prpri No Pre-show cause notice consultation when Assessee not complies with Summons No Pre-show cause notice consultation when Assessee not complies with Summons

Case Law Details

Case Name : Novel Security Services Vs Additional Director (Karnataka High Court)
Appeal Number : Writ Appeal No. 546 of 2021 (T-Res)
Date of Judgement/Order : 30/06/2021
Related Assessment Year :

Novel Security Services Vs Additional Director (Karnataka High Court)

In the present case, it is seen that every attempt made by the respondent to secure information/document from the appeal were stonewalled by the appellant. Though the show cause notice issued by the respondent which was impugned before the learned Single Judge was not preventive in nature but yet an offence report was registered against the appellant. If the appellant desired to seek the benefit of the Master Circular dated 10.03.2017, he is expected to comply with the summons issued by the respondent seeking explanation/documents that were summoned by the respondent. The benefit of the Master Circular cannot be a one-way traffic and the appellant cannot milk the Master Circular to his advantage.

In that view of the matter, the appellant was not entitled to pre-show cause notice as contemplated under Master Circular dated 10.03.2017. Nonetheless, learned Single Judge directed the respondent to keep the impugned show cause notice in abeyance and grant an opportunity to the appellant being heard in terms of the Master Circular dated 10.03.2017 and also reserved liberty to the respondent to revive the show cause notice if the appellant was not able to establish that he had deposited the tax recovered from his service recipients. Since the impugned order of the learned Single Judge is thoroughly balanced, there is no need to interfere with the same.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

This appeal under Section 4 of the Karnataka High Court Act, 1961 is filed assailing the correctness of the order dated 26.05.2021 passed by the learned Single Judge of this Court in W.P.No.8882/2021.

2. The writ petition discloses that the appellant was a proprietary concern registered under the provisions of the Central Goods and Services Tax Act, 2017 (henceforth referred to as the ‘CGST Act 2017’) and was providing personnel to man security concerns at various Government and non-Government entities and was therefore exigible to service tax. It is stated that on information received by the office of the respondent, an investigation was initiated against the appellant for alleged failure to remit the appropriate service tax to the Government. Following the investigation, several notices were issued to the appellant calling upon the appellant to produce documents for verification. The respondent thereafter issued a notice dated 22.04.2021 under Section 73 of the Finance Act, 1994 read with Section 174 of the CGST Act 2017. This show cause notice was challenged before the learned Single Judge on the ground that it was in violation of the Master Circular dated 10.03.2017 and the Circular dated 19.11.2020 which provided “pre-show cause notice consultation with the assessee, prior to issuance of show cause notice in case of demands of duty above Rupees Fifty Lakhs (except for preventive/offence related to show cause notices), is mandatory and shall be done by the show cause notice issuing authority”. The learned counsel for the appellant contended that the Master Circular dated 10.03.2017 was binding and had to be followed in letter and spirit. He relied on the Judgment of the Apex Court in the Case of K.P.Varghese vs. Income Tax Officer [(1981) 4 SCC 173]. It is contended that mere possibility that at the end of the adjudication process, the petitioner may face consequences for having committed an ‘offence’ under the Finance Act, 1994 need not per se render the show cause notice as an “offence related show cause notice”, so as to deprive the appellant of the benefit of a pre-show cause notice. In this regard he relied upon the Judgment of the Division Bench of the Delhi Court in the case of Amadeus India Pvt. Ltd vs. Principal Commissioner, Central Excise, Service Tax and Central Tax Commissionerate in W.P. (Civil) No.914/2019.

3. In response to the challenge to the show cause notice, the respondent entered appearance before the learned Single Judge and submitted that the appellant is not entitled to the benefit of the Circular dated 10.03.2017 as the said circular was subject to the rider “where the show cause notice is issued for preventive/offences relating to show cause notices”. The learned counsel for the respondent submitted that there were no grounds made out for interference with the show cause notice. However, on instructions, the learned counsel for the respondent submitted that the appellant would be provided an opportunity of hearing pursuant to the show cause notice and till conclusion of the adjudication they would not resort to any coercive steps as permitted in law.

4. Based on the above, the learned Single Judge noticed that the proceedings were at a preliminary stage and to enable its conclusion at the earliest, held that the show cause notice dated 22.04.2021 shall be kept in abeyance. The learned Single Judge granted an opportunity of personal hearing to the appellant in terms of the Circular dated 10.03.2017 and also reserved liberty to the respondent to revive the show cause notice dated 22.04.2021. The learned Single Judge directed the appellant to appear before the show cause notice issuing authority on 24.06.2021.

5. Being aggrieved by the aforesaid order of the learned Single Judge, the appellant has filed this appeal.

6. The learned Senior Counsel appearing for the appellant submitted that issuance of a pre-show cause notice was mandatory in terms of the Circular dated 10.03.2017 as well as the Circular issued by the Central Board of Indirect Taxes and Customs dated 19.11.2020. Therefore, the show cause notice ought to have been quashed by the learned Single Judge. He contended that the exception carved out for not issuing pre-show cause notices in respect of preventive / offence related show cause notices was not applicable to the facts of this case and again relied upon the judgment of the Delhi Court in the case of Amadeus (supra).

7. Per contra, the learned counsel for the respondent contended that the impugned order was passed based on a submission by the learned counsel for the appellant that the show cause notice be kept in abeyance and that the appellant would appear before the show cause notice issuing authority. He therefore contended that the present appeal was misconceived. The counsel for the respondent has filed his statement of objections. He contended that after investigation, the respondent had issued various summons dated 03.08.2020, 19.10.2020, 27.11.2020 and 13.01.2021 to tender evidence and to submit documents/records required to pursue the investigation in the instant case, but the appellant went on dodging the issue by citing COVID-19 pandemic and never submitted the details/documents sought for. He further contended that during the course of the enquiry, the respondent came to know that the appellant had been collecting service tax from the clients and but had suppressed the actual gross receipts from the departments. He submitted that in the backdrop of the non-cooperation by the appellant to submit requisite documents/records to pursue the investigation and with the due date for issuance of show notice to safeguard revenue due to the Government, fast approaching, an offence case bearing No.OR/06/2021-22 was registered. Thereafter, a show cause notice dated 22.04.2021 was issued under proviso to Section 73(1) of the Finance Act, 1994 with a Service Tax Liability of Rs.1,53,76,975/- for the period from April 2015 to June 2017.

8. The learned counsel for the respondent therefore contended that the appellant was not entitled to the benefit of pre-show cause notice as an offence case was registered against the appellant. He relied upon the Judgment of the Hon`ble Supreme Court of India in the case of Principal Commissioner, Central Excise, Service Tax and Central Tax Commissionerate Vs. Amadeus India Pvt. Ltd [SLP (Civil) Diary No.(s) 35886/2019 and the Judgment of the High Court of Orissa at Cuttack in the case of Commissioner of Central Excise, Customs and Service Tax vs. Sanket Communications Pvt. Ltd. [2017 (52) STR 449 (ORI)].

9. The learned counsel for the appellant when queried whether he would not press for enlargement of the time to issue the show cause notice, he refused to accept it.

10. We have given our anxious consideration to the arguments canvassed by the learned counsel for the parties.

11. The Delhi High Court in the case of Amadeus (supra) has extracted the background to issuance to the master circular dated 10.03.2017 by the CBEC:

“9. xxx

The first report of the Tax Administration Reform Commission (‘TARC’) made a recommendation that-

“It is desirable to avoid disputes where a collaborative approach can provide a solution. An administrative pre-dispute consultation mechanism may be instituted in both the organizations for resolving tax disputes at the pre-notice stage through an open dialogue with the taxpayer, in which both sides articulate and discuss their respective positions and views on the matter at hand. An amicable resolution would be possible when a common view emerges on the facts and the legal position. It is expected that this process, if followed in proper spirit, would lead to elimination of a large number disputes leaving only a few contentious matters in which mutual agreement is not reached.

Such disputes would follow other legal channels.”

10. Further, the TARC was of the view that the tax officers should not be allowed to resort to coercive actions for recoveries during the consultation process. The TARC recommended that only those officers competent to issue notices should engage in such consultation; they should adopt ‘an open and receptive attitude and give full consideration to tax payer’s points of view first before formulating their own opinion.’ This exercise was to narrowed down the issues and confine the notice only ‘in respect of unreserved issues’. Further the points on which agreement has been reached should not be contested any further by either party.

11. The above recommendations were accepted and the CBEC issued the Master Circular on 10th March, 2017. The relevant paragraph of the said Master Circular, which has been relied upon by both parties reads as under:

“5.0 Consultation with the noticee before issue of Show Cause Notice:

Board has made pre show cause notice consultation by the Principal Commissioner/Commissioner prior to issue of show cause notice in cases involving demands of duty above Rs.50 lakhs (except for preventive/ offence related SCNs) mandatory vide instruction issued from F No.1080/09/DLA/MISC/15 dated 21st December 2015. Such consultation shall be done by the adjudicating authority with the assessee concerned. This is an important step towards trade facilitation and promoting voluntary compliance and to reduce the necessity of issuing show cause notice.”

12. In the present case, it is seen that every attempt made by the respondent to secure information/document from the appeal were stonewalled by the appellant. Though the show cause notice issued by the respondent which was impugned before the learned Single Judge was not preventive in nature but yet an offence report was registered against the appellant. If the appellant desired to seek the benefit of the Master Circular dated 10.03.2017, he is expected to comply with the summons issued by the respondent seeking explanation/documents that were summoned by the respondent. The benefit of the Master Circular cannot be a one-way traffic and the appellant cannot milk the Master Circular to his advantage.

13. In that view of the matter, the appellant was not entitled to pre-show cause notice as contemplated under Master Circular dated 10.03.2017. Nonetheless, learned Single Judge directed the respondent to keep the impugned show cause notice in abeyance and grant an opportunity to the appellant being heard in terms of the Master Circular dated 10.03.2017 and also reserved liberty to the respondent to revive the show cause notice if the appellant was not able to establish that he had deposited the tax recovered from his service recipients. Since the impugned order of the learned Single Judge is thoroughly balanced, there is no need to interfere with the same.

Hence, this Appeal is dismissed.

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