Show Cause Notice cannot be read as a legislative enactment, which is to point, precise and required to show exceptional lucidity
THE great litigation industry in the Revenue Department starts with the Show Cause Notice and somehow this is given the least importance. Often the euphoria at the time of detection of the case does not remain till the issue of Show Cause Notice. Show Cause Notices are hurriedly drafted callously and carelessly without clearly explaining the charges levelled and often ignoring statutory provisions.
Usually the Judiciary is kind to Revenue for such badly and defectively drafted notices. But in ITC Ltd vs Commissioner of Service Tax - , Revenue had a shock when the Show Cause Notice and the consequential adjudication order were quashed as the notice was vague and not specific as to under what head the revenue proposed to demand the service tax.
The CESTAT observed,
The show cause notices in the present case before us, were issued on the basis of a prima facie assumption by Revenue that the assessee was assessable to levy of service tax for providing BAS. The reasons for such prima facie assumption of Revenue were however not specified in the show cause notices. Mere extraction of the entire provisions of Section 65(19) of the Act does not fulfill the requirement.
Onthe aforesaid analysis, the show cause notices dated 21.4.2010 and 20.4.2011 are invalid. This infirmity is incurable; these show cause notices are therefore quashed. Since the adjudication order is the consequence of the invalid show cause notices, it is also quashed.
While reporting the case, we observed, "It is very easy to issue Show Cause Notice in service tax cases. All you have to do is reproduce the provisions of the definition of a particular service and raise a demand on the income asking the assessee to show cause as to why the service tax should not be demanded with interest and penalties, preferably under extended period, when the normal period is over. But in this case, the Tribunal was not kind enough to take such notice into cognizance and quashed the same."
The Revenue took the matter in appeal to the Delhi High Court.
The High Court in a landmark judgement reported in allowed the Revenue Appeal.
The High Court made some remarkable observations.
We do not think, that the Tribunal was right in quashing the show cause notices itself, observing that there was violation of principles of natural justice. It is not a case wherein, the respondent-assessee was taken by a surprise, as relevant facts on which, the Commissioner relied and provisions of Section 65(19) invoked, were set out and mentioned in the show cause notices itself. Further, personal hearing was given in which the question whether the services were covered and could be treated as 'Business Auxiliary Service' was discussed. In case, the assessee wanted to file further reply or wanted further time to explain and put forth their point of view, they could have asked for an adjournment or further time before the Commissioner of Service Tax .
The object and purpose of issue of show cause notice is to inform the assessee so that reply or submissions can be made and relevant facts which are in the knowledge of the assessee can be brought on record. After examining and consideration of the show cause notices, we feel that the assessee was informed and made aware of the contention of the revenue and their stand and stance.
When we examine the Show Cause Notice, we have to take into consideration that the object and purpose is to inform the recipient of the allegations against him so that he can meet them effectively and is not prejudiced by manifestly vague notice which leaves him confused and unable to answer/reply. The assessee must be given a reasonable and real opportunity and made aware as to what he has to meet. But, the notice cannot be read as a legislative enactment which is to the point, precise and required to show exceptional lucidity. What is required to be seen is whether the allegations made have been conveyed and set forth, to enable the recipient/assessee to get an opportunity to defend himself against the charges. Notice should not suffer from obscurity and unintelligibility as to deny a fair and adequate chance to the recipient/assessee to get himself fully exonerated and avoid incidence of tax. What transpired after the notice was served, conduct of the parties thereafter, hearing given, are all factors that have to be examined to ascertain as to any prejudice was caused resulting in an arbitrary and unjust decision. Principle of prejudice resulting from vagueness and uncertainty has to be examined in pragmatic and a reasonable manner.
So the High Court had allowed the revenue appeal and remanded the case to the Tribunal to decide the issue afresh.
This time it was the turn of the assessee to appeal - to the Supreme Court. The assessee did not succeed in the Apex Court. The Supreme Court in a one line order simply dismissed the SLP of the assessee.
Now, it is back to the Tribunal - where the vague SCN is not an issue at all.