Delhi High Court

M/S Rr Financial Consultants Ltd vs Union Of India And Ors on 19 September, 2013

Author: Sanjiv Khanna

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*     IN THE HIGH COURT OF DELHI AT NEW DELHI
                          Date of decision: 19th September, 2013
+                  Writ Peittion (C) No.990/2013


M/S RR FINANCIAL CONSULTANTS LTD                ..... Petitioner
                   Through     Mr. J.K. Mittal, Mr. Varun
                   Prabhakar and Mr. Varun Gaba, Advocates.

                          versus

UNION OF INDIA AND ORS                      ..... Respondent
                  Through      Mr. Rahul Kaushik, Advocate
                  for R-2 and 4.

CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA

SANJIV KHANNA, J. (ORAL)

R.R. Financial Consultants Ltd. have filed the present writ

petition with various prayers but the primary prayer is that the services

being rendered by them do not fall in the category of „business

auxiliary service‟ and „business support service‟ as defined and

covered under the various provisions of Section 65 of Chapter V of the

Finance Act, 1994. Another prayer made is that Rs.2,64,98,557/- paid

by the petitioner, which is claimed to be illegally collected, should be

refunded.

2. Interestingly, during the course of arguments, learned counsel

for the petitioner submitted that once Rs.2,64,98,557/-,

which includes interest of Rs.58,31,270/-, stands paid, then the show

cause notice under Section 73(1) is bad in law as the petitioner herein

has made self payment and therefore benefit of Section 73(3) of the

Finance Act, 1994 is applicable. We need not examine the said issue

but it does appear that the contention raised by the petitioner is self

contradictory. If the petitioner claims that they had voluntarily paid

service tax under Section 73(3), then they cannot ask for refund.

Further, it is apparent that the question of refund can only be decided,

when the issue of chargeability and assessability of tax is first

determined and decided. The said questions and question of refund are

pending consideration before the authorities.

3. As per Section 73(4) of the Finance Act, 1994 benefit of

voluntary payment of tax under Section 73(3) is not available in cases

of frauds, collusion, wilful misstatement, suppression of facts or

contravention of any of the provisions of the Chapter V or the Rules

made therein with the intent to evade payment of service tax. In the

present case, the show cause notice which has been impugned, invokes

proviso to Section 73(1) for the extended period. Proviso to Section

73(1) uses the same terminology as sub-section 4 to Section 73.

Whether or not the said proviso has been rightly invoked has to be

determined and decided by the authorities under the provision of the

Act. The statute also provides for appellate remedies in case of an

adverse or wrong order. It is normally a mixed question of law and

facts.

4. Learned counsel for the petitioner has submitted that the

authorities have already issued demand cum show cause notice dated

17th October, 2011. Our attention is drawn to the heading and

paragraphs 10.1 and 10.4 of the show cause notice. He relies upon

decisions of the Supreme Court in Oryx Fisheries Pvt. Ltd. Vs. Union

of India, 2011 (266) ELT 422 (SC) and Commissioner of Central

Excise, Banglore Vs. Brindavan Beverages (P) Ltd. 2007 (213) ELT

487(SC).

5. In Oryx Fisheries Pvt. Ltd.(supra) the following observations

have been made:-

"28. It is no doubt true that at the stage of show cause, the person proceeded against must be told the charges against him so that he can take his defence and prove his innocence. It is obvious that at that stage the authority issuing the charge-sheet, cannot, instead of telling him the charges, confront him with definite conclusions of his alleged guilt. If that is done, as has been done in this instant case, the entire proceeding initiated by the show cause notice get vitiated by unfairness and bias and the subsequent proceeding become an idle ceremony.

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31. It is of course true that the show cause notice cannot be read hyper-technically and it is well settled that it is to be read reasonably. But one thing is clear that while reading a show- cause notice the person who is subject to is must

get an impression that he will get an effective opportunity to rebut the allegations contained in the show cause notice and prove his innocence. If on a reasonable reading of a show-cause notice a person of ordinary prudence gets the feeling that his reply to the show cause notice will be an empty ceremony and he will merely knock his head against the impenetrable wall of prejudged opinion, such a show cause notice does not commence a fair procedure especially when it is issued in a quasi-judicial proceeding under a statutory regulation which promises to give the person proceeded against a reasonable opportunity of defence."

6. In the light of the aforesaid observations, we have examined

paragraphs 10.1 and 10.4 of the impugned show cause notice.

Paragraph 10.1 of the show cause notice refers to prima facie findings

in favour of the petitioner. The said paragraph deals with the reverse

charge mechanism and the factum that the petitioner had claimed that

R.R. Investors Capital Services Pvt. Ltd. had made certain payments of

service tax. Accordingly, opinion formed states that brokerage

amounting to Rs.1,07,51,563/- was not taxable in the hands and at the

end of the petitioner. The aforesaid paragraph only shows objectivity

and that authority had applied his mind. Reading of paragraph 10.4

does not disclose a pre determined mind or decision. A show cause

notice must and should make prima facie allegations and facts have to

be pointed out and confronted for answer. Paragraph 10.4 in the first

line uses the words "it appears that" which is indicative of a prima

facie opinion and not final determination. No doubt the cause title of

the show cause notice uses the words "show cause cum demand

notice" but a reading of the notice would reveal that it is not a demand

notice but a show cause notice calling upon the petitioner to make

submissions. Final determination on various aspects will be after

hearing, if requested and considering the submissions of the petitioner.

7. In paragraph 16 of the notice it is recorded that notice was being

issued in respect of the amounts mentioned in sub-paras (B) and (C)

including Rs.2,64,98,557/- which has already been deposited by the

petitioner but has to be appropriated. In paragraph 17 the petitioner

has been asked to produce evidences in support of their defence and

whether they want to be heard in person and liberty to submit their

reply.

8. The Commissioner, Service Tax has been directed to adjudicate

and decide the case at the earliest. Show cause notice is to be decided

by a different authority, namely, Commissioner of Service Tax, New

Delhi. Thus, show cause notice has not been issued by the authority

who is to decide and pass the order in original.

9. It will be appropriate here to reproduce paragraph 10 of

Brindavan Beverages (P) Ltd. (supra):-

"There is no allegation of the respondents being parties to any arrangement. In any event, no material in that regard was placed on record.

The show cause notice is the foundation on which the department has to build up its case. If the allegations in the show cause notice are not specific and are on the contrary vague, lack details and/or unintelligible that is sufficient to hold that the notice was not given proper opportunity to meet the allegations indicated in the show cause notice. In the instant case, what the appellant has tried to highlight is the alleged connection between the various concerns. That is not sufficient to proceed against the respondents, unless it is shown that they were parties to the arrangements, it any. As no sufficient material much less any material has been placed on record to substantiate the stand of the appellant, the conclusions of the Commissioner as affirmed by the CEGAT cannot be faulted."

10. Aforesaid paragraph states that a show cause notice must be

lucid and clear and relevant facts have to be stated. In these

circumstances, we do not accept the contention of the petitioner that

the show cause notice reveals that the adjudicating authority has

already formed an opinion and decided the issue. The adjudicating

authority is not the author of the show cause notice.

11. Writ petitions against show cause notice especially in tax

matters should not be entertained when alternative remedy under the

statute is available. Otherwise it leads to delay and creates innumerable

legal complications. Authorities including appellate authorities are

persons who are specialists and can dispose of the cases at the earliest.

The statute also provides for appeals so that a wrong order if passed