2025 (6) TMI 16 - HC - Service Tax

Liability to pay service tax on the activities of construction renovation or alteration of public roads - Validity of show cause notice - order-in-original passed without granting pre-consultation notice - exemption granted under Notification No. 25/2012-ST - compliance with the mandatory procedural requirements - deduction of TDS - HELD THAT - It was submitted that in the impugned show cause notice issued by the respondent No. 2 there is no valid DIN and online search on the portal reveals that the same has been generated without indicating the Party Name Party Address and also the document identifier and proper verification and therefore it was not possible to find the party name and party address and also the petitioner could not retrive any document identifier so as to find the DIN for impugned show cause notice. Having heard learned advocates for the respective parties issue raised in the present petition is no more res integra in view of the order passed by this Court in the case of M/s Jay Mahakali Industrial Service 2023 (9) TMI 1672 - GUJARAT HIGH COURT In view of the aforesaid settled legal position impugned show cause notice dated 23.10.2021 and the order-in-original dated 7.2.2022 as well as the appellate orders are hereby quashed and set aside. However it is made clear that the respondent authorities may take appropriate proceedings if permitted as per the period of limitation in accordance with law after giving pre-consultation notice to the petitioners. Rule is made absolute with no order as to costs.

Summary

The core legal questions considered by the Court in this matter are:

1. Whether the issuance of the show cause notice and order-in-original without prior pre-consultation notice to the petitioners was legally valid and in compliance with the mandatory procedural requirements under the relevant Circulars and statutory provisions.

2. Whether the petitioners were liable to pay service tax on the activities of construction, renovation, or alteration of public roads, considering the exemption granted under Notification No. 25/2012-ST dated 20.6.2012.

3. Whether the extended period of limitation under section 73(1) of the Finance Act, 1994 could be invoked for recovery of service tax based on the difference in value reported in Income Tax returns and ST-3 returns.

4. Whether the show cause notice issued without a valid Document Identification Number (DIN) and without proper party details was valid.

5. Whether the appeal filed by the petitioners was barred by limitation and the consequences thereof.

6. The applicability and interpretation of the Circular dated 10.3.2017 and related Board instructions regarding mandatory pre-show cause notice consultation in cases involving demands exceeding Rs. 50 lakhs, and exceptions thereto.

Issue-wise Detailed Analysis:

1. Validity of Show Cause Notice without Pre-consultation Notice

Legal Framework and Precedents: The Court examined Circular No. 1053/02/2017-CX dated 10.3.2017 and subsequent clarifications including Circular No. 1079/03/2021-CX dated 11.11.2021 and Circular No. 1076/02/2020-CX dated 19.11.2020, which mandate pre-show cause notice consultation with the Principal Commissioner or Commissioner prior to issuance of show cause notices involving demands exceeding Rs. 50 lakhs, except in cases involving preventive or offence-related SCNs. The Court also considered the decision in L AND T Hydrocarbon Engineering Ltd. Vs. Union of India and Amadeus India Pvt Ltd Vs. Principal Commissioner, which emphasized the mandatory nature of pre-consultation and held non-compliance fatal to the proceedings.

Court's Interpretation and Reasoning: The Court held that the show cause notice issued in the present case was not preventive or offence-related in nature. The respondents' contention that the case involved suppression or wilful mis-statement to evade tax did not automatically render the SCN as offence-related for the purpose of exemption from pre-consultation. The Court emphasized that the possibility of penal consequences after adjudication does not exempt the department from following the pre-consultation procedure. The circulars make clear that the exclusion from pre-consultation is case-specific, not formation-specific, and the present case did not fall within the exceptions.

Key Evidence and Findings: The petitioners asserted that no pre-consultation notice was issued; the respondents contended otherwise but failed to establish that such consultation occurred. The Court relied on the absence of any pre-consultation record and the binding nature of the Board's circulars.

Application of Law to Facts: Since the demand exceeded Rs. 50 lakhs and the SCN was not offence/preventive related, the failure to conduct pre-consultation rendered the show cause notice invalid.

Treatment of Competing Arguments: The respondents argued that the case was exempt from pre-consultation due to the nature of the investigation and alleged suppression. The Court rejected this, noting that such a broad interpretation would nullify the mandatory pre-consultation requirement in most cases.

Conclusion: The absence of pre-consultation notice was fatal to the validity of the show cause notice and subsequent order.

2. Liability for Service Tax on Construction, Renovation or Alteration of Public Roads

Legal Framework and Precedents: Notification No. 25/2012-ST dated 20.6.2012 exempts services related to construction, renovation, or alteration of roads meant for use by the general public. The burden of proof to establish exemption lies on the claimant. The Court also referred to the definition of "general public" under the Notification and the requirement to verify whether the roads constructed were for public use.

Court's Interpretation and Reasoning: The Court noted that the petitioners failed to produce key documentary evidence such as agreements between the main contractor and the Government, work orders, and RA bills to establish that the roads constructed were for the general public and thus exempt. The adjudicating authority's reliance on this absence to deny exemption was upheld.

Key Evidence and Findings: Petitioners admitted the value of services provided but did not furnish documents to prove the exemption claim. Respondents relied on the absence of such proof and the best judgment assessment based on third-party data (Income Tax returns, Form 26AS).

Application of Law to Facts: Without documentary proof, the exemption could not be granted. The adjudicating authority correctly applied the principle that the claimant bears the burden of proof.

Treatment of Competing Arguments: Petitioners contended that the exemption was unconditional; respondents countered that the exemption applies only if the road is for general public use and proof is necessary.

Conclusion: The petitioners were liable for service tax as the exemption was not established.

3. Invocation of Extended Period of Limitation under Section 73(1) of the Finance Act, 1994

Legal Framework and Precedents: Section 73(1) allows recovery within five years if there is suppression of facts or wilful mis-statement. The Court referred to the statutory provisions and the principle of best judgment assessment under Section 72.

Court's Interpretation and Reasoning: The respondents invoked extended limitation based on the difference between income tax returns and ST-3 returns, alleging suppression. The Court accepted that the petitioner had not filed accurate ST-3 returns and that the department was entitled to invoke extended limitation.

Key Evidence and Findings: Third-party data from Income Tax returns and Form 26AS showed higher income than declared in ST-3 returns. Petitioners admitted the income but did not file correct returns.

Application of Law to Facts: The department's invocation of extended limitation was justified due to suppression.

Treatment of Competing Arguments: Petitioners did not dispute the income figures but disputed the tax liability based on exemption claims.

Conclusion: Extended limitation was rightly invoked.

4. Validity of Show Cause Notice without Valid DIN and Proper Party Details

Legal Framework and Precedents: Circular No. 122/41/2019-GST and Circular No. 128/47/2019-GST mandate issuance of communications with valid Document Identification Number (DIN) for authenticity and traceability.

Court's Interpretation and Reasoning: Petitioners alleged absence of valid DIN and inability to retrieve party details on the portal. Respondents produced proof of valid DINs for both the show cause notice and order-in-original. The Court accepted the respondents' evidence.

Key Evidence and Findings: Respondents produced annexures showing generation of DINs with timestamps and category details.

Application of Law to Facts: The show cause notice and order-in-original were validly issued with proper DINs.

Treatment of Competing Arguments: Petitioners' claim of invalid DIN was rejected on evidence.

Conclusion: The SCN and OIO were validly issued with proper DINs.

5. Limitation Bar on Appeal

Legal Framework and Precedents: Appeals must be filed within prescribed limitation periods under the Finance Act, 1994. Delay without sufficient cause results in dismissal.

Court's Interpretation and Reasoning: Petitioners filed appeal belatedly due to internal disputes with consultants. The appellate authority rejected the appeal on limitation grounds. The Court found no merit in condoning delay.

Key Evidence and Findings: Appeal was filed after expiry of limitation period.

Application of Law to Facts: Delay was not excused; appeal was rightly rejected.

Treatment of Competing Arguments: Petitioners sought leniency; respondents relied on strict limitation rules.

Conclusion: Appeal was barred by limitation and rightly rejected.

Significant Holdings:

"The absence of pre-show cause notice consultation in cases involving demands exceeding Rs. 50 lakhs, unless the show cause notice is preventive or offence-related, is fatal to the validity of the proceedings."

"The exception to mandatory pre-consultation is case-specific and not formation-specific; mere suspicion or possibility of offence does not exempt the department from following the procedure."

"The burden of proof to establish exemption under Notification No. 25/2012-ST lies on the claimant, and failure to produce documentary evidence to prove that the road constructed was for use by the general public disentitles the claimant from exemption."

"Extended period of limitation under Section 73(1) of the Finance Act, 1994 can be invoked where there is suppression of facts or wilful mis-statement, as evidenced by discrepancies between income tax returns and ST-3 returns."

"Communications including show cause notices must be issued with valid Document Identification Numbers (DIN) for authenticity; absence of valid DIN renders the notice invalid."

"Appeals filed beyond the prescribed limitation period without sufficient cause are liable to be rejected."p>

Final determinations on each issue:

1. The show cause notice and order-in-original issued without pre-consultation notice were quashed and set aside.

2. The petitioners failed to establish exemption under Notification No. 25/2012-ST; hence, they were liable for service tax.

3. The invocation of extended limitation period was justified based on suppression of facts.

4. The show cause notice and order-in-original were validly issued with proper DINs.

5. The appeal was rightly rejected on limitation grounds.

6. The respondents are permitted to initiate fresh proceedings or revive the original show cause notice after complying with the mandatory pre-consultation requirement and within the period of limitation.