The Gauhati High Court has clarified that under Section 73(1) of the Finance Act, 1994, the prescribed period for issuance of a show cause notice is not merely procedural but conditional upon assumption and exercise of jurisdiction. It held that if a demand-cum-show cause notice is issued beyond the permissible limitation period, including beyond the extended period where invoked, the initiation itself is without jurisdiction. Consequently, the adjudication founded on such notice is non est and can be quashed notwithstanding the existence of an alternative statutory appellate remedy.
The Court therefore held that the Demand-cum-Show Cause Notice was ex facie barred by limitation; the proceedings initiated pursuant to it were without jurisdiction; and the adjudication order was liable to be set aside.
A Single Judge Bench of Justice Kaushik Goswami observed that although existence of an alternative remedy was not disputed, that rule is one of self-imposed restraint and not an inflexible bar. The Bench framed the core issue as whether an adjudication order founded on a demand notice ex facie barred by limitation could be sustained, and whether such a defect went to jurisdiction so as to justify interference under Article 226.
On Section 73(1), the Bench observed that the power to issue a show cause notice is conditioned upon issuance within the prescribed limitation period, and the timeline is not merely procedural but conditions the very exercise of power. The Bench further observed that invocation of the extended period is permissible only on satisfaction of stringent jurisdictional facts, namely fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade payment of service tax.
The Bench treated limitation under Section 73(1) as a substantive fetter on jurisdiction and states that once the statutory period expires, the authority stands divested of power to initiate proceedings. It held that the notice pertaining to FY 2016–2017, had been issued beyond the statutorily permissible period even assuming applicability of the extended period. Consequently, the Court held that initiation of proceedings was vitiated, the adjudicating authority lacked foundational jurisdiction, and the defect was not a curable irregularity but went to the root of the matter.
Briefly, the petitioners, a proprietorship firm engaged in execution of works contract, and its proprietor, Mahesh Kumar Chanani, had contended that the services rendered by it were exempt under the Mega Exemption Notification issued under the Finance Act, 1994. However, a Demand-cum-Show Cause Notice was issued for the financial year 2016–2017 under Section 73(1) of the Finance Act, 1994, alleging non-payment of service tax of Rs. 26.57 lakhs. The Assistant Commissioner also confirmed the demand.
Appearances:
M L Gope, N Gogoi and N Hawelia, for the Petitioner
DY.S.G.I., SC, GST, for the Respondent
