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Judgment
Indira Banerjee, J.—This writ petition has been filed challenging show cause notice-cum-demand being C. No. V(3) 222/SCN/Adjn/Infinity/ST/11/457, dated 18th April, 2012 wherein it has been alleged that service tax amounting to Rs. 9,53,69,284/- including cess was due and payable by the petitioner-company for the service of renting of immovable property during the periods 2007-2008, 2008-2009, 2009-2010 and 2010-2011. Under Section 65(105)(zzzz) of the Finance Act, 1994 any service provided or to be provided to any person, by any other person, by renting of immovable property or any other service in relation to such renting for use in the course of or for furtherance of, business or commerce is a "taxable service".
The impugned notice, issued on the allegation that the petitioner had not paid service tax on the amount collected as premium during the years 2007-2008, 2008-2009, 2009-2010 and 2010-2011, has been challenged on the ground of the same being barred by limitation, and therefore, without jurisdiction. There is no demand towards Service Tax on rent.
Section 73 of the Finance Act, 1994 provides as follows:
"73. Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded. - (1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:
Provided that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of-
(a) fraud; or
(b) collusion; or
(c) wilful misstatement; or
(d) suppression of facts; or
(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words "one year", the words "five years" had been substituted.
Explanation. - Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of one year or five years, as the case may be.
[xxx]
(2) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom notice is served under subsection (1), determine the amount of service tax due from, or erroneously refunded to, such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined:
[xxx]
(3) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax, refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid:
Provided that the Central Excise Officer may determine the amount of short payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of "one year" referred to in subsection (1) shall be counted from the date of receipt of such information of payment.
Explanation 1. - For the removal of doubts, it is hereby declared that the interest under Section 75 shall be payable on the amount paid by the person under this sub-section and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the Central Excise Officer but for this sub-section.
Explanation 2. - For the removal of doubts, it is hereby declared that no penalty under any of the provisions of this Act or the rules made thereunder shall be imposed in respect of payment of service tax under this subsection and interest thereon.
(4) Nothing contained in sub-section (3) shall apply to a case where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of-
(a) fraud; or
(b) collusion; or
(c) wilful misstatement; or
(d) suppression of facts; or
(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax.
(4A) Notwithstanding anything contained in sub-sections (3) and (4), where during the course of any audit, investigation or verification, it is found that any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, but the true and complete details of transactions are available in the specified records, the person chargeable to service tax or to whom erroneous refund has been made, may pay the service tax in full or in part, as he may accept to be the amount of tax chargeable or erroneously refunded along with interest payable thereon under Section 75 and penalty equal to one per cent of such tax, for each month, for the period during which the default continues, up to a maximum of twenty-five per cent of the tax amount, before service of notice on him and inform the Central Excise Officer of such payment in writing, who, on receipt of such information, shall not serve any notice under sub-section (1) in respect of the amount so paid and proceedings in respect of the said amount of service tax shall be deemed to have been concluded:
Provided that the Central Excise Officer my determine the amount of service tax, if any, due from such person, which in his opinion remains to be paid by such person and shall proceed to recover such amount in the manner specified in sub-section (1).
Explanation. - For the purposes of this sub-section and Section 78, "specified records" means records including computerized data as are required to be maintained by an assessee in accordance with any law for the time being in force or where there is no such requirement, the invoices recorded by the assessee in the books of account shall be considered as the specified records.
(5) The provisions of sub-section (3) shall not apply to any case where the service tax had become payable or ought to have been paid before the 14th day of May, 2003.
(6) For the purposes of this section, "relevant date" means,-
(i) in the case of taxable service in respect of which service tax has not been levied or paid or has been short-levied or short-paid-
(a) where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the period to which the said return relates, is to be filed by an assessee, the date on which such return is so filed;
(b) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;
(c) in any other case, the date on which the service tax is to be paid under this Chapter or the rules made thereunder;
(ii) in a case where the service tax is provisionally assessed under this Chapter or the rules made thereunder, the date of adjustment of the service tax after the final assessment thereof;
(iii) in a case where any sum, relating to service tax, has erroneously been refunded, the date of such refund."
On a perusal of the said Section it is amply clear that any tax not levied or paid, short-levied or short-paid might be recovered from the petitioner. The show cause notice for realisation of tax not levied or paid or short-levied or short-paid could be issued within one year from the relevant date. After amendment with effect from 28th May, 2012 by the Finance Act, 2012, the period of limitation is 18 months instead of one year. However, in view of the proviso, where service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion, wilful misstatement, suppression of facts or contravention of any of the provisions of Chapter V of the Finance Act, 1994 with intention to evade service tax, notice may be issued within five years instead of one year.
Admittedly, in this case, notice has been issued on 18th April, 2012 in respect of the financial years 2007-2008, 2008-2009, 2009-2010 and 2010-2011 by invocation of the extended period of limitation. It is apparent that the notice is hit by limitation, the same having been issued after expiry of one year from the relevant date. The question is whether the conditions precedent for invocation of the extended period of limitation existed.
The reasons for invoking the extended period of time are stated in Paragraphs 9 and 10 of the show cause notice, which are set out herein below for convenience:
"9. Here the said assessee did not disclose the material fact that they engaged in providing taxable services and suppressed the above facts with intension to evade the payment of Service Tax on "Renting of Immovable Property Service". Thus, the said assessee has failed to comply with the requirement of statutory provisions of the said act and the said rules and have wilfully suppressed the facts of providing/receiving the said services with intent to evade payment of Service Tax. Had the audit team not visited the premises of the said assessee and unearthed the material fact, the said assessee would have been continuing the evasion. Therefore proviso to Section 73(1) is invokable for extended period of time and they are liable for penal action under section 78 of the said Act.
Thus, it appears that the said assessee has violated the provisions of Section 68 of the said Act read with Rule 6 of the said rules with intent to evade payment of Service Tax. Moreover, for delayed payment of Service Tax, they are liable to pay interest at appropriate rate as per Section 75 of the said Act."
The allegation against the petitioner is that the petitioner did not disclose the material fact that the petitioner had engaged in providing taxable services and had suppressed facts with intention to evade payment of service tax on the service of "Renting of Immovable Property". It is alleged that the assessee had thus failed to comply with the requirements of the statutory provisions of the Finance Act, 1994 and the rules made thereunder and had wilfully suppressed facts related to providing/receiving of the said service with intent to evade payment of service tax.
The show cause notice has apparently been issued pursuant to the observations made by Central Excise Revenue Audit (CERA) Team of the Office of the Comptroller and Auditor General of India which had visited the premises of the petitioner.
As argued by Mr. Mittal the CERA Audit Team of the office of the Comptroller and Auditor General of India had no power and/or authority and/or jurisdiction to inspect the records lying at the premises of the petitioner company, as observed by this Court by its judgment and order dated 26th September, 2012 in WP 21053 (W) of 2011, SKP Securities Ltd. Vs. Deputy Director (Ra-IDT), , for the reasons discussed hereinafter:
As a company incorporated under the Companies Act, 1956, the petitioner company is governed by the provisions of the Companies Act, 1956 and is required to maintain its accounts in the manner prescribed by the Companies Act, 1956.
The accounts are required to be maintained in a manner that gives a true and proper picture of the affairs of the company. With the amendment of Section 209 of the Companies Act, 1956 it is now necessary for the companies incorporated under the Companies Act to maintain their accounts as per the mercantile system of accounting. The accounts are required to be maintained as per accounting standards laid down by the Institute of Chartered Accountants of India (ICAI). For preparation of accounts, all companies maintain running account books of all receipts.
Under the Companies Act and/or rules or regulations framed thereunder, the accounts so maintained are required to be audited by a Chartered Account and presented in the manner prescribed in the Companies Act. In addition, the petitioner company is also required to have its accounts audited in terms of Section 44AB of the Income-tax Act. All the activities of a company have to be transparent. Its annual accounts and annual report are published and circulated inter alia amongst its shareholders. The accounts and annual reports are required to be filed with the Registrar of Companies and are available for inspection. All books of account of a company are available for inspection at its Registered Office.
Some of the statutes by which the petitioner company is governed contain provisions for special audit. Under Section 233A of the Companies Act, 1956, where the Central Government is of the opinion that the affairs of the company are not being managed in accordance with sound business principles or prudent commercial practices or that any company is being managed in a manner likely to cause serious injury or damage to the interests of the trade, industry or business to which it pertains or that the financial position of any company is such as to endanger its solvency, the Central Government might, by the same or a different order, direct that a special audit of the company''s accounts for such period or periods as may be specified in the order, shall be conducted and may by the same or by different order appoint either a Chartered Accountant as defined in Clause (b) of sub-section (1) of Section 2 of the Chartered Accounts Act, 1949 or the company''s auditor himself, to conduct such special audit.
The special auditor appointed by the Central Government under Section 233A of the Companies Act, has the same power and duties in relation to special audit as an auditor of a company under Section 227 of the Companies Act. The only difference is that in spite of making his report to the members of the company the special auditor submits its report to the Central Government.
Section 233B of the Companies Act provides, that where in the opinion of the Central Government, it is necessary so to do, in relation to any company required under Section 209 to include in its books of account, the particulars referred to therein, the Central Government might by order direct that an audit of cost accounts of the company shall be conducted in such manner as may be specified in the order by an auditor who shall be a Cost Accountant within the meaning of the Cost and Works Accountants Act, 1959. If the Central Government is of the opinion that sufficient number of Cost Accountants are not available for conducting the audit of the cost accounts of companies, then a chartered accountant may be directed to conduct the audit of the cost accounts of the companies.
The Income-tax Act, 1961 and the Central Excise Act, 1944 also contain provisions for special audit. Section 142(2A) of the Income-tax Act provides as follows:
"If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or Commissioner, direct the assessee to get the accounts audited by an accountant, as defined in the Explanation below sub-section (2) of Section 288, nominated by the Chief Commissioner or Commissioner in this behalf and to furnish a report to such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the Assessing officer may require:
Provided that the Assessing Officer shall not direct the assessee to get the accounts so audited unless the assessee has been given a reasonable opportunity of being heard."
Similarly, Section 14A of the Central Excise Act, 1944 provides as follows:
Special audit in certain cases
(1) If at any stage of enquiry, investigation or any other proceedings before him, any Central Excise Officer not below the rank of an Assistant Commissioner or Deputy Commissioner of Central Excise, having regard to the nature and complexity of the case and the interest of revenue, is of the opinion that the value has not been correctly declared or determined by a manufacturer or any person, he may, with the previous approval of the Chief Commissioner of Central Excise, direct such manufacturer or such person to get the accounts of his factory, office, depots, distributors or any other place, as may be specified by the said Central Excise Officer, audited by a cost accountant or chartered accountant, nominated by the Chief Commissioner of Central Excise in this behalf.
(2) The cost account or Chartered Accountant, so nominated shall, within the period specified by the Central Excise Officer, submit a report of such audit duly signed and certified by him to the said Central Excise Officer mentioning therein such other particulars as may be specified:
Provided that the Central Excise Officer may, on an application made to him in this behalf by the manufacturer or the person and for any material and sufficient reason, extend the said period by such further period or periods as he thinks fit; so, however, that the aggregate of the period originally fixed and the period or periods so extended shall not, in any case, exceed one hundred and eighty days from the date on which the direction under sub-section (1) is received by the manufacturer or the person.
(3) The provisions of sub-section (1) shall have effect notwithstanding that the accounts of the manufacturer or person aforesaid have been audited under any other law for the time being in force or otherwise.
(4) Deleted
(5) The manufacturer or the person shall be given an opportunity of being heard in respect of any material gathered on the basis of audit under subsection (1) and proposed to be utilised in any proceedings under this Act or rules made thereunder."
Section 72A of the Finance Act, 1994, as amended, provides as follows:
"72A. Special audit. - (1) If the Commissioner of Central Excise, has reasons to believe that any person liable to pay service tax (herein referred to as "such persons"), -
(i) has failed to declare or determine the value of a taxable service correctly; or
(ii) has availed and utilized credit of duty or tax paid-
(a) which is not within the normal limits having regard to the nature of taxable service provided, the extent of capital goods used of the type of inputs or input services used, or any other relevant factors as he may deem appropriate; or
(b) by means of fraud, collusion, or any wilful mis-statement or suppression of facts; or
(iii) has operations spread out in multiple locations and it is not possible or practicable to obtain a true and complete picture of his accounts from the registered premises falling under the jurisdiction of the said Commissioner,
he may direct such person to get his accounts audited by a chartered accountant or cost accountant nominated by him, to the extent and for the period as may be specified by the Commissioner.
(2) The chartered accountant or cost accountant referred to in subsection (1) shall, within the period specified by the said Commissioner, submit a report duly signed and certified by him to the said Commissioner mentioning therein such other particulars as may be specified by him.
(3) The provisions of sub-section (1) shall have effect notwithstanding that the accounts of such person have been audited under any other law for the time being in force.
(4) The person liable to pay tax shall be given an opportunity of being heard in respect of any material gathered on the basis of the audit under sub-section (1) and proposed to be utilized in any proceeding under the provisions of this Chapter or rules made thereunder.
Explanation. - For the purposes of this section,-
(i) "chartered accountant" shall have the meaning assigned to it in clause (b) of sub-section (1) of Section 2 of the Chartered Accountants Act, 1949 (38 of 1949);
(ii) "cost accountant" shall have the meaning assigned to it in clause (b) of sub-section (1) of Section 2 of the Cost and Works Accountants Act, 1959 (23 of 1959)."
It is now well settled by judicial pronouncements that an order for special audit is required to be made upon compliance with principles of natural justice. Reference may in this context be made to the judgment of the Supreme Court in Sahara India (Firm), Lucknow Vs. Commissioner of Income Tax, Central-I and Another, . The Supreme Court held that the expression "civil consequences" not only encompasses infraction of property or personal rights but also civil liberties, material deprivations and non-pecuniary damages. Anything which affects a citizen in his civil life comes under its wide umbrella.
Section 142(2A) of the Income-tax Act, 1961 was held to entail civil consequences and the rule of audi alteram partem was held to be a necessary prerequisite for an order of special audit under Section 142(2A) of the Income tax Act. Even though the judgment of the Supreme Court in Sahara India (Firm), Lucknow (supra) relates to Section 142(2A) of the Income-tax Act, there is no reason why the same principle should not apply to Section 14A of the Central Excise Act and Section 72A of the Finance Act, 1994, as amended.
The condition precedent for special audit under Section 72A of the Finance Act, 1994, as amended, is reason to believe that any person liable to pay service tax, has failed to declare or determine the value of a taxable service correctly, or has availed and utilized credit of duty or tax paid in excess of entitlement by means of fraud, collusion or any wilful mis-statement or suppression of facts or has operations spread out in multiple locations and it is not possible or practicable to obtain a true and complete picture of its accounts from the registered premises falling under the jurisdiction of the said Commissioner.
The condition precedent for an order of special audit is reason to believe that the circumstances stipulated in the various sub-sections of Section 72A exist. Such insinuation of wrongful act affects the citizen in his social life and would come within the ambit of civil consequences as laid down in Sahara India (Firm), Lucknow (supra).
The Comptroller and Auditor-General of India is a Constitutional Authority appointed under Article 148 of the Constitution of India. The duties and powers of the Comptroller and Auditor-General of India are circumscribed by Article 149 of the Constitution of India, set out herein below for convenience:
"Article 149. - Duties and powers of the Comptroller and Auditor-General. - The Comptroller and Auditor General shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States and of any other authority or body as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States as were conferred on or exercisable by the Auditor-General of India immediately before the commencement of this Constitution in relation to the accounts of the Dominion of India and of the Provinces respectively."
Article 151 of the Constitution of India provides that the reports of the Comptroller and Auditor-General of India relating to the accounts of the Union are to be submitted to the President, who is to cause them to be laid before each House of Parliament and the reports of the Comptroller and Auditor-General of India relating to the accounts of the State are to be submitted to the Governor who is to cause them to be laid before the Legislature of the State.
In view of Article 149 of the Constitution of India the Comptroller and Auditor-General of India is to perform such duties and exercise such powers in relation to the accounts of the Union and of the States and of any other authority or body as may be prescribed by or under any law made by Parliament.
None of the statutes referred to above, namely, the Companies Act, 1956, the Income-tax Act, 1961, the Central Excise Act, 1944 or the Finance Act, 1994 as amended from time to time contain any provision for audit by the Comptroller and Auditor-General of India or any audit team subordinate to the Comptroller and Auditor-General of India, of any company incorporated or existing under the Companies Act, 1956, except a government company within the meaning of Section 619 of the said Act.
The Comptroller and Auditor General''s (Duties, Powers and Conditions of Service) Act, 1971 (hereinafter referred to as the CAG Act) has been enacted inter alia to prescribe the duties and powers of the Comptroller and Auditor-General of India and/or matters connected therewith or incidental thereto. The duties and powers of the Comptroller and Auditor-General are enumerated in Chapter III of the CAG Act.
Mr. J.K. Mittal appearing on behalf of the petitioner submitted, and in my view, rightly that there is no provision in the CAG Act which enables the Comptroller and Auditor-General of India to audit the accounts of a non government company which is not operated, out of the funds of the Union of India or any State Government or any Union territory or any entity owned and/or financed by them.
From Sections 13 to 15 of the CAG Act it is absolutely clear that the primary duty and function of the Comptroller and Auditor-General of India is to audit expenditure from the Consolidated Fund of India and of each State and of each Union territory having a Legislative Assembly and to ascertain whether the moneys shown in the accounts as having been disbursed were legally available for and applicable to the service or purpose for which they have been applied or charged and whether the expenditure conforms to the authority which governs it.
The Comptroller and Auditor-General of India is required to audit all transactions of the Union and of the States relating to Contingency Funds and Public Accounts and also audit all trading, manufacturing, profit and loss accounts and balance sheets and other subsidiary accounts kept in any department of the Union or of a State.
In addition, where anybody or authority is substantially financed by grants or loans from the Consolidated Fund of India or of any State or of any Union territory having a Legislative Assembly, the Comptroller and Auditor-General shall subject to the provisions of any law for the time being in force, applicable to the body or authority, as the case may be, audit all receipts and expenditure of that body or authority and report on the receipts and expenditure audited by him. It is nobody''s case that the petitioner was financed by, or is run out of any loan from the Union of India or any State Government or any Union territory.
Section 14(2) of the CAG Act provides that notwithstanding anything contained in sub-section (1) the Comptroller and Auditor-General might, with the previous approval of the President, or the Governor of a State, or the Administrator of a Union territory having a Legislative Assembly, as the case may be, audit all receipts and expenditure of anybody or authority, where the grants or loans to such body or authority from the Consolidated Fund of India or of any State or of any Union territory having a Legislative Assembly, as the case may be, in a financial year is not less than rupees one crore. This section admittedly also has no application.
Under Section 16 it is the duty of the Comptroller and Auditor-General to audit all receipts which are payable into the Consolidated Fund of India and of each State and of each Union territory having a Legislative Assembly and to satisfy himself that the rules and procedures in that behalf are designed to secure an effective check on the assessment, collection and proper allocation of revenue and are being duly observed, and to make for this purpose such examination of the accounts as he thinks fit and report thereon.
It is difficult to appreciate how the aforesaid provisions can empower the Comptroller and Auditor-General to audit the accounts of a nongovernmental company which does not receive any grant or loan or aid from any Government or any Government undertaking. What the Comptroller and Auditor-General of India is obliged to do is to audit all receipts which are payable into Consolidated Fund of India.
There is a difference between receipts and receivables receipts necessarily means that which has been received. In other words, under Section 16 it is the duty of the Comptroller and Auditor-General of India to audit the taxes and other amounts which have been collected and are payable into the Consolidated Fund of India or the Consolidated fund of the State or of a Union territory having a Legislative Assembly. In course of such audit, the Comptroller and Auditor-General of India is to satisfy himself that the rules and procedures are designed to secure an effective check on the assessment, collection and proper allocation of revenue and are being duly observed, and to make, for this purpose, such examination of the accounts as the Comptroller and Auditor-General of India might deem fit and make a report thereon.
The word "Accounts" is to be read and construed in the light of the definition of "accounts" in Section 2A of the CAG Act. Unless the context otherwise requires, "accounts" in relation to commercial undertakings of a Government are to include trading, manufacturing and profit and loss accounts and balance sheets and other subsidiary accounts.
In the absence of any enabling provision which empowers the Comptroller and Auditor-General of India to audit the accounts of a non government company. Section 16 of the CAG Act is to be construed to empower the Comptroller and Auditor-General of India to examine the accounts of the Government, in the context of his duty to audit all receipts of the Government which are payable into Consolidated Fund of India or of the Consolidated Fund of a State or of a Union territory having a Legislative Assembly.
As argued by Mr. Mittal, Section 16 of the CAG Act does not authorize the Comptroller and Auditor-General of India or any audit team under the control of the Comptroller and Auditor-General of India to audit the accounts of a non-government company, and that too in the absence of any request either from the President of India or the Governor of the State, as observed by this Court by its judgment and order dated 26th September, 2012 in WP No. 21053 (W) of 2011, SKP Securities Ltd. v. Deputy Director (RA-IDT) & Ors. (supra). The aforesaid writ petition has been referred to a Larger Bench.
Section 19(3) of the CAG Act provides as follows:
"The Governor of a State or the Administrator of a Union territory having a Legislative Assembly may, where he is of opinion that it is necessary in the public interest so to do, request the Comptroller and Auditor-General to audit the accounts of a corporation established by law made by the Legislature of the State or of the Union territory, as the case may be, and where such request has been made, the Comptroller and Auditor-General shall audit the accounts of such corporation and shall have, for the purposes of such audit, right of access to the books and account of such corporation:
Provided that no such request shall be made except after consultation with the Comptroller and Auditor-General and except after giving reasonable opportunity to the corporation to make representations with regard to the proposal for such audit."
In this case, there was no request to the Comptroller and Auditor-General by the Governor of the State in which the petitioner company carries on its operations. A perusal of the Regulations of Audit and Accounts 2007, framed by the Comptroller and Auditor General of India in pursuance of Section 23 of the CAG Act, also makes it clear that all audits are to be undertaken by the Comptroller and Auditor-General of India as per the Constitution of India and as per the CAG Act.
The only provision of the CAG Act, under which the accounts of a non-government company can be audited, is perhaps sub-section (1) of Section 20. Audit cannot be undertaken under the aforesaid provision, unless the Comptroller and Auditor-General is requested to do so by the President of India or the Governor of a State or the Administrator of a Union territory.
The condition precedent for audit of a non-government body is a request from the President of India, Governor of the State concerned or the Administrator of a Union territory concerned after consultation with the Comptroller and Auditor-General of India. The conditions precedent for an audit by the office of the Comptroller and Auditor-General of India were wholly absent in the facts and circumstances of the case.
In exercise of power conferred by sub-section (1) read with subsection (2) of Section 94 of the Finance Act, 1994 the Central Government has made the Service Tax Rules, 1994. Section 94(1) of the Finance Act, 1994 empowers the Central Government to make rules for carrying out the provisions of Chapter V of the said Act, by notification in the Official Gazette. Sub-section (2) of Section 94 enumerates the matters for which rules might be made. The power conferred under sub-section (2) of Section 94 to make rules in respect of the matters enumerated in the said sub-section is without prejudice to the generality of Section 94 sub-section (1) whereby the Central Government has power to make rules for carrying out the provisions of Chapter V.
Mr. Roychowdhury appearing on behalf of the respondent authorities submitted that Rule 5A of the Service Tax Rules, 1994, which is almost in pari materia with Rule 173G(6)(c) of the Central Excise Rules, 1944 provides for audit by an audit team deputed by the Comptroller and Auditor-General of India.
Rule 173G(6)(c) of the Central Excise Rules, 1944 and Rule 5A of the Service Tax Rules are set out herein below for convenience:
"Rule 173G(6)(a) : Every assessee shall, on demand make available to the Central Excise Officer or the audit party deputed by the Commissioner or the Comptroller and Auditor-General of India:
(i) the records maintained or prepared by him in terms of clause (a) of sub-rule (5);
(ii) The cost audit reports, if any, under Section 233B of the Companies - Act, 1956; and
(iii) The income-tax audit report, if any, under Section 44AB of the Income-tax Act, 1961 for the scrutiny of the officer or audit party, as the case may be;
(a) Every assessee who is having more than one factory and maintains separate records in respect of every factory for the purpose of audit then, he shall produce the said records for audit purposes.
(b) Where the Commissioner or the Comptroller and Auditor-General of India decide to undertake the audit of the records of any assessee, the said assessee shall be given notice thereof at least fifteen days before the commencement of such audit. The audit party deputed for the purpose shall also call for in writing the records, which are required to be produced by the assessee, either before or during the course of audit.
(c) Every assessee, who maintains or generates his records by using computer, shall provide the required records in the form of tapes or floppies or cartridges or compact disk or any other media in an electronically readable format as prescribed by the Commissioner at the time of audit. The copies or records, so furnished, shall be duly authenticated by the assessee.
(d) All records submitted to audit party in electronic format shall be used only for verification of payment of duties of excise or for verification of compliance of the provisions of the Central Excise Act, 1944 or the rules made thereunder and shall not be used for any other purpose without the written consent of the assessee."
"5A. Access to a registered premises. - (1) An officer authorised by the Commissioner in this behalf shall have access to any premises registered under these rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.
(2) Every assessee shall, on demand, make available to the officer authorised under sub-rule (1) or the audit party deputed by the Commissioner or the Comptroller and Auditor-General of India, within a reasonable time not exceeding fifteen working days from the day when such demand is made, or such further period as may be allowed by such officer or the audit party, as the case may be,-
(i) the records as mentioned in sub-rule (2) of rule 5;
(ii) trial balance or its equivalent; and
(iii) the income-tax audit report, if any, under Section 44AB of the Income-tax Act, 1961 (43 of 1961), for the scrutiny of the officer or audit party, as the case may be."
As observed above the Central Government derives the power to make rules from Section 94 of the Finance Act, 1994. Section 94 empowers the Central Government to make rules for carrying out the provisions of Chapter V of the said Act and without prejudice to the generality of the power to make rules for carrying out the provisions of Chapter V, to make rules in respect of the matters enumerated in sub-section (2) of Section 94 of the Finance Act.
The Central Government has no power and/or authority under Section 94 of the Finance Act, 1994 to frame rules for any purpose other than those specified in sub-section (2) of Section 94 of the Finance Act or for any purpose other than carrying out the provisions of Chapter V of the said Act.
Mr. Mittal submitted that Rule 5A(2) of the Service Tax Rules which provides that every assessee shall, on demand, make available to the officer authorized by the Commissioner, or the audit party deputed by the Commissioner or the Comptroller and Auditor-General of India, the records and documents, as specified in the said Section, within reasonable time, is ultra vires the rule making power conferred on the Central Government by Section 94 of the Finance Act, 1994, since there is no provision in Chapter V of the Finance Act, 1994 which empowers the CAG to audit the accounts of an assessee, which is a non-government company, not in receipt of any aid or assistance from any Government or Government entity.
As rightly argued by Mr. Mittal, there is no provision in Chapter V of the Finance Act, 1994, or for that matter in the CAG Act which empowers the CAG to audit the accounts of an assessee which is a non-government company, not in receipt of aid or assistance from any Government or Government entity. Sub-section (2) of Section 94 also does not empower the Central Government to frame rules for audit of the accounts of an assessee by any audit team under the Comptroller and Auditor-General of India. There can be no doubt that statutory rules, framed in exercise of power conferred by statute cannot introduce something not contemplated in the statute, from which it derives its rule making power.
In the absence of any provision in Chapter V of the Finance Act, 1994, for audit of the accounts of a non-government company by the Comptroller and Auditor-General of India or any team under him, the Central Government could not have framed, and has not framed any rules which provide for audit by the Comptroller and Auditor-General of India or any audit team under his control of an assessee which is not a Government company.
It is a well settled principle of interpretation that statutory rules must be construed in harmony with the rule making power, in exercise of which, the statutory rule has been made. If it were possible to interpret the statutory rule in more ways than one, the Courts would prefer that interpretation which would make the statutory rule workable and intra vires, to any other interpretation which would render the rule ultra vires and invalid.
On a plain reading of Rule 5A(2) of the Service Tax Rules, the said Rule does not empower the CAG to audit the accounts of any assessee, which is a non-government company, not in receipt of finance, aid or assistance from any Government or Government organization. While sub-rule (1) of Rule 5A provides for access of any officer authorized by the Commissioner to any premises registered under the Service Tax Rules, for carrying out any scrutiny, verification or check, as may be necessary to safeguard the interest of revenue. Sub-rule (2) of Rule 5A only casts an obligation on the assessee to make the records and documents as specified in the said Rule available to the officer authorized by the Commissioner, or the audit party deputed by the Commissioner or the Comptroller and Auditor-General of India within a reasonable time not exceeding 15 working days from the date of demand.
On a harmonious reading of Rule 5A of the Service Tax Rules with the provisions of Chapter V of the Finance Act, 1994, as amended, it may be deduced that any officer authorized by the Commissioner would have to be interpreted to include the members of an audit team, an auditor or an accountant authorized by the Commissioner, and they would all have access to any premises registered under the Rules, for the purpose of carrying out scrutiny, verification and checks as might be necessary, including auditing of accounts, to safeguard the interest of Revenue.
It is, however, pertinent to note the difference in the language and tenor of sub-rule (2) of Rule 5A under which every assessee is required, on demand, to make available to the officer authorized by the Commissioner or the Comptroller and Auditor-General of India the records and documents specified in the said Rule, within a reasonable time. The obligation to produce records is in harmony with the power conferred on the Central Government to make rules for carrying out the provisions of Chapter V of the Finance Act, 1994 including collection and recovery of Service Tax, determination of amount of value of taxable service, etc. In course of audit of revenue receipts of the Government, if the audit team under the Comptroller and Auditor-General of India requires the records and documents specified in the Rule, the same would have to be made available within a reasonable time from the date of demand.
The obligation to provide records to the audit party deputed by the Comptroller and Auditor-General is to be construed as an obligation to provide documents and records, when those documents and records are necessary for audit in accordance with law, subject to the provision of the CAG Act, for example, audit of the receipts of the Government meant for deposit in the Consolidated Fund of India or, may be, an audit on the request of the Governor or the President as indicated above.
On a perusal of the show cause notice there is no allegation of any conscious act on the part of the petitioner that constitutes fraud, collusion, wilful misstatement, suppression of facts or contravention of any of the provisions of the Finance Act, 1994 or any rule made thereunder with intent to evade service tax. The petitioner was duly registered with the Service Tax Authorities with effect from the year 2007. The dispute is only with regard to service tax allegedly payable on the premium received during the period in question.
In Paragraph 9 of the impugned show cause notice, there is a sweeping statement that if the CERA Team had not visited the premises of the said assessee and unearthed material facts, the assessee would have been continuing the evasion. Therefore, proviso to Section 73(1) is invocable for extending time. It, however, appears to this Court that the reasons for invoking the extended period of limitation, as disclosed, are totally vague and devoid of material particulars.
There is no whisper in the impugned notice of the facts which have allegedly been suppressed. Mr. Mittal emphatically argued and perhaps rightly that, the vague assertion that the petitioner had wilfully suppressed facts pertaining to providing/receiving the services with intent to evade payment of service tax was unfounded.
A notice was issued by the Office of the Commissioner, Service Tax, Kolkata dated 13th April, 2009 calling upon the petitioner to submit copies of lease agreements including list of long-term lease agreements. The requisites of the aforesaid notice dated 13th April, 2009 appear to have been complied with.
The requisites of the notice dated 13th April, 2009 having been complied with and the list of long-term lease agreements having been furnished, it is doubtful whether the extended period of limitation can be invoked after almost three years, when the bona fides of the petitioner was never questioned at any earlier point of time.
Once the information is supplied pursuant to the directions of the Revenue Authority and information so supplied has not been questioned, a belated demand has to be held to be barred by limitation. This proposition finds support from the judgment of the Supreme Court in Commissioner of Central Excise, Chandigarh Vs. Punjab Laminates Pvt. Ltd., .
In this context, reference may also be made to the judgment of the Supreme Court in Commissioner of Central Excise, Chennai v. Chennai Petroleum Corporation Ltd. reported in 2007 (211) E.L.T. 193 (S.C.) where the Supreme Court in effect held that where the Department was aware of the activities of the assessee and nothing prevented the Department from visiting the assessee''s site to make enquiries, it had to be held that there was no suppression on the part of the assessee to warrant invocation of the extended period of limitation.
In Home Solution Retail India Ltd. Vs. Union of India (UOI) and Others, , the Delhi High Court had held that rent per se was not a taxable service. The provisions of the Finance Act, 1994 relating to the service of renting of immovable property have since been amended by the Finance Act, 2011, with retrospective effect. The amendment with retrospective effect from 1st June, 2007 makes rent per se a taxable service.
The provisions of Section 73(1) of the Finance Act are in pari materia with Section 11A of the Central Excise Act, 1944, which is set out herein below for convenience:
"Section 11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded. - (1) When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, whether or not such non-levy or non-payment, short-levy or short payment or erroneous refund, as the case may be, was on the basis of any approval, acceptance or assessment relating to the rate of duty on or valuation of excisable goods under any other provisions of this Act or the rules made thereunder, a Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:
Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, as if, [***] for the words "one year", the words "five years" were substituted:
*****
Explanation. - Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of one year or five years, as the case may be."
The question of whether the proviso to Section 11A of the Central Excise Act, 1944 could be invoked to realize a demand that arose pursuant to retrospective amendment of the law was considered, by the Supreme Court in J.K. Cotton Spinning and Weaving Mills Ltd. and Anr Vs. Union of India (UOI) and Ors, . A Three Judge Bench of the Supreme Court held:
"31. Under Section 11A(1) the Excise authorities cannot recover duties not levied or not paid or short-levied or short-paid or erroneously refunded beyond the period of six months, the proviso to Section 11A not being applicable in the present case. Thus although Section 51 of the Finance Act, 1982 has given retrospective effect to the amendments of Rules 9 and 49, yet it must be subject to the provision of Section 11A of the Act. We are unable to accept the contention of the learned Attorney General that as Section 51 has made the amendments retrospective in operation since February 28, 1944, it should be held that it overrides the provision of Section 11A. If the intention of the Legislature was to nullify the effect of Section 11A, in that case, the Legislature would have specifically provided for the same. Section 51 does not contain any non obstante clause, nor does it refer to the provision of Section 11A. In the circumstances, it is difficult to hold that Section 51 overrides the provision of Section 11A.
.............................
There is no provision in the Act or in the Rules enabling the Excise authorities to make any demand beyond the periods mentioned in Section 11A of the Act on the ground of the accrual of cause of action. The question that is really involved is whether in view of Section 51 of the Finance Act, 1982, Section 11A should be ignored or not. In our view Section 51 does not, in any manner, affect the provision of Section 11A of the Act. In the absence of any specific provision overriding Section 11A, it will be consistent with rules of harmonious construction to hold that Section 51 of the Finance Act, 1982 insofar as it gives retrospective effect to the amendments made to Rules 9 and 49 of the Rules, is subject to the provision of Section 11A."
In the instant case too, the Finance Act, 2011, whereby the provisions of the Finance Act, 1994, relating to the service of renting of immovable property have been amended, does not contain any provision which enables the Service Tax Authorities to make any demand beyond the period of limitation prescribed in Section 73(1) of the Finance Act, 1994.
Mr. Roychowdhury''s submission that the extended period of limitation had rightly been invoked, as there was loss of Revenue and contravention of the provisions of Chapter V of the Finance Act, and the Rules made thereunder, is difficult to accept. If Mr. Roychowdhury''s argument that the extended period would be invocable when there was non-payment of tax and consequential loss of Revenue and/or contravention of Chapter V of the provisions of the Finance Act, were to be accepted, Section 11A would be rendered meaningless since all cases of non-payment of tax result in loss of Revenue, and in a sense tantamount to contravention of Chapter V of the Finance Act and the Rules framed thereunder.
In Collector of Central Excise, Hyderabad Vs. Chemphar Drugs and Liniments, Hyderabad, the Supreme Court held:-
"In order to make the demand for duty sustainable beyond a period of six months and up to a period of 5 years in view of the proviso to subsection (1) of Section 11A of the Act, it has to be established that the duty of excise has not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months. Whether in a particular set of facts and circumstances there was any fraud or collusion or wilful misstatement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case."
In Cosmic Dye Chemical Vs. Collector of Central Excise, Bombay, the Supreme Court held:-
"Now so far as fraud and collusion are concerned, it is evident that the requisite intent, i.e., intent to evade duty is built into these very words. So far as misstatement or suppression of facts are concerned, they are clearly qualified by the word "wilful" preceding the words "misstatement or suppression of facts" which means with intent to evade duty. The next set of words "contravention of any of the provisions of this Act or rules" is again qualified by the immediately following words "with intent to evade payment of duty". It is, therefore, not correct to say that there can be a suppression or misstatement of fact, which is not wilful and yet constitute a permissible ground for the purpose of the proviso to Section 11A. Misstatement or suppression of fact must be wilful."
In Anand Nishikawa Co. Ltd. Vs. Commissioner of Central Excise, Meerut, , the Supreme Court held:
"...we find that "suppression of facts" can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty, when facts were known to both the parties, the omission by one to do what he might have done not that he must have done would not render it suppression. It is settled law that mere failure to declare does not amount to wilful suppression. There must be some positive act from the side of the assessee to find wilful suppression."
In The Commissioner of Central Excise, Aurangabad Vs. Bajaj Auto Ltd., Waluj, Aurangabad, through its Vice President (Materials) and Others, the Supreme Court referred to and followed its earlier judgments in Collector of Central Excise, Hyderabad v. Chemphar Drugs and Liniments, Hyderabad (supra), Cosmic Dye Chemical v. Collector of Central Excise, Bombay (supra), Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise, Meerut, (supra) and held that it was settled that mere failure to declare would not amount to wilful suppression. There must be some conscious, deliberate act with a view to evade tax.
The proposition which emerges from the judgments of the Supreme Court referred to above, is that mere failure to disclose a transaction and pay tax thereon or a mere misstatement or mere contravention of the Central Excise Act or the Finance Act, 1994, as amended or any rules framed thereunder, is not sufficient for invocation of the extended period of limitation. There has to be a positive, conscious and deliberate action intended to evade tax, for example, a deliberate misstatement or suppression pursuant to a query, in order to evade tax.
There is substance in Mr. Mittal''s submission that in view of the Delhi High Court judgment in Home Solution Retail (supra) holding that service tax was not payable on rent of immovable property per se, the petitioner was not liable for Service Tax on premium. In any case, there was room for doubt as to whether renting per se was taxable, for which the law had to be amended.
The petitioner claims to have been under the impression that no service tax would be payable on premium and/or salami, on its interpretation of the law, which was a possible interpretation accepted by the Delhi High Court in Home Solution Retail (supra).
In Commissioner of Income Tax, Assam etc. Vs. The Panbari Tea Co. Ltd., the Supreme Court in the context of the Income-tax Act, 1961, found a distinction between premium or salami, being the price paid for transfer of a right to enjoy the property and the rent paid periodically to the lessor. The Supreme Court held that while the price paid for transfer of the interest of the lessor was premium or salami, the periodical payments made for the continuous enjoyment of the benefits under the lease were in the nature of rent, and while the former was a capital income, the latter was a revenue receipt.
In the unreported judgment in ITA No. 205 of 2010 (Krishak Bharati Cooperative Ltd. v. Dy. CIT), referred to by Mr. Mittal, a Division Bench of Delhi High Court referred to the judgment of the Supreme Court in CIT v. Panbari Tea Co. Ltd. (supra) and refused to accept that premium/salami was advance rent which constitutes revenue receipt.
In R.K. Palshikar (HUF) Vs. Commissioner of Income Tax, M.P., Nagpur, and in Maharaja Chintamani Saran Nath Sah Deo Vs. The Commissioner of Income Tax, Bihar and Orissa, the Supreme Court held that long-term lease for 99 years amounted to transfer within the meaning of Section 12B of the Income-tax Act, 1922 and premium or salami received was taxable under the head ''Capital Gain''.
Even though the judgments referred to above were rendered in the context of Income-tax laws, the relevant provisions of the Transfer of Property Act were duly considered and a clear distinction was drawn between rent and premium which might have justifiably led the petitioner to believe that premium was not liable to service tax, the same not being rent.
The next question is whether this Court should at all interfere with a show cause notice, in view of Mr. Roychowdhury''s argument that the petitioner had an efficacious alternative remedy of recourse to adjudication by replying to the show cause notice.
It is well settled that existence of an alternative remedy is not in itself a bar to entertaining a writ petition. A writ petition can certainly be entertained when a notice is impugned as without jurisdiction.
There can be no dispute that the question of limitation is a question of jurisdiction and that the Commissioner has no authority and/or jurisdiction to issue notice after the period of limitation prescribed in the Finance Act, 1994.
In Raza Textiles Ltd. Vs. Income Tax Officer, Rampur, , the Supreme Court held that no authority, much less a quasi-judicial authority, could confer jurisdiction on itself by deciding the jurisdictional fact wrongly. The question of whether the jurisdictional fact had rightly been decided or not was a question open to examination by the High Court in an application under Article 226 of the Constitution of India.
In M/s. Raza Textiles Ltd., Rampur (supra) the Supreme Court held that where the Income Tax Officer had assumed jurisdiction by deciding a jurisdictional fact erroneously, the assessee would be entitled to a writ of certiorari as prayed for, since it was incomprehensible to think a quasi-judicial authority could erroneously decide a jurisdictional fact and impose a levy.
In Smt. Shrisht Dhawan Vs. M/s. Shaw Brothers, the Supreme Court followed its earlier judgment in M/s. Raza Textiles Ltd. and reiterated the proposition that a Court or Tribunal cannot confer jurisdiction to itself by deciding a jurisdictional fact wrongly.
In Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, , a Constitution Bench of the Supreme Court held that where the action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts, would issue appropriate orders or directions to prevent the same.
In Calcutta Discount Company Ltd. (supra) the Constitution Bench of the Supreme Court held:
"the expression ''reason to believe'' postulates belief and the existence of reasons for that belief. The belief must be held in good faith; it cannot be merely a pretence. The expression does not mean a purely subjective satisfaction of the Income Tax Officer. If it be asserted that the Income Tax Officer had reason to believe that income had been under-assessed by reason of failure to disclose fully and truly the facts material for assessment, the existence of the belief and the reasons for the belief, but not the sufficiency of the reasons, will be justiciable. The expression therefore predicates that the Income Tax Officer holds the belief induced by the existence of reasons for holding such belief. In other words the Income Tax Officer must, on information at his disposal believe that income has been under-assessed by reason of failure to fully and truly to disclose all material facts necessary for assessment. Such a belief, may not be based on mere suspicion.................. It must be founded upon information."
The condition precedent for issuance of a show cause notice by invoking the extended limitation is reason to believe that service tax has not been levied or has been short-levied, or has not been paid or has been short-paid or has erroneously been refunded by reason of fraud or collusion or wilful suppression or misstatement or wilful contravention of the provisions of the Central Excise Act or the Finance Act, 1994 as the case may be or any rules framed thereunder to evade payment of tax.
Where the Commissioner asserts that there are reasons to believe that service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud; or collusion; or wilful misstatement; or suppression of facts; or contravention of any of the provisions of this chapter or of the rules made thereunder with intent to evade payment of service tax by the person chargeable with the service tax or his agent, the Commissioner is bound to disclose the reasons for formation of such belief.
As observed above, mere contravention of provision of Chapter V or Rules framed thereunder does not enable the Service Tax Authorities to invoke the extended period of limitation. The contravention necessarily has to be with intent to evade payment of service tax.
On a perusal of the impugned notice it appears to this Court that the Commissioner proceeded on the basis that there had been contravention, as a result of which, some tax payable had not been paid. The Commissioner of Service Tax did not address the issues, which were required to be addressed, for issuing a notice by invoking the extended period of limitation.
Moreover, it appears that the demand raised by issuance of the impugned show cause notice has been pre-determined. When a demand is predetermined the same does not remain in the realm of a show cause notice as held by the Supreme Court in Siemens Ltd. Vs. State of Maharashtra and Others, . The Supreme Court held:
"10. Although ordinarily a writ court may not exercise its discretionary jurisdiction in entertaining a writ petition questioning a notice to show cause unless the same inter alia appears to have been without jurisdiction as has been held by this Court in some decisions including State of Uttar Pradesh Vs. Brahm Datt Sharma and Another, , The Special Director and Another Vs. Mohd. Ghulam Ghouse and Another, and Union of India (UOI) and Another Vs. Kunisetty Satyanarayana, , but the question herein has to be considered from a different angle, viz., when a notice is issued with pre-meditation, a writ petition would be maintainable. In such an event, even if the courts directs the statutory authority to hear the matter afresh, ordinarily such hearing would not yield any fruitful purpose [See K.I. Shephard and Others Vs. Union of India (UOI) and Others, , It is evident in the instant case that the respondent has clearly made up its mind. It explicitly said so both in the counter affidavit as also in its purported show cause.
.............................. 12. A bare perusal of the order impugned before the High Court as also the statements mentioned before us in the counter affidavit filed by the respondents, we are satisfied that the statutory authority has already applied its mind and has formed an opinion as regards the liability or otherwise of the appellant. If in passing the order the respondent has already determined the liability of the appellant and the only question which remains for its consideration is quantification thereof, the same does not remain in the realm of a show cause notice. The writ petition, in our opinion, was maintainable."
The Commissioner of Service Tax apparently issued show cause notice in view of the CERA audit team''s observations. It is well-settled that quasi-judicial authority must act independently as held by the Supreme Court in Orient Paper Mills Ltd. Vs. Union of India (UOI), .
When a notice is issued in support of transactions spread over a period of time and it is found that the extended period of invocation has been invoked, the notice cannot be treated as within limitation for some of the same transactions, once it is found that the extended period of limitation is not invocable. This proposition find support from the judgment of the Supreme Court in Collector of Central Excise, Jaipur Vs. Alcobex Metals, .
The entire claim except at best for, may be, four receipts is barred by limitation. It is well-settled inter alia by the decisions of the Supreme Court in M/s. Raza Textiles Ltd. (supra), Calcutta Discount Company Ltd. (supra) and Shrisht Dhawan (supra) that an authority cannot invoke jurisdiction to exercise power by deciding jurisdictional facts wrongly. In exercise of the power of judicial review under Article 226 of the Constitution of India, this Court might examine the existence and/or correctness of the jurisdictional facts on the basis of which jurisdiction to exercise power is invoked.
For the reasons discussed above, this Court is of the view that the conditions precedent for exercise of jurisdiction to invoke the extended period of limitation were wholly absent. The Commissioner has not properly and independently applied his mind to the question of whether the conditions for invoking the extended period of limitation existed, but has acted mechanically, swayed by the report of the CERA team, which in itself appears to be illegal and unsustainable. The Commissioner of Service Tax has not properly applied his mind to the issues required to be addressed for invoking the extended period of limitation. The impugned show cause notice has been issued by wrongful invocation of jurisdiction.
The writ application is allowed for the reasons discussed above. The impugned show cause notice is set aside and quashed. Photostat certified copy of this judgment, if applied for, be supplied to the parties expeditiously, subject to compliance with the requisite formalities.