The High Court of Jharkhand allowed an appeal seeking to set aside the order-in-original in which adjudicating demand cum Show Cause Notice had passed. The court ruled that the Department's failure to adhere to specified procedures and instructions, leading to a delay in communicating adjudication orders and improper personal hearings, rendered its actions legally invalid.
Brief Facts:
The petitioner is primarily engaged in the business of renting immovable property which was registered under the provisions of the Finance Act, 1994. The petitioner was regularly filing its service tax returns and had duly paid its service tax liabilities. The Respondent conducted a search at the office premises of the petitioner and a demand cum Notice was issued to show cause to the petitioner by invoking an extended period of limitation and imposing a service tax liability and had also proposed to impose penalties. The petitioner filed its reply to the allegation and after a substantial delay, the order in Original had passed adjudicating Demand cum Show Cause Notice. Thus, this petition is filed.
Contentions of the Petitioner:
The learned counsel appearing on behalf of the Petitioner contended that the proceedings have been made for alleged suppression of facts by invoking the extended period of limitation of five years for initiation of proceedings but the Order-in-Original does not reflect any finding as to the wilful suppression of facts or fraud for invoking the extended period of limitation. It is further contended that the Order-in-Original was also violative of the period prescribed under Section 73(4B) of the Finance Act, 1994 as the same has been issued approximately three years from the date of issuance of SCN and the Order-in-Original has been passed after the delay of 02 months 11 days from the last date of personal hearing.
Contentions of the Respondent:
The learned counsel appearing on behalf of the Respondent contended that the adjudication order is valid and sustainable as this order is issued against the same SCN which were provided to the petitioner and the petitioner was fully aware of this SCN as they have always replied to the letters issued and there is no prescribed limit for passing an adjudication order under Section 73(4B) of the Finance Act, 1994. It was further contended that the petitioner was granted sufficient opportunity to defend their case by the adjudicating authority by fixing dates for personal hearings through virtual mode as well as in physical mode in the light of Instruction but they failed to appear for the same. It was argued that the petitioner had an alternative remedy but filed a writ application, which should be dismissed.
Observations of the court:
The court observed that the Department has violated Clauses 14.10 of Master Circular and Clause 4.3 of the Instructions issued by the CBIC, which provide the manner in which the adjudication order has to be passed by the Respondent Department and both the Instruction and the Circular provide that the adjudication order must be communicated within one month from the closure of the personal hearing.
The court further observed that the order is in clear contravention of the circulars since it was not communicated within one month from the closure of the personal hearing, and there are no recorded reasons for the delay in communicating the order beyond one month and held that the circulars or instructions issued by the Central Board of Indirect Taxes and Customs (CBIC) are legally binding on the department, and their violation will make the actions of the respondent illegal and ex-facie bad in law.
The court held that if the law prescribes a manner in which a power has to be exercised, then such power can be exercised only in such a manner. No prior notice was served during personal hearings. Therefore, alleged personal hearings are in contravention of the Circular.
The decision of the Court:
The court allowed the petition.
Case Title: M/s LMB Sons vs The Union of India & Ors.
Coram: Hon’ble Mr. Justice Rongon Mukhopadhyay, Hon’ble Mr. Justice Deepak Roshan
Case No.: W.P.(T) No. 5364 of 2022
Advocate for the Petitioner: Mr. Rahul Lamba, Mr. Aditya Khandelwal
Advocate for the Respondent: Mr. P.A.S. Pati, Ms. Ranjana Mukherjee, Mr. Anil Kumar, Mr. Ratnesh Kumar
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