Adjudication Order without Show Cause Notice - Revenue Appeals in High Court
THE least that you expect from an adjudicating authority is that he knows that he cannot adjudicate a case without putting his assessee on notice and if he does not know elementary principles of law, the mandatory requirement of a Show Cause Notice is incorporated in the various laws pertaining to taxes.
See the interesting details of this case.
A firm applied for a Service Tax registration as a scientific or technical consultancy. The Superintendent of Central Excise issued a letter stating that the firm could not be given registration under scientific or technical consultancy services and suggested that their services would fall under the category of Consulting Engineer. The superintendent also advised the firm to obtain registration as a consulting engineer for the services under the category of Consulting Engineer. The firm tried to justify with the authorities how their services cannot be termed as Consulting Engineer. The Deputy Commissioner of Customs and Central Excise issued an order to the firm demanding service tax for the period from 07.07.1997 to 30.06.2001.
Okay, the Deputy Commissioner was blissfully unaware that he could not adjudicate without notice. The Commissioner (Appeals) was no better. He confirmed the order of the Deputy and dismissed the appeal of the firm.
The CESTAT found that the firm was never issued a show cause notice as required under Section 73 of the Finance Act, 1994 . On that ground alone, the CESTAT set aside the impugned order. The CESTAT's order was dated 08.05.2007 (2007-TIOL-1315-CESTAT-BANG).
Against the order of the CESTAT dated 08.05.2007, Revenue filed an appeal in the High Court in 2012 - after five years!
One of the substantial questions of law raised was:
Whether the Honourable CESTAT is justified in setting aside the order in appeal passed by the Commissioner (A) and the speaking order passed by the original adjudicating authority on the short question that there was no show cause notice on record even though there was a lot of detailed correspondence between the department and the respondent relating to category of service and also tax liability, penal provisions and interest under various sections of Finance Act followed by a speaking order observing all principles of natural justice?
The Counsel for the Department while admitting that no show cause notice was issued as required under Section 73 of the Finance Act, submitted that the respondent had submitted a detailed explanation and it was considered and rejected quantifying the amount payable by the respondent, as such, there is a substantial compliance on the part of the department and the non-issuance of show cause notice is only a technical breach on their part.
The High Court observed that it is an undisputed fact that the Tribunal had categorically recorded that no show cause notice was issued at any point of time and the order of the Commissioner was set aside on that ground. The procedural requirement of issuance of notice and calling for explanation cannot be dispensed with as otherwise the demand of money in the name of tax is in violation of the very procedure prescribed under the Act, thus violating the safeguard provided under Article 265 of the Constitution of India.
The High Court found no merit in the Revenue appeal and dismissed it.
If this was a matter of classification, shouldn't the appeal have been filed in the Supreme Court? How does this kind of appeal get filed in the High Court?
When a Commissioner forgets to file an appeal in the Supreme Court, the easy way is to file an appeal in the High Court. Moreover, filing an appeal in the Supreme Court involves consultation with the Board - as far as High Court is concerned, Commissioner is king. Even when they know that it is wrong to file an appeal in the High Court, they resort to this, because when the appeal is dismissed by the High Court on jurisdiction or on merits, they can go to the Supreme Court against the High Court order. And thus keep the great Litigation Machinery well-oiled.
And in this case, it took them five years to file an appeal in the High Court. The tax involved is all of seven lakhs of rupees. Just imagine how much money they must have wasted in trying to get the seven lakh rupees!
The Deputy Commissioner who passed the order in original, the Commissioner (Appeals) who sustained that order, the Commissioner who decided to appeal to the High Court against the Tribunal's order - all, they all knew pretty well that an adjudication order without notice is not valid and yet all of them tried to make a virtue out of the blatant blunder of the Deputy Commissioner and played a cruel joke on the administration of justice. These are the people responsible for clogging our courts and they call themselves Revenue Officers!
Isn't it strange that for filing an appeal in the CESTAT against an order of a Commissioner, you need the approval of two Chief Commissioners, while you don't need anybody's approval for filing an appeal in the High Court against an order of the Tribunal? And the order of the Tribunal could have been written by a former High Court judge!
We bring you this High Court order today. Please see Breaking News