities, while issuing second show cause notice on the similar facts cannot be considered as suppression of facts on the part of the assessee, as these facts were already in the knowledge of authorities. Hence period of extension ought not to have been invoked in issuing the second show cause notice on 19.10.2006 for the period April 2001 to March 2006. This would indicate the overlapping of the demand made for the period April 2001 to March 2006. The CESTAT having regard to these aspects has rightly allowed the appeal filed by the assessee and the same does not warrant any interference by this Court.

6. We have carefully considered the rival submissions of the learned counsel appearing for the parties and perused the material on record.

Deficiencies in investigation or in first SCN cannot be made good in second SCN

7. In disputedly, the second show cause notice issued on 19.10.2006 relating to the periods, April 2001 – March 2006, covered the period April 2001 – March 2004 in the first show cause notice dated 09.08.2004, which relates to the period April 1998 – March 2004. The first notice in fact did not contain the proposal to demand service tax on the respondent in respect of the activities other than security agent services. In order to justify the demands of extended period of limitation under Section 73 of the Act, the Adjudicating Authority has arrived at a finding that the respondents have not kept a copy of such bills pertaining to security services but had given only the break-up of services of other services on which service tax has not been paid. Much emphasis is placed on this point by the learned counsel for the Revenue.

8. It is beyond comprehension as to what prevented the department to investigate in the year 2004 itself in contacting the end users on the service base so as to verify the authenticity of these invoice copies. It is trite that the deficiencies in the investigation or incorrect demand in the first show cause notice cannot be made good in the second show cause notice and subsequent show cause notice alleging suppression of facts again is not reasonable since repeated issuance of notices would result in revisiting the concluded proceedings and reopening of the proceedings at any point of time. In the case of Commissioner of C. EX., S. T & Cus., Bangalore-II V/s. Nitesh Estates Ltd., [2018 (17) G.S.T.L. 414 (Kar.)], the Co-ordinate bench of this Court where one of us, (Hon’ble SSJ was a member) as held that Central Board of Excise and Customs being the highest administrative body of department, departmental clarification issued by such body is binding on the Revenue, on the contrary Revenue cannot be allowed to argue against legal position rightly explained by C.B.E. & C itself. Reference placed by the learned counsel for the assessee on the Circular No.1063/2/20 18-CX dated 16.02.2018 issued by Government of India, Ministry of Finance C.B.E. & C containing compilation of the orders of the Hon’ble Apex Court and High Courts accepted by the Department where no review petitions/appeals respectively have been filed indicates that the decision in Nizam Sugar Factory supra is binding on the Department not merely for the reason that no review petition has been filed but the binding nature of the law declared by the Hon’ble Apex Court.

9. In the case of Commissioner of Central Excise Jaipur-I V/s. M/s. Shanker Products [(2015) 5 WLC 375], Hon’ble High Court of Rajasthan has held thus:

“6. We have examined the order- in­original as well as the order passed by the Tribunal, and find that the department was aware of the activities of the assessee. It was not a case where the department was not aware of the excisable manufacturing activity, as the assessee was already served show cause notice on 28.08.2008. The assessee had not opted for registration, nor paid the duty for the alleged clearance showing deliberate avoidance in compliance of the law.

7. Section 1 1A(1) of the Act providing for extension of limitation which is applicable in case of suppression, fraud, collusion, wilful, mis-statement of facts for contravention of the provision of the Act or the Rules, where the department was not aware of the activities of the assessee. Where a notice was served to the assessee for the earlier period, in pursuance to which no action was taken, the extended period of limitation on the notice issued subsequently cannot be applied.

8. The substantial question of law raised in the Appeal, is thus covered by the judgments in Nizam Sugar Factory v. CCE, AP (supra) and Commissioner of Central Excise, Aurangabad v. Bajaj Auto Ltd. (supra). The questions   are thus, decided against the department and in favour of the assessee.”

10. The fact finding authority having taken cognizance of the facts has reached at a conclusion that there was no suppression by the respondents to invoke the extended period of limitation which being purely based on the factual aspects of the matter, we find no reasons in interfere with the same.

11. The finding of the Tribunal based on Nizam Sugar Factory supra cannot be held to be perverse or arbitrary. No exception could be found with the order Accordingly, substantial questions of law are answered in favour of the assessee and against the Revenue.

Resultantly, appeal stands dismissed.

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