Assessee not cooperating and not providing information in response to notice gave a reasonable belief that sole intention was to evade the tax.
In a recent judgment the Hon’ble Patna High Court has held that if the assessee is not cooperating and participating and the materials indicated that it is a case of evasion of tax, the Authority would not be wrong in having a reasonable belief that the assessee is not cooperating and providing information in response to the notice with sole intention to evade the tax.
ABCAUS Case Law Citation:
4519 (2025) (04) abcaus.in HC
In the instant case, the assessee/Petitioner had filed a Writ Petition for quashing order passed by GST Authority imposing levy of Service Tax, interest and penalty for the period 2015-16 and 2016-17.
The petitioner was engaged in the business of transportation of goods. The petitioner had entered into an agreement with the State Food and Civil Supplies Corporation Limited (‘Corporation’) for transportation of foodgrains and other essential commodities within a district or to other district and from outside the State including handling and temporary storage etc.
A show cause notice has been issued to the petitioner by the Principal Commissioner of CGST and Central Excise stating that he was providing taxable service and has suppressed the taxable turnover for the relevant Financial Years.
The said show cause notice was not complied with. The said GST Official passed an ex parte order holding therein inter alia that the petitioner was engaged in providing taxable services under Section 65 of the Finance Act, 1994 (‘the Act of 1994’) with the subsequent amendments and does not fall under any of the entries of the Mega Exemption Notification No. 25/2012-Service Tax dated 20.06.2012 as amended.
It was held vide order (the impugned order) that the petitioner had suppressed taxable turnover in contravention of the provisions of the Act of 1994 and imposed service tax and an equivalent penalty among other penalty and interest.
Before the Hon’ble High Court, the Petitioner denied to have received any show cause notice. It was contended that the SCN issued was hit by the limitation as prescribed under Sub-Section (1) of Section 73 of the Act of 1994. During the relevant period, the period of limitation prescribed for notice was 18 months only but, in this case, the notice was issued after five years and four years respectively from the relevant date. It was thus, submitted that the very issuance of the show cause notice would be hit by Sub-Section (1) of Section 73 of the Act of 1994.
The petitioner contended that the sub-Section (4B) of Section 73 of the Act of 1994 makes it mandatory for the Central Excise Officer to determine the amount of tax due under Sub Section (2) within one year from the date of notice in respect of cases falling under the proviso to Sub-Section (1).
It was painstakingly argued that petitioner would not be falling under proviso to Sub-Section (1) of Section 73 or under Sub-Section (4) of Section 73 as this cannot be categorised in a case falling under either of the reasons from (a) to (e). According to him, in this case, there was no material on record which may satisfy this Court that it would be a case of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of Chapter V or of Rules made thereunder with intent to evade payment of service tax.
One of his contentions was that prior to issuance of the show cause notice, the Assessing Authority had a duty cast upon him to issue a pre-consultation notice. It was submitted that it is a mandatory provision which has been brought into existence by virtue of the Circular No. 1053/02/2017 – CX dated 10th March, 2017. The petitioner relied upon the judgments of Delhi High Court and Hon’ble Supreme Court to strengthen its case.
The Petitioner further submitted that the respondents cannot apply the limitation of five years in the present case. The only document on which the respondents had relied upon to put this case in the category of evasion of tax is the information available in the proceeding of the income tax, form 26AS which contains the description of the taxes deducted at source shows the total amount of tax deducted at source against the PAN of this petitioner. In any case, this cannot be said to be a case of fraud or mis-statement or evasion of tax.
The Hon’ble High Court observed that before issuance of demand-cum-show cause notice, three opportunities were given to the noticee vide letter by the Department to submit documents/information for verification/reconciliation of the date provided by the Income Tax Department but the noticee did not respond. The noticee did not submit any defence reply against the demand-cum-show cause notice nor he turned up on any of the dates fixed for personal hearing before the Adjudicating Authority. Four times the noticee was given opportunity to appear before the Adjudicating Authority for personal hearing but he did not appear. Thereafter, the noticee vide made a request to the Adjudicating Authority for granting four weeks’ time. The Adjudicating Authority considered this request and waited for the defence submission but the petitioner failed to file its defence.
The Hon’ble High Court opined that the petitioner was given sufficient opportunity even in course of adjudication proceeding but he did not avail the opportunity. In such circumstance, the impugned order would not require any interference on the ground of violation of the principle of audi alterm partem. So far as the submission that a pre-show cause notice consultation is concerned, there is no difficulty in accepting the submission that a pre-show cause notice consultation would be mandatory in certain circumstances but a bare reading of the Circular referred to would show that the preconsultation notice is not mandatory for the cases booked under fraud, collusion, wilful mis-statement, suppression of facts, evasion of tax etc.
The Hon’ble High Court opined that as held by the Hon’ble Supreme Court the requirement to prove ‘fraud’ and ‘collusion’ is the intent to evade duty. How to gather this intention or judge it would remain a question of fact and this issue as to whether it is a case of fraud, or wilful mis-statement, collusion or is falling under any of the clauses (a) to (b) of the proviso to sub-Section (1) of Section 73 may be properly adjudicated by either the Adjudicating authority or the Appellate Authority with reference to the materials on the record.
The Hon’ble High Court opined that sub-Section (4B) of Section 73 of the Act of 1994, cannot be taken as providing an absolute period of limitation. No doubt the legislative intent is that the Central Excise Commissioner shall determine the amount of service tax due under sub-Section (2)(a) within six months from the date of issue of notice where it is possible to do so, in respect of cases falling under Sub-Section (1); (b) within one year from the date of notice where it is possible to do so in respect of cases falling under the proviso to sub-Section (1), the cluster of words “where it is possible to do so” clearly indicates that the legislatures were never of the view that a proceeding which would not be concluded within the period of limitation for whatever reasons would be closed by virtue of the expiry of the period of limitation alone.
The Hon’ble High Court observed that in order to verify data received from the Income Tax Department with regard to service tax liabilities and proper discharge of the same, under a reasonable belief that the noticee was evading service tax, letters were sent to the notice followed by a reminder email by the Superintendent, CGST to furnish certain documents/records and information for verification/reconciliation of the date provided by the Income Tax Department. On account of no information/response from the noticee and because of this, the competent authority had formed an opinion that the noticee had done it with sole intention to evade payment of due service tax, hence, the Department was compelled to consider it reasonable to accept the documents submitted by the Income Tax Department being valid and proceeded for calculation of service tax and cess.
The Hon’ble High Court opined that paragraph ‘3.3’ of the Instruction No. 05/2023-GST dated 13.12.2023 must be read keeping in view the facts of the case. The facts of this case would reveal that the competent authority had been found the information from the Income Tax Department and the materials proceeded to verify those materials but in course of the said verification, if the petitioner was not cooperating and participating and the materials indicated that it was a case of evasion of tax, the Authority would not be wrong in having a reasonable belief that the assessee is not cooperating and providing information in response to the notice with sole intention to evade the tax.
Accordingly, the Hon’ble High Court held that not interference with the impugned order was required.
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