Bombay HC Directs Action Against the Officer Who Failed To Adjudicate Service Tax Show Cause Notice Issued 13 Years Back

The Bombay High Court quashed a show cause notice on which adjudication by the Commissioner of Service Tax (Commissioner) was pending for 13 years. The Court directed the Government to take appropriate actions against the Commissioner.

The Court noted that the provisions of Section 73(4)(B) of the Finance Act, 2014, required the Commissioner to conclude the proceedings of the show cause notice within a period of 12 months from the date of service of the show cause notice, which was not complied with.

The Bench comprising Justice G. S. Kulkarni and Justice Jitendra Jain observed, “In our opinion, a serious view in this regard is required to be taken by the Ministry of Finance in regard to the officers who are not diligently discharging such vital duties and who in fact are playing with the public revenue”.

“In any event, the provisions of Section 73 and more particularly the provisions of sub-section (4)(B) which were inserted by the Finance Act 2014 being the statutory mandate was staring at respondent no.2 during the pendency of the show cause notice not to conclude the proceedings of the show cause notice. However, the conduct of respondent no.2 was totally overlooking the mandate of such legal requirement”, the Bench noted. 

Advocate Prakash Shah appeared for the Petitioner and Advocate Ram Ochani appeared for the Respondent.

In 2010, the Commissioner issued a show cause notice to the Company (Petitioner) accusing them of not paying service tax on imported services related to bank charges under banking and financial services and professional fees under Management Consultancy Services. The Company responded to the notice, asking for more time to gather all the necessary documents and submit a reply, along with a request for a personal hearing. They also requested a breakdown of the annual cumulative amount of taxable services. However, the Commissioner did not respond for almost five years. In February 2016, the Company was informed of a hearing scheduled for March 16, 2016. They asked for a new date, which was granted. However, at the hearing, the Commissioner did not make any decisions and adjourned the hearing at the request of the Company. The Petitioner filed a Writ Petition seeking to quash the show cause due to the delay in adjudication by the Commissioner of Central Excise, even after 13 years.

The Court noted that the Commissioner could not have acted oblivious to the settled principle of law that a show cause notice would be required to be adjudicated within a reasonable time. The Court observed that the Commissioner had not given any justification for the delay in adjudication of the show cause notice. The Court referred to Coventry Estates Pvt. Ltd. Versus The Joint Commissioner CGST and Central Excise & Anr. [W.P No. 4082 of 2022, Decided in 2023]. The Court held that the delay of almost 5 years in adjudication of the show cause notice was illegal and quashed the show cause notice.

“What is glaring, is that thereafter from the adjourned date of hearing i.e. 11 May, 2016 upto February, 2021, which is again a second tranche of period of 5 years, respondent no.2 did not bother to take any action on the show cause notice and in fact, it appears that the show cause notice was forgotten. It is on such conspectus, being aggrieved by uncertainty and the sword of Damocles of the show cause notice hanging, the petitioner filed the present petition on 23 March, 2021, praying that as no action was taken on the show cause notice for such a long time, the same is required to be quashed and set aside”, the Bench noted.

Accordingly, the Court allowed the Writ Petition.

Cause Title: UPL Limited v The Union of India

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