The Rajasthan High Court has quashed a common assessment order raising service tax demands of over ₹2 crores against M/s Hazi A.P. Bava & Company, holding that revival and adjudication of show cause notices after nearly nine years was arbitrary and unsustainable in law.
A Division Bench of Justice Arun Monga and Justice Yogendra Kumar Purohit allowed three connected writ petitions challenging the Order-in-Original dated October 24, 2019 passed by the Joint Commissioner, Central Excise & GST, Udaipur.
The petitioner, a proprietorship firm engaged in fabrication and erection work at industrial sites, was issued three show cause notices between April 2010 and September 2011 for financial years 2007–08, 2009–10 and 2010–11. The notices alleged short payment of service tax on the ground that fabrication activity formed part of “erection, commissioning or installation” under Section 65(39a) of the Finance Act, 1994.
Earlier, for FY 2008–09, a similar demand had been set aside by the CESTAT in December 2011, which held that fabrication did not fall within the taxable category. Although the Department filed an appeal before the High Court against that decision, it was later withdrawn in 2018 pursuant to the Government’s litigation policy prescribing monetary limits.
Meanwhile, the pending notices for the other years were transferred to the Department’s “Call Book” in March 2012 and remained dormant for years. In 2019, they were revived and adjudicated by a common order confirming demands of ₹81.46 lakh, ₹1.04 crore and ₹1.03 crore, along with penalties.
The High Court focused on the inordinate delay in adjudication. Referring to Section 73(4B) of the Finance Act, 1994 which contemplates determination of service tax within six months or one year from the date of notice, the Bench held that even if the timeline is directory, proceedings cannot be kept pending indefinitely.
The Court noted that the impugned order was passed almost nine years after issuance of the show cause notices, with the delay attributable solely to departmental inaction. The Revenue’s justification that the matter was kept pending due to related litigation was rejected, with the Bench observing that each show cause notice constitutes an independent proceeding.
Holding that revival of proceedings after such prolonged dormancy violated principles of fairness and certainty, the Court ruled that the assessment order could not be sustained. The Division Bench set aside the October 24, 2019 order with consequential reliefs. However, it clarified that the substantive question whether fabrication falls within the scope of “erection, commissioning or installation” under the Finance Act was left open to be decided in appropriate future proceedings.
Appearances:
For Petitioner(s) : Mr. Lokesh Mathur; Mr. Prakash Kumar
For Respondent(s) : Mr. Kuldeep Vaishnav; Mr. Arpit Yoganandi
