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Judgment
Heard learned counsel for the petitioner Mr. Sumeet Gadodia assisted by Mr. Kumar Sundaram and learned counsel for the respondent
Department Mr. P.A.S. Pati.
The show-cause notice no. V(8) 30/S.Tax/Himanchal/Misc./ JSR/2014/10481 dated 21.11.2017 (Annexure-1) has been assailed in the writ petition
inter-alia on a number of grounds i.e. it has been issued with a pre- determined and closed mind without appreciating the statutory provisions; it is
hopelessly barred by limitation; the grounds are irrelevant and not adhering to the provisions of law and as such the contents of the show-cause notice
are in complete derogation of material facts/evidence available with the respondents. However, primary thrust of the challenge is on non-compliance
of the consultative exercise prior to the issuance of show-cause notice as per para-5.0 of the master circular dated 10th March 2017 (Annexure-S.A.-
1 to the supplementary affidavit dated 10th September 2020).
Learned counsel for the petitioner has vehemently argued that the show-cause notice does not fall within either of the exceptions under para-5.0 i.e.
preventive or offence related SCN. It is submitted that the object of the pre-consultative exercise as per the master circular dated 10th March 2017 to
facilitate voluntary compliance and reduce necessity of issuing show- cause notice in cases involving demands of duty above Rs.50 lakhs, stands
frustrated. Learned counsel has relied upon the decision of the Delhi High Court in the case of Amadeus India Pvt. Ltd. Vrs. Principal Commissioner,
Central Excise, Service Tax and Central Tax Commissionerate, reported in 2019 SCC Online Del 8437 (Annexure-S.A.-2 to the supplementary
affidavit). He submits that since the show-cause notice has been issued on 21.11.2017 for alleged suppression and evasion of service tax for the
period 2012-13 to 2015-16, it cannot come under the exception of preventive show- cause notice as was also discussed in the case of Amadeus India
Pvt. Ltd. by the Delhi High Court at paragraph-13. The Hon'ble Delhi High Court also observed that at the end of the adjudication process, the
petitioner may have to face consequences for having committed an offence under the Finance Act, 1994 need not per se render the SCN itself as an
offence related SCN. If that were to be the logic, then in every case para 5.0 can be dispensed with on the ground that the adjudication of the SCN is
likely to lead to the noticee facing proceedings for having committed an offence. The exception would then become the rule and not vice-versa, and
the need for any pre-notice consultation being rendered redundant. On those reasoning the impugned show-cause notice was quashed by the Delhi
High Court. The impugned show-cause notice does refer to notices issued to the assessee by the Preventive Branch, Central Excise and Service Tax
Headquarters at para-2 based on 3rd party information but it cannot come into the category of preventive show-cause as the SCN has been issued by
the office of Commissioner, GSTN & CX and not by the Preventive Branch of the Central Excise and Service Tax. Arguments on merits of the
contents of the show- cause have also been addressed on behalf of the petitioner.
Learned counsel for the petitioner submits that the adjudication proceeding has been concluded in haste during pendency of this writ petition.
Petitioner has sought to challenge the adjudication order dated 16 th February 2021 through I.A. No.1081/2021. Learned counsel for the petitioner has
further submitted that there are no materials produced by the respondents to show that any application of mind has been gone into before dispensing
with the requirement of para-5.0 i.e. pre-consultative exercise before issuance of SCN.
Learned counsel for the respondents Mr. P.A.S. Pati submits that the adjudication order has been brought on record by way of a supplementary
counter affidavit filed on 19th February 2021. On the main challenge to the SCN, it is his submission that it was issued based on 3rd party sources
(income tax department) and after giving sufficient opportunity to the petitioner to clarify the taxability of the amount received by him during the
material period. The SCN is well within the limitation period prescribed. Petitioner was served with summons for submission of documents clarifying
the difference between the receipt as per the balance-sheet and that as per Form 26AS/ bill details which he failed to submit. The Managing Director
of the firm on being asked as to whether his act of not showing the actual value of service rendered and service tax payable in statutory ST-3 returns
amounts to misstatement and suppression of facts from the department, replied in 'yes'. Petitioner instead of exhausting his remedy through proper
channel, has straight away approached this Court. The SCN has not been issued with a predetermined mind and as such all details of correspondence
made with the petitioner has been duly referred to in SCN giving him opportunity to respond. Had the information relating to wilful suppression of
material facts from the Department not come to light on 3rd party information received by the department and investigation initiated thereupon,
petitioner would have been successful in evading payment of tax. Since such misstatement and suppression of facts came to the knowledge of the
department, therefore, the extended period for issuing SCN is as per law. The decision cited by the petitioner is not applicable in the instant case. Had
such a preventive exercise not been undertaken on 3rd party information, petitioner would have been successful in evading the tax liability. As such,
petitioner's case falls within the exceptions to para 5.0 of the master circular dated 10th March 2017. It is submitted that since the adjudication
proceeding has been completed, petitioner has liberty to approach the appellate forum if he is aggrieved thereby. Learned counsel for the respondents
has relied upon a decision rendered in the case of State of U.P. & Ors. Vs. S.K. Theatre Productions & Ors. reported in (2007) 10 SCC 198 in
support of his submission that when there is some ambiguity in a circular, the circular has to be understood by the department itself which issued it.
This is particularly so when there are two interpretations possible as may be in the present case.
We have heard learned counsel for the parties and taken note of the relevant material pleadings on record and the decisions relied upon by them.
Para 5.0 of the master circular dated 10th March 2017 reads as under :
5.0 Consultation with the noticee before issue of Show Cause Notice:
Board has made pre-showcause notice consultation by the Principal Commissioner/Commissioner prior to issue of showcause notice in case involving
demands of duty above Rs.50 lakhs (except for preventive/offence related SCNs) mandatory vide instruction issued for F No.1080/09/DLA/Misc./15
dated 21st of December 2015. Such consultation shall be done by the adjudicating authority with the assessee concerned. This is an important step
towards trade facilitation and promoting voluntary compliance and to reduce the necessity of issuing showcause notice.
This provision appears to have been incorporated to facilitate trade and promote voluntary compliance and to reduce the necessity of issuing show-
cause notice in such cases where the demand of duty is above Rs.50 lakhs. In a way the rigors of adjudication proceedings was intended to be
avoided if the case of the assessee does not fall within the exceptions i.e. preventive / offence related SCNs which has a more serious import.
Upon perusal of the SCN at Annexure-1 it appears that petitioner was served with repeated letters bearing C. No. V(8) 30/S.Tax/
HIMANCHAL/Misc./JSR/2014/ dated 07.02.2014 and even no.4963 dated 03.07.2014 by the Preventive Branch, Central Excise & Service Tax,
Headquarters, Jamshedpur requesting it to clarify the discrepancy in taxable value received by them as per TDS and Income Tax Return and that
shown in ST-3 Return filed by the petitioner for the period 2012-13. Petitioner was asked to submit the following documents for the last five years:
     (i)    copy of ST-3 Returns,
     (ii)   26AS,
     (iii)  Balance Sheet, Profit & Loss Account,
     (iv)   Bank Statement,
     (v)    Copy of agreement/contract with the service recipients and
     (vi)   Details of bills raised and payment received from the service recipients in respect of provision of all services.
The assesse requested for time but failed to submit those documents. It was again requested to submit the reply/document vide letter dated 13th
August 2014. Keeping in view the poor response of the assesse, summons were issued to the assessee under Section 14 of the Central Excise Act,
1944 on several dates as under :
(i) C. No. V(8) 30/S.Tax/HIMANCHAL/Misc./JSR/2014/13190 dated 20.09.2015 summoning the assesse on 28.09.2015,
(ii) C. No. V(8) 30/S.Tax/HIMANCHAL/Misc./JSR/2014/16158 dated 23.11.2015 summoning the assesse on 01.12.2015,
(iii) C. No. V(8) 30/S.Tax/HIMANCHAL/Misc./JSR/2014/1928 dated 25.02.2016 summoning the assesse on 04.03.2016,
(iv) C. No. V(8) 30/S.Tax/HIMANCHAL/Misc./JSR/2014/3447 dated 05.04.2016 summoning the assesse on 05.04.2016 and
(v) C. No. V(8) 30/S.Tax/HIMANCHAL/Misc./JSR/2014/3922 dated 18.04.2016 summoning the assesse on 18.04.2016.
The SCN also indicates that had the third party information not been received by the department and investigation initiated, the case could not have
come to light. As such, it appeared that it is a case of wilful suppression of material facts from the department. Para-21 of the SCN indicates that the
Managing Director of the assessee and noticee no.2 was also asked to explain as to why he be not held liable for penalty under Section 78A of the
Finance Act, 1994 for his complicity in the aforesaid evasion of service tax since he had not given satisfactory answers to the queries made.
Proceedings for adjudication in such matters are initiated by the office of the Commissioner of GST and Central Service tax as has been informed by
the learned counsel for the respondents, though notices are issued to the assessees by the preventive branch upon third party information and
investigation asking them to explain the discrepancy in the taxable value received by them for the relevant period upon comparison of other materials
available with the department. In this case, the investigation was initiated upon inputs received from the Income Tax Department regarding
discrepancy in the taxable value received by the petitioner as per TDS and income Tax Return and that shown in ST-3 Return filed by them for the
period 2012-13. Petitioner were asked to submit the complete documents for the last five years. The proceedings had ended up in confirmation of
demand and imposition of penalty upon the petitioner along with interest. Upon consideration of the facts and circumstances discussed, it prima-facie
appears that the SCN fell into the category of preventive show-cause notice falling under the exception under para-5.0 of the master circular dated
10th March 2017. Had the proceedings not been initiated, the liability of paying service tax might have been evaded.
However, we refrain from observing anything on the merits of the matter. The discussions made herein above are only for the limited purpose of
coming to an opinion as to whether the impugned show-cause notice fell within the exception under para-5.0 of the master circular dated 10th March
2017 or not and consequently whether it was bad in law for not undertaking the pre-consultative exercise with the assessee before issuance of SCN.
Having considered the entire gamut of the facts and circumstances above, we are of the opinion that the case of the petitioner comes within the
exception to para-5.0 of the master circular dated 10th March 2017. The adjudication order has already been passed on 16th February 2021. Petitioner
may have liberty to assail it before the appellate forum in accordance with law. However, we do not find any case for interference in the writ petition.
Accordingly, the writ petition is dismissed. Pending interlocutory applications stand closed.