A Model Show Cause Notice and Adjudication Order? Government loses 3 Crores Demand
IN a case before the CESTAT recently, the Show Cause Notice stated,
Whereas from the documents submitted by the party it appears that they have rendered the taxable services which may either be classified under "Management, Maintenance or Repair service' or 'Erection, Installation and Commissioning services' and other construction linked services as defined under the Finance Act, 1994".
Thus the Show Cause Notice alleged that the assessee must have rendered the taxable service which may be classified under:
1. "Management, Maintenance or Repair service' or
2. 'Erection, Installation and Commissioning services' and
3. Other construction linked services.
The Department was not sure as to what taxable service they rendered, but sure they were that some service was rendered, only they were not sure where to classify it.
In the entirety of the show cause notice, there was not a single assertion proposing to levy and collect service tax on the basis of any specified taxable services allegedly rendered by the appellant except the several alternative taxable services speculated to have been proved and set out as above.
If this was the model Show Cause Notice, the adjudication was no better.
The Adjudication Order :
The Tribunal observed, “The impugned adjudication order is drafted in 32 paras spread over 22 printed pages.
1. Paragraphs 1 to 17 reiterate almost verbatim, the contents of the show cause notice.
2. Para 18 elaborates the response of the appellant and its several defences to the vague and incoherent allegations in the show cause notice.
3. Para 19 sets out particulars of the personal hearing provided.
4. Paras 20 to 31 purport to be part of discussion and findings of the Commissioner.
5. Para 20 is formal in nature and states to have considered the facts of the case, the records and as to providing personal hearing.
6. Para 21 identifies the issues involved in the case. The third sentence in para 21 onwards is a reproduction of para 7 of the show cause notice.
7. Paras 22 to 28 are reproduction of paras 8, 9, 11, 12, 14, 15, 16 and 17 of the show cause notice.
8. Paras 29 to 31 could alone be considered, if at all, the analysis by the learned Commissioner. Para 29 asserts that none of the contentions of the appellant are tenable since it failed to provide the required information to the Department during investigation. It is also observed that the appellant obtained service tax registration for Works Contract on 10/12/07 and was therefore aware of the applicable law. From this observation, the Commissioner infers that the appellant willfully suppressed the fact of earning/receiving taxable income and withheld information which led to evasion of service tax. In para 31, the impugned order records that though the appellant intentional and willfully suppressed the taxable value and failed to remit service tax, the facts came to light only during the process of audit. Para 31 abruptly jumps to the conclusion, without any preceding analysis nor a finding as to the specific taxable services provided by the appellant, that service tax of Rs. 1,53,14,782/- is recoverable under the proviso to Section 73 (1) of the Act alongwith interest, excluding penalty under Section 76. Para 32 records the operative portion of the order declaring the specified liability to service tax, interest and penalties.
This is how many of the Show Cause Notices and adjudication orders are issued by the learned Revenue officers!
Government loses 3 crores demand:
The Tribunal observed,
1. The show cause notice and the impugned adjudication order are vitiated by incoherence and vagueness. |
2. There cannot be a best judgment assessment regarding the specific taxable service provided. There can be no best judgment, for instance as to whether the tax liability is for income tax, sales tax, excise duty, customs duty, service tax or professional tax. |
3. A conclusion as to the taxable event and the liability to tax under the appropriate fiscal legislation authorizing the levy and collection of such tax is a matter for determination with precision and clarity and not by a process of guess-work or speculation . |
4. Neither the show cause notice dated 21/10/11 nor the impugned adjudication order dated 18/1/13 record any assertion/ conclusion whatsoever as to which particular or specific taxable service the appellant had provided. |
5. In the absence of an allegation of having provided a specific taxable service in the show cause notice and in view of the failure in the adjudication order as well, neither the show cause notice nor the consequent adjudication order could be sustained. |
6. The Act provides ample powers including of search under Section 82 of the Act to obtain information necessary to pass a proper, disciplined and legally sustainable adjudication order. |
7. The disinclination to employ the ample investigatory powers conferred by the Act is illustrative of gross Departmental failure and cannot afford justification for passing an incoherent and vague adjudication order. |
8. The failure to gather relevant facts for issuing a proper show cause notice cannot provide justification for a vague and incoherent show cause notice, which has resulted in a serious transgression of the due process of law. |
The Tribunal held that the show cause notice dated 21/10/11 and the consequent impugned adjudication order dated 18/1/13 are unsustainable and quashed the same.
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